Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown

Chapter 8

The Beneficiaries of the Paper Money System

By now we have fully exposed the disadvantages and dangers of elastic money. We have demonstrated the inherent instability of a pure paper money system. In order to chart the further disintegration of our present system, it is useful to know and to understand the interested parties that benefit from this system and that support it. This should allow us to better predict how those in charge of the paper money franchise are likely to respond to the system's increasing instability and incoherence.

Paper Money and the Banks

It is not difficult to see how the banks and the wider financial industry benefit from the present paper money infrastructure. The fractional-reserve banks enjoy the privilege of creating money at no cost to themselves and lending it to nonbanks at interest. This is naturally very lucrative. The wider financial industry also reaps substantial benefits since it is usually the first recipient of new money. As we have seen, the early recipients of new money enjoy an as-yet fairly undiminished purchasing power while those who receive money later, when many prices are elevated, do not benefit at all. It is no surprise that since the introduction of fully flexible fiat money in 1971, the financial industry has greatly expanded. Since the late 1980s in particular, the expansion of money mainly has been channeled into the markets for financial assets and real estate, thereby benefiting the holders of such assets and ...