This video is a follow on from the other two videos I’ve done on the Central Bank currency creation operation. If you haven’t seen those videos, I would recommend you doing so before watching this one.
Is there an alternative?
The question we need to ask now is … Is there an alternative to the Central Banking system? I would say, “Yes, I think that there is.”
If the Government wants to do Deficit Spending, it would have to inform the Treasury to issue Bonds and sell them on the open market.
The Bonds would be bought by whoever wants to buy them – banks, pension funds, speculators, big investors or ordinary, smaller investors. Investors get a return on their investments in the form of interest payments, or coupon payments. The Bonds can then be traded on the open market, bought and sold freely. True price discovery will occur in the Bond market. So, that’s the Investor side of things.
Back to the Government. From the Government side of things, by selling Bonds, the Government is able to raise funds to pay for commitments it has made for the fiscal year. So, when the Investor buys the Bonds, the Investor gives the Government currency.
And, as we talked about in the previous video, the Government would be borrowing from the future to pay for the present – because Bonds are glorified I.O.U.s. The Government has to pay back the stated sum on the Bond, the Principal, plus the Interest by the time the Bond matures, or payment is due. The maturity dates and interest payments are all calculated in the original purchase price of the Bond, but that is, for now, by the by.
All this means that by selling Bonds, that the populace would funding the Government by future taxation.
It’s that simple. Certainly, no need for any Central Bank.
So, in summary …
The Government issues Bonds.
Investors buy the Bonds.
Investors get a return on their investments.
The Government gets their funding.
In order to pay for the Bonds – to meet the future debt obligation - the Government raises currency by means of taxation.
The Government is then able to pay back the debt at some point in the future.
Advantages and disadvantages
At this juncture, I should say there are advantages and disadvantages for every system.
The advantages in the system are as follows :-
Point number 1
There would be no Central Bank. This is a massive advantage because it would mean that we wouldn’t have Central Banks stealing wealth from us in terms of any unnecessary taxation and also there would be no loss of purchasing power caused by unrestrained currency creation.
Central Banks act like some noisome parasite, feeding off our labours. Once our systems are purged of these parasites, we will be a whole lot better off financially and otherwise.
