The Federal Reserve does not understand that money creation can be an irreversible process. At a certain point, confidence in money can be lost, and there is no way to reconstitute it; an entirely new system must rise in its place. A new international monetary system will rise from the ashes of the old dollar system, just as the dollar system rose from the ashes of the British Commonwealth at Bretton Woods in 1944, even before the flames of the Second World War had been extinguished.
When the inevitable crash came, the losses were not apportioned to those responsible—the banks and bondholders—but were passed on to the public through federal finance. From 2009 to 2012, the U.S. Treasury ran a $5 trillion cumulative deficit, and the Federal Reserve printed $1.2 trillion of new money. Similar deficit and money-printing programs were launched around the world, as derivatives creation by banks continued unabated. Only a portion of the private debt defaults were written off.
The bankers’ jobs and bonuses were preserved, but nothing was achieved for the benefit of citizens. A private debt problem had been replaced with public debt larger than the private debt had ever been. These debts are unpayable in real terms, and defaults will soon follow. The defaults by smaller nations like Greece, Cyprus, and Argentina will be through nonpayment of bonds and losses for bank depositors. Defaults for larger nations such as the United States will come from across-the-board inflation that will steal from savers, depositors, and bondholders alike.
The Death of Money: The Coming Collapse of the International Monetary System
[I mentioned this book a month ago and said, after consuming about 25% of it, that it is a good book. I have finished the book and I stand by that assertion.—Joe]