By Marilyn MacGruder Barnewall
[NOTE: For those who will react to this article by commenting on alternative currencies like Bit Coin, please read my News With Views article on that topic here. Almost everything I predicted about how Bit Coin could be brought down or controlled by the federal government has occurred since the article was written.]
It’s important for you to know these things because as long as you don’t know them, you can be manipulated by those who do not have your interest – or that of America – at heart.
Hopefully, you realize the reason the United States is in such dire economic straits is largely because the people of America have enabled corruption at high levels. We, the people, did not take our responsibilities as a free society seriously and preferred television and other forms of entertainment to learning what we need to know to make sure those we elect to represent them are doing their job – rather than stealing from them.
First, the traditional definition of fiat currency – a paper currency with no value unless backed by something with a defined value, like precious metals. Paper currency that is not backed by something of value is… worthless. I disagree with the traditional definition because the currency of the United States (and other nations, too) is backed by the taxpayers. As long as taxpayers can be put in prison for not paying their taxes, paper currency is backed by the tyrannical threat of government actions against taxpayers.
As long as government can penalize your bank account (and it can under Dodd-Frank) and your IRA or pension (and it can), the fiat currency controlled by the Federal Reserve System is not worthless. It has value as long as the government is allowed to exercise tyranny to support the currency. The fiat currency of the United States is backed by the sweat of working people and their fear of government. To me, that is more precious than gold – sad, but precious.
Fiat currency – or money as it’s called in almost every nation in the world – can best be defined as a fungible replacement for your labor. “Fungible” means the ability to mix one thing with other like items – like all one dollar bills look the same. You can’t tell the difference between a dollar bill that belongs to Warren Buffet or George Soros or Joe Six Pack. If 20 people fill a barrel with one dollar bills, no one can tell which dollar bills belong to them versus other one dollar bills put in the barrel by others. They all look alike. Money is the same. It’s fungible – it can be mixed with other like items that look exactly the same. Currency is a fungible replacement.
The word “replacement” is pretty easy to understand. To replace something means to use one thing instead of another. Money is a replacement for your labor and makes it possible to evaluate the worth of non-liquid assets. A good example of a non-liquid asset is your home. It has value, but you can’t write a check on it like you can on your checking account. You can’t write a check on the basis of all your hard work, either. Your labor has to be changed into dollars (Federal Reserve Notes, if you prefer) either by the marketplace or by an employer who writes you a paycheck after you “labor” for so many hours.
Money is a medium of exchange in the marketplace and puts everyone on the same footing. A billionaire may have more dollar bills than a middle class family, but the dollar bills all look alike and they are all worth the same number of pennies, or nickels or dimes, aren’t they?
Money makes it possible for you trade with ease in the marketplace. Barter is, of course, one of the oldest forms of “money.” In the old days, the carpenter traded his services for those of a plumber and the plumber traded his services with the lumberman for a year’s supply of wood for the cooking stove. But in today’s modern world, how can a barter system work in Safeway or Kroger’s? What do people who work in the service industry have to barter with? Today’s waiter or waitress who live in an apartment with no land to plant a garden has what to trade to for pork chops or fried chicken or salad at the supermarket? What can he or she trade to buy a home? What does the television repairman have to trade with a carpenter whose television doesn’t need service? What does a union production line worker have to trade for groceries, housing, gasoline, and so on?
That’s why we have money and no longer use bartering as a replacement for our labor. If modern life left us enough time to grow a large vegetable garden we could use what we grow to barter with others. We can trade our labor for rent… a young and capable man can rent a room from a little old lady who needs help around the house, but that’s not going to put food on the table, is it?
So, the purpose of money is to equalize things between all people. We use money as a medium of exchange… which is why I say money serves as a proxy for your labor – maybe a better word might be productivity — for your creative energy, for your ability to reason.
There are some rules you need to know regarding money. For example, you must be careful how you define “your money.” Is it yours if it’s not in your hands? Say your money is in the bank. Is it safe? Is it yours? Not really.
In much of the world – including the United States – regulations and legislation make it possible for your money to be confiscated or lost. Most people are aware of what happened to bank customers in the nation of Cyprus in 2013. A fee was levied against deposit accounts in all banks to pay national debts – in the form of Cyprus government treasury bonds. The United States currently has a debt of $18 trillion and the same thing can happen here… and under Dodd-Frank it would be lawful.
Under America’s new banking laws – in Canada and other nations, too – if your bank fails because of investments it has made, current laws say the bank must use your money – your deposit dollars – to pay its bad investment debt. The bank, not you, has first claim on your deposit dollars. In other words, the bad investment the bank made will be paid by the bank’s deposits. Yes. I’m saying the bank can use your deposits to pay its debts. Under the Dodd-Frank Act, bank depositors have been defined as “unsecured creditors” at the banks where their deposits are held.
I have no idea why the Bank of England and the Federal Deposit Insurance Corporation (FDIC) decided to do a joint study to determine how best to fight a total financial meltdown should banks internationally begin failing, but they did. You can find a copy of the Joint Report issued by the Bank of England here.
“In all likelihood [in a bank collapse],” the report’s authors write, “shareholders would lose all value and unsecured creditors [including depositors] should thus expect that their claims would be written down to reflect any losses that shareholders did not cover.”
So if you were one of the nice guys who trusted your bank and kept it all in the bank, you’ll be one of the many nice guys who will not get your money back under what is proposed by the Joint Report of the Bank of England and the FDIC. Instead, your deposits will be turned into shares of the newly-restructured bank (if it gets restructured).
You, the person who worked for those deposits sitting in your checking account, are in second place relative to actual ownership. Under the Dodd-Frank Act, depositors – that’s you and I – are categorized as unsecured creditors of the bank. The only logical conclusion you can draw from this is that the bank, not you, owns the dollars you have on deposit with your bank. Your money on deposit with your bank can be confiscated by the government should the federal financial system – specifically banking – fail.
Just like many people who lost their homes to unlawful foreclosures – close to half of the foreclosures were unlawful – bank deposits can be taken from their owners lawfully. I didn’t say morally. I said lawfully.
It’s important for you to understand the risk of having money in accounts over which you have no control. The problem is systemic and the system is suffering from a bad case of corruption – which is much worse than a bad case of measles or mumps which last only a week, or so. Unless major changes are made, the corruption will continue until we are all bankrupt. If you think your banker or your broker are really nice guys and would never harm you, keep in mind that they have little control over what they will be forced to do. I refer here to banks worldwide. The entire system is corrupt.
I want to repeat what I said at the beginning of this article about fiat currency.
The term “fiat currency” refers to a paper currency that serves as a nation’s money and has nothing – like gold or silver – backing it. Because of the convenience of carrying paper money rather than precious metals in our pockets, fiat currencies have been used throughout history. On average, they last 200 years before failing. Why do they fail? Because without having something of value – like gold – backing a currency, there are no limits on how much of it can be printed.
When a currency is tied to gold, for example, dollar bills – or, Federal Reserve Notes – can only be printed when there is enough gold on hand to guarantee the value of the bills being printed. Without something backing a currency, politicians know they can print as much money as they want and they begin giving things to voters – welfare, cell phones, food stamps, health coverage, etc. and it puts the nation with the fiat currency deeply in debt – and the nation fails. Thanks to fiat currency and the Federal Reserve System that is the position in which the United States now finds itself. Should a currency be backed by gold? I don’t think so. One only needs to look at how the gold and silver markets have been manipulated by investment bankers the last few years to realize how currencies backed by precious metals can be manipulated. Rather, I believe currency should be backed by ALL commodities – gold, silver, lumber, uranium, coal, oil, etc. No one (yet) is powerful enough to manipulate the entire commodities market all at the same time.
Back to the topic: What is Money? It is a fungible replacement for your labor. It is currency, usually. It is something that can be used throughout a sovereign society like America… and, at least currently, America’s fiat currency is accepted as the world’s international currency of trade – but that will be ending soon in all likelihood.
Money is a liquid asset – something you don’t have to sell to purchase something from the marketplace – groceries, a home, a car, insurance, etc. But money is also something you should never take for granted. Just because you’ve earned it via your labor doesn’t mean you can keep it. It used to be crooks that stole money from the innocent but today it seems more often to be government… well, perhaps it’s the same thing. It may be okay to be innocent, but it is not okay to be naïve or uninformed – not when it comes to money.
In my opinion, the central banking system as it is currently structured around the world is at the heart of the financial problems suffered internationally. If we are all going to survive, it must be changed – and the Federal Reserve System will be the topic of the next article in this series.
© 2014 Marilyn M. Barnewall – All Rights Reserved
Marilyn MacGruder Barnewall began her career in 1956 as a journalist with the Wyoming Eagle in Cheyenne. During her 20 years (plus) as a banker and bank consultant, she wrote extensively for The American Banker, Bank Marketing Magazine, Trust Marketing Magazine, was U.S. Consulting Editor for Private Banker International (London/Dublin), and other major banking industry publications. She has written seven non-fiction books about banking and taught private banking at Colorado University for the American Bankers Association. She has authored seven banking books, one dog book, and two works of fiction (about banking, of course). She has served on numerous Boards in her community.
Barnewall is the former editor of The National Peace Officer Magazine and as a journalist has written guest editorials for the Denver Post, Rocky Mountain News and Newsweek, among others. On the Internet, she has written for News With Views, World Net Daily, Canada Free Press, Christian Business Daily, Business Reform, and others. She has been quoted in Time, Forbes, Wall Street Journal and other national and international publications. She can be found in Who’s Who in America, Who’s Who of American Women, Who’s Who in Finance and Business, and Who’s Who in the World.
Web site: http://marilynwrites.blogspot.com