Promises to Pay
April 18, 2012 in Finance
“We hate to bother you since today is the tax deadline but we were wondering if you give investment advice?”
“Well, I’m not a Certified Financial Planner. However, I do have opinions about where I think people should be investing.”
“We would like to hear them. We have money in CDs that are about to come to term and we want to know what to do with our money.”
I was glad the couple in my office was the last appointment for the day. I felt a need to take time with them.
I started by telling them about my friend who works at a gold and silver exchange. In a recent conversation, she told me that one to three times a day, her store sells between ten and fifty thousand dollars in gold or silver to someone who has sold paper investments, closed a retirement account, or emptied a bank account.
“Why are people trading cash for gold and silver?”
“They understand that cash is only a promise to pay. It doesn’t have any value other than someone’s promise.”
I detailed how dollars are Federal Reserve Notes (FRNs) and that they are created out of thin air through debt.
By the time they left, we had discussed money, gold and silver, real estate, and paper investments like stocks and bonds. I encouraged them to call me if they had questions.
Afterwards, I thought about what I had said about cash. I realized that every transaction we enter into is based on trading a promise to pay. Sometimes, we trade this for another promise to pay. Other times, we trade it for goods and services.
When a dollar, a Federal Reserve Note (FRN), is created out of thin air, the other side of the accounting entry is a debt that someone has promised to pay. The value of that FRN comes from that promise.
When I pay for something with that FRN, the person who accepts it accepts the promise to pay represented by the FRN.
If I don’t have a FRN in my pocket, I might pay with a check. The check is a promise that I have a certain amount of FRNs (promises to pay) in my checking account.
If I don’t have FRNs or a check, I might pay with a debit or credit card. Again, these are promises to pay.
The person who accepts any form of my promise to pay then uses my promises to make his promises.
All of these promises are based on the promises of the person who received the FRNs from the initial loan.
If someone along the way doesn’t keep his or her promise to pay, those in the chain may not have enough FRNs to keep their promises to pay.
If numerous borrowers don’t keep a promise to pay, a bank may collapse. At that point, if The Fed believes that bank must not collapse, it distributes money to that bank. This money is usually created through purchasing United States Treasury Bonds which are – say it with me now – promises to pay. This expands the money supply and causes inflation.
The resulting increase in prices becomes a tax that each person pays with additional FRNs when making promises to pay for goods and services.
This is what happened during the bank bailout of 2008. The largest banks received FRNs, – created out of thin air – that allowed them to continue to exist.
Other banks weren’t so lucky. The resulting inflation made it impossible for borrowers to keep their promises to pay to these smaller banks. The larger banks then swooped in and gobbled up the assets of the smaller banks.
What happens if the United States Government doesn’t keep its promise to pay?
It legally cannot do this.
The promise to pay system, as described in this article, is no accident. It is a purposeful system, designed by the largest bankers, in cooperation with the United States Congress, to guarantee that the largest banks can always stay in business.
This system works because a banking bill, passed by Congress, and amended almost two hundred times says that when certain banks’ customers don’t keep their promises to pay, these banks can look to United States taxpayers, via the United States Congress, for relief.
The United States Government legally must keep all promises to pay.
Eventually, this will destroy the system.
Those who understand this are using their FRNs to acquire real assets, things they can own and hold with their own hands.
They want to make sure they don’t have to depend on anyone else when they have promises to pay.
