Aggregated Awareness

A succinct and "to the point" commentary from Antal Fekete on this most crucial area of understanding in hard money circles: the Real Bills Doctrine, as originated by Adam Smith.

If you've ever read any of Fekete's writings, and you would have, if you're a regular visitor to this site, then you may know that he admires the work of Austrian-School economist Carl Menger, and as such, also the international trade system as it stood prior to WWI. When much of world trade was financed by circulating Real Bills that redeemed into gold. Thus it was self-extinguishing credit, with a limited life-span, usually of 91 days or one season of the year before it matured into gold.

Unlike the debt of today, which cannot be extinguished, and merely grows, until the day when it doesn't...

The massive global derivatives tower, consisting mainly of interest rate derivatives, credit default swaps, and many other varieties of exotic tradable paper, all of it debt, which numbered one quadrillion one hundred and forty four trillion US dollars, prior to the BIS changing the valuation method of this debt from "notional" to "value-to-maturity", when the amount of this debt was revamped to become the six hundred odd trillion US dollars or less that is often quoted for it today.

However much this amount is does not matter, for it must keep growing under an irredeemable debt based currency system, such as we have today... Although, one caveat is that nothing lasts forever...and so it will be with the growth rate of this derivatives tower.

Excerpt: "...I have never been able to persuade my detractors to debate my theory on the sole reasonable premise that the merits or demerits of the RBD [ed. Real Bills Doctrine] can only be assessed in a context where banks are completely absent. Ludwig von Mises described such a scenario prevailing in Lancashire before the Bank of England opened its branch office in the city of Manchester. The absence of banks did not frustrate the growth and flourishing of the wool trade, the staple industry of the region at the time. Weaver-on-clothier bills, spinner-on-weaver bills, woolman-on-spinner bills circulated as cash in the local economy. The absence of banks could hardly be a handicap in any vibrant community eager to make most of its endowment and potential. It wasn’t in Lancashire..."

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