Credit Creation - Hallmark of a Sovereign Nation

Mr. Mueller - 10:59pm May 5, 1999

The fundamental of finance is credit creation. All monies in circulation have a beginning. This beginning of money, which is called "credit" at the banker's end, is always a "debt" with receipients of such credit. All credit is subject to interst charges, which makes the repayment of any loan a mathematical impossibility. Why? Because NO ONE CREATES MONEY INTO CIRCULATION MERELY BY BEING INDUSTRIOUS! ONLY THE BANKER ISSUES NEW MONEY! And since the money lender will never create the interest portion of a term debt into circulation, any economy is bound to callapse after a while for lack of hard cash (credit) to finance the basic economic requirements of a nation. See, when a 1000 Dollars loan translates into 1500 Dollars paid back to the lender after 5 years, then some other borrower got cheated out of 500 Dollars he needed to pay back his own debt, FOR ALL MONEY IN CIRCULATION IS OWED TO THE BANKS AND WAS AT ONE TIME OR ANOTHER BORROWED INTO EXISTENCE, wheter it be a private citizen, business man, industrial owner or any level of government. Their borrowed money is the money in circulation. And just because some borrowers are successful in paying back their loans with interest on time, that does not mean that he created the extra 500 Dollars by being industrious. Some other borrower was made a guaranteed loser by the first one's success.

The reason we don't notice a total collapse of western economies is that all Governments go progressively deeper into debt, which on a short term offsets the technical inability of a multitude of borrowers to repay their loans with interest. And how does the before-stated information relate to IRAQ? Very simply in that a sovereign Iraq has the power to create its own credit responsibly and without cost to an international banker. For ANYTHING WHICH IS PHYSICALLY POSSIBLE CAN ALSO BE MADE FINANCIALLY POSSIBLE. The only real assets of a nation are not its financial resources, but rather its natural resources lying within its boundaries in the form of minerals, oil, gas, arable land, people with know-how, and so on. And these real resources can indeed be extracted by means of a responsible way of handling the national issueing of credit based on the nation's resources. Yet this form of handling the nation's money supply - even where properly administered - is only a stepping stone in the evolution of a society to a higher level of economics: one that is functioning without cash currency at all. Perhaps more on that later. Mr. Mueller.


james romanow replies: - 08:36pm May 16, 1999

Dear Mr. Mueller:

You appear to believe that there is no problem with Germany and Iraq paying in each other's respective currencies. This presumes both an international banking system and a rate of exchange. It is true given the above. However both nations need faith in the other's rate of exchange. Fixed rates of exchange have historically been subject to leakage when they diverge from the percieved real rate. Denial of such a real rate sooner or later leads to the whipcrack devaluation that the Russian Rouble faced in '80s and Southeast Asia faced in the '90s. How do you see the creation of credit by a bank affecting this picture? And what by the way does any of this have to do with privatization?


Mr. Mueller - 01:53am May 17, 1999

Dear Mr. Romanow,

To start out with, my article has nothing to do with privatization. It was the system operator (webmaster) who placed the IMF / World Bank issue under this heading and so I decided to use it as a springboard for my thoughts. And now to your concerns.

Yes, I do believe in the possibility of nations dealing with their respective currencies in their trade relations. What I despise is U.S. Dollar monopoly in the area of international trade. Exchange rate fixing should be a matter between trading nations and not for the handful of international financiers to decide as they subject various currencies to much pressure from underevaluation for as long as the U.S. Dollar is their standard for measuring the value of other currencies. There is a difference between an international banking system and an inter-NATIONAL banking system. The first one is controlled by the financial elite whereas the second one is controlled by national governments deciding upon the value of their currencies. The confidence in "each other's" currencies is easily established provided the trading nations control their credit properly and without value deterioration through inflation. When a currency is stable the rate can be fixed for a long time.

What you call "whip-crack" devaluation is caused by unsound monetary policies (usually inflation) or an irresponsible form of credit creation (the printing of too much money all at once, mostly to pay for government overspending). Where such conditions exist one cannot have a fixed exchange rate. Faith in each other's currencies has nothing to do with creating a stable trade environment. Only sound financial decisions can achieve that. Lastly, credit creation is always going on for as long as governments, industry, business and private individuals keep borrowing. The amounts of public borrowing can have an effect on an exchange rate if too much of it is going on all at once. The factors which destabilize a country's currency more than borrowing are
1) the rate of interest on loans, and
2) the amount of direct plus indirect taxation.

I hope I have made myself clear enough. - Mr. Mueller.

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