The War Between the Credit-worthy and the Credit-unworthy

• By definition, the only legitimate way a debt-based currency gets into an economy is by lending it. This lending doesn’t take place just once. Primary lenders lend to secondary lenders who lend to tertiary lenders, etc.. I.e., the Federal Reserve System lends currency to the Federal Reserve Banks which lend that currency to private banks which lend it to their customers. The chain of lenders and borrowers can be lengthy and complex.

It’s always possible for people at the bottom of the lender-borrower “pecking order” to acquire currency without actually borrowing it. For example, they can work for it. However, for those who have no credit in a debt-based monetary system, their access to currency will be so restricted that they’ll probably live in or near poverty.

• The plight of the credit-unworthy illustrates a fundamental problem with any debt-based monetary system. By definition, you can’t lend currency to the credit-unworthy and expect to be repaid. For proof, witness the sub-prime mortgage debacle of the past decade. Some seemingly smart people lent currency to the credit-unworthy and apparently expected to be repaid. They fought economic reality and reality won. The result was a credit collapse in A.D.2008 that nearly caused a global depression—and may yet do so.

But, if the credit-unworthy have restricted access to currency in a debt-based monetary system, how can they prosper, buy a new car or own their own home, or participate in the American Dream?

They mostly can’t—at least, not without resorting to prostitution or criminal activities. Their inability to borrow currency makes them impoverished, angry, and potentially violent.

If the credit-unworthy can’t easily survive—or better yet, participate in the American Dream—what’ll they do? Simply die? Commit suicide? Emigrate?

No. They’ll riot and try to take what they need or think they’re entitled to by force.

If they riot, millions or even billions of dollars of property can be destroyed. That’s bad for bidness. So, a sensible government in a debt-based monetary system must find a way to distribute debt-based currency to the credit-unworthy by some means other than lending.

Q: How can they do that?

A: It’s called welfare. Entitlements. If we simply give enough currency to the credit-unworthy to (barely) survive, maybe they won’t riot.

• I contend that welfare is a natural, inevitable consequence of a fiat, debt-based currency. In an economy based on an asset currency such as gold or silver, the impoverished may receive charity. In an economy whose currency is debt-based (as with Federal Reserve Notes), the impoverished must receive welfare. If you’re going to have a debt-based currency, you must have welfare to provide currency to the people who are too incompetent or impaired to be credit-worthy. In the US, welfare is a necessary correlative of a fiat, debt-based currency—not an option

“Welfare” is a substitute for “credit” in a debt-based society.

The terms “entitlements” (for welfare recipients; the credit-unworthy) and “credit” (for the productive, credit-worthy), are fundamentally similar. Both describe the process of distributing currency to someone who has not yet earned it. In the case of the credit-worthy, banks give them credit today so they can spend money that they have not yet earned—but expect to earn in the future (and then repay the banks). In the case of welfare recipients, the gov-co gives them “entitlements” that they have not yet earned under theory that they will one day become productive and begin to support themselves—but no one expects the welfare entitlements to ever be repaid.

But in both credit and welfare, people receive currency that they have not yet earned. The fundamental difference between credit and welfare, is that credit is expected to be repaid; welfare is not.

From this perspective, it’s arguable that everyone who relies on credit is a welfare recipient.

People who are proudly wielding a Master Card would probably object and claim to be much different from those receiving a government welfare check. So long as the credit card people repay their debts, that objection can probably be sustained. But what happens if the credit-worthy turn out be unable to repay all of their debts? In retrospect, did those who received loans but failed to repay them really receive credit, or did they, in fact, receive welfare?

Insofar as America has come to a point where our governmental and private debts are too great to be repaid in full, insofar as we borrow even more money (when any fool can see that we won’t repay), are we receiving credit or welfare from out alleged benefactors?

• Every nation employing a fiat, debt-based currency (like the EU euro or the US $) faces the problem of somehow distributing that currency to individuals or classes who are unworthy of credit (unlikely to repay).

This distribution must be sufficiently generous for the credit-unworthy to 1) survive; and 2) not riot.

But the distribution of welfare “entitlements” must also be sufficiently stingy to: 1) avoid tempting more people to abandon the “rat race” and retire onto welfare; and 2) not cause the credit-worthy to be so angry about being forced to pay to support the credit-unworthy, that the credit-worthy stop working or paying taxes—or worst of all, become politically activists.

Under a debt-based currency, a fine line must be walked whereby the credit-unworthy and credit-worthy are both kept marginally happy. If the suppliers of credit/welfare stray too far from that line, antagonism will flare between the credit-worthy and the credit-unworthy that may tend to violence or even recession. That antagonism is inherent in a fiat-currency, debt-based monetary system.

Providing currency to the credit-unworthy is the “Achilles heel” in any fiat monetary system. If gov-co won’t provide the credit-unworthy with enough fiat, debt-based currency, they’ll riot. If gov-co does provide it, the credit-unworthy will tend to remain as non-productive, parasitical welfare recipients.

Providing a fiat currency to the credit-unworthy creates a fundamental contradiction in a debt-based monetary system. How can a government or banking system in a debt-based monetary system rationally provide credit (fiat currency) to the credit unworthy? How can such government or banking system compel the credit-worthy to be responsible for those who are irresponsible and credit-unworthy without ultimately resorting to something like the force of overt fascism?

• Dispersing currency to the credit-unworthy is every bit as difficult at the international level as it is at the local or national levels.

The current, potential breakup of the EU can be traced to the fundamental flaw in a fiat, debt-based currency: Some people are unworthy of credit and yet must be given currency to participate in the economy. If denied the credit they need to survive in a debt-based monetary system, they will, quite sensibly, riot and wreck that economy.

The euro is a fiat, debt-based currency that’s loaned into existence. It’s easy for “responsible” countries like Germany to borrow debt-based currency, but relatively difficult for less productive and “responsible” countries (like Greece) to access credit. Without credit, there’s no access to fiat currency. Without fiat currency, an economy tends to collapse.

Therefore, we have “bailouts”—welfare—for those nations (like Greece) that are too irresponsible, uneducated or otherwise impaired to support themselves as responsible members of the EU. In order to sustain the EU, the wealthier nations of the EU must provide “welfare” (artificially cheap credit and/or bailouts) to the poorer EU nations—just as the US gov-co must provide welfare to those American citizens who are unworthy of credit.

Predictably, the people of the credit-worthy nations of the EU are refusing to take further responsibility for providing welfare/bailouts to the less productive, credit-unworthy nations.

Same thing happens in the US. The credit-worthy become sick of supporting the credit-unworthy. The credit-unworthy become sick of being short-changed by the cheapskate credit-worthy. There is persistent jealousy and class warfare between the “haves” who are credit-worthy, and those “have-nots” who are credit-unworthy.

But there’s a difference between the US and EU. In the U.S., the gov-co can’t get rid of the incompetents (credit unworthy). Therefore, the feds must provide welfare to American incompetents and subsidies to the American greedy. If that welfare/subsidies are not forthcoming, the incompetents may riot and burn down a fat slice of the economy—or those receiving subsidies may withdraw from the economy and cause a recession. In an economy that depends on a debt-based currency, a failure to provide that currency in the form of welfare, subsidies or credit, can precipitate sufficient violence to collapse that economy.

Europe’s predicament is different from that of the US because the EU is not yet a unified “nation”. Instead, the EU is a loose coalition of individual nations whose cultural values are so diverse, that some nations are sufficiently competent to support themselves, while other nations (the PIIGS: Portugal, Italy, Ireland, Greece and Spain) are not.

Because the EU “incompetents” are separate nations rather than individual citizens, and because the EU is still only a fairly loose coalition, it’s still possible for the EU to excise one or more of its “incompetents” rather than agree to provide them with welfare indefinitely. As a result, serious thought is being given to the idea of ejecting one or more of the “PIIGS” from the EU now—while it’s still possible—rather than “adopt” all of the PIIGS permanently and risk being obligated to provide them with welfare (easy credit and bailouts) forever.

If the EU tries to force the homogenization of two dozen cultures (complete with different languages) that have frequently been at war with each other over the past 1,000 years, some of whom are credit-worthy and some of whom are credit-unworthy, the ultimate result should be chaos or overt fascism.

In the end, the EU will not succeed in driving a square pegs (like the credit-unworthy PIIGS) into the round holes of the credit-worthy—unless they resort to force.

• The problems with fiat, debt-based currency go deeper. Even when everyone in a particular economy or nation has the same set of cultural values and similar work ethic, credit ratings are always relative. Today, Germany’s credit rating (credit worthiness) is much higher than that of Greece.

But if Greece and the rest of the “PIIGS” are ejected from the EU, the credit ratings for the remaining countries won’t be identical. So long as Germany is the most productive and fiscally responsible country, it will demand a higher credit-rating than other nations like France. Inevitably, the difference between the credit ratings of Germany and France will tend to stimulate the German economy and depress the French economy.

Over time, the economic drag caused by relatively high interest rates for France, will cause France to demand a credit rating equal to Germany’s. This will be a form of welfare (trying to make a debt-based currency artificially available to those who are not credit-worthy or at least less credit-worthy). France will claim cheaper credit is necessary to keep the French people from rioting. Germans will complain that higher, but unearned credit ratings for France will unfairly penalize the German people and cause them to riot. The antagonisms between the most credit-worthy and least credit-worthy will build until France or other members of the EU are deemed to be as unwelcome in the EU as was the former member Greece.

• Because credit worthiness is relative, credit-ratings have no intrinsic meaning. By itself, a credit rating of “700” has no meaning except in relation to another credit rating of “575”. The difference between “700” and “575” is at least partially subjective. Subjective determinations are inevitably debatable, often unfair and subject to political favoritism.

Those with higher credit ratings will be allowed to spend more currency that they have not yet earned than those with lower credit ratings. But when it comes to spending currency that is not yet earned, who can say for sure why one group should be allowed to spend more unearned currency than another? When it comes to a debt-based currency, the allocation of credit is ultimately based on the lender’s ability to “see into the future” like Karnak The Magnificent. Who can really say whether John Doe is ultimately more certain to repay his debts six months or 20 year years from than is Bill Smith? Credit is based on guessing. So long as that’s so, those who are denied credit are bound to feel betrayed—right or wrong, they will believe that they are every bit as likely to repay a loan as the guy across the street.

Again, when it comes to supplying currency in the form of credit to anyone that is not yet earned, that credit is only marginally different from welfare.

Allowing one person or group to spend more unearned money than another must ultimately be based on at least some subjective criteria. That subjectivity will inevitably result in jealousies and conflicts. These conflicts will tend to divide any nation or union operating with a fiat, debt-based currency as people fight for higher credit ratings.

• There’s no perfect solution to the war between the credit-worthy and the credit-unworthy.

But a big improvement would include a return to an asset-based monetary system of the sort we had until A.D. 1968. Cash and carry. Money backed my metal (gold until A.D. 1933; silver until A.D. 1968). If you want something now, pay for it now with money you’ve previously earned and saved rather than with credit or welfare you have not yet earned. If you want a new car or a new house, save the money you’ve already earned until you have enough to buy one.

I’m not suggesting that we eliminate all credit. Old Testament laws regarding usury make clear that credit has been with us for at least 3,000 years, and it’s not likely to disappear any time soon. But instead of having a monetary system that’s exclusively based on credit/welfare and fiat currency, we should return to a system that’s primarily based on previously earned assets and only secondarily based on credit (possible future earnings).

We can guess at how much currency I might acquire next year. That guessing will be subjective. But we can absolutely know how much money I earned last year. No subjectivity. Last year’s earnings are an absolute fact.

• This principle (pay with assets from your past earnings rather than with credit based on potential future earnings) should apply not only to individuals and corporations, but also to governments.

Why?

Who or what is the single most credit-unworthy “person” of all? Greece? Portugal? American minorities?

Nope.

Governments.

Other than inflation and war, governments produce nothing. Being totally non-productive, governments have no means to produce enough wealth to repay whatever they borrow. Governments are truly lower than sub-prime borrowers who can at least earn minimum wage by sweeping floors. Government earns nothing because government produces nothing.

But, governments have a distinct advantage over other sub-prime borrowers: governments can legally use guns to compel their citizens to cough up enough currency to repay the government’s debts. Ordinary subprime borrowers also sometimes use guns to take currency from citizens, but when they do, it’s called robbery. When government uses guns to extort currency, it’s called tax court. Paralleling a remark by former President Nixon, “When the government does it—that means it’s legal.”

Today, many governments can no longer support themselves by extorting currency (taxes) from their citizens. People have refused to pay higher taxes. As a result, governments have been provided with a constant stream of welfare/bail-outs called deficit financing from the central banks. This deficit financing is called “credit” but is really welfare because no one really expects the governments to repay their current debts.

The US gov-co takes money from central banks, private investors and China that it has no intention of ever repaying. By means of inflation or outright repudiation, the national debt won’t ever be fully or even substantially repaid.

The US gov-co receives currency from lenders that it has no ability or intention of repaying, the U.S. gov-co is the world’s biggest welfare recipient.

Other western governments are also “welfare queens” who spend currency they have not yet “earned” with no intention of repaying the alleged “loans”. As a result, our governmental “sovereigns” are reaching a moment similar to that when it became clear that the credit-unworthy, sub-prime borrowers (gasp!) would not actually repay their sub-prime mortgages!!! OMG! What a surprise, hmm?

Just as the sub-prime borrowers had to eventually admit they couldn’t produce enough wealth to afford the houses they were occupying, many of the world’s “sovereigns” (including the U.S. government) are fast approaching the moment when they’ll also have to admit that they can’t pay their “sovereign” debts.

The ultimate conflict between the credit-worthy and the credit-unworthy is coming. It’ll be fought between the credit-worthy people (who actually produce things and earn wealth and are therefore eligible for at least some credit) and the credit-unworthy “sovereigns” (who produce nothing and technically, are therefore as credit unworthy as those laid to rest in a cemetary). When “sovereigns” run out of credit, we can expect them to “riot” just like any other welfare recipient deprived of his “entitlement”.

Unfortunately, when a “sovereign” riots, it’s called “war”. They won’t burn down their neighborhood. They’ll burn down nations.

• We live in interesting times.

They’d be a lot less “interesting” if we insisted on the gold- and silver-based monetary system that’s mandated at Article 1 Section 10 Clause 1 of The Constitution of the United States.

The people and nations of the world have been taught to depend on credit or welfare (spending currency that they have no yet earned). As such, this is a world of welfare recipients in which the “entitlements” are about to be cut off.

Riots and wars should follow as those addicted to credit/welfare look for someone to blame when they can’t get their fix.

Perhaps they’ll make a movie: Night of the Living Bankrupts.

Buckle up.

About Adask
I am a man made in our Father YHWH ha Elohiym’s image (Genesis 1:26-28) and endowed by my Creator with certain unalienable Rights (“The unanimous Declaration of the thirteen united States of America”; July 4th, A.D. 1776). I am a sovereign Dei gratia. I act at all times “at arm’s length” unless I’ve otherwise and expressly agreed in writing. I am one of the People of The State of Texas. My articles are currently written and published within the venue of The County of Dallas, located within The State of Texas–a member-State of the perpetual Union styled “The United States of America”.

Original article can be viewed here

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