June 12, 2019 Wednesday
Bedtime Story
Financing Wars/Rebellions with Absurd Credit
Independence from masters always has its
price to be paid as the rulers never let it go off so very easily and when they
do let it go they make sure that scars and fault lines linger for ages to come.
The price for independence that the
Thirteen Colonies had to pay was a full-scale war that would stretch both
temporally (it lasted for 8 years, 4 months and 15 days) and spatially (it
involved three continents, two oceans and a sea) with far reaching ripple
effects all over the world influencing minds of other apes not only of
contemporary but also of those to come in the near and far future.
For such a Herculean endeavor they needed
some mechanism to finance the war (monitory support from the French Empire,
Spanish Empire and the Vermont Republic who were competing with the British
Empire and thereby natural allies of the bellicose and belligerent colonies
wasn’t enough) and once again they came with this magical trick of conjuring
money out of thin air.
The Continental Congress started to issue
paper money that they called Continental currency or simply the Continentals.
Before they had declared themselves
independent of Great Britain three types of money was used in the colonies of
British America – specie, paper money and commodity money.
Specie was of course, made out of gold and
silver, was the most stable since the rarity of the precious metals ensured
that they would not be minted out of proportion at the whims and fancies of
human apes.
But their drawback also arose from this
very same limiting factor as specie restricted the amount of credit a
government or more broadly an economy can generate.
To understand this you need to assimilate
one simple truth about the banking system and get rid of most commonly held but
misleading notion about banking.
Banks are generally believed as
intermediaries between savers and borrowers which is largely incorrect though
there is some small grain of truth in it.
Banking as we understand it today or rather
the way they function today is about the creation of credit.
The word ‘credit’ has its origins French
and Latin where it’s original meanings were either “belief” or “trust” or “a
loan entrusted to another”.
Credit is an interesting term which again
is not very clear to most as it is used loosely and interchangeably by
different people in differing contexts.
In banking sense credit has two components,
the creation of money which is also the credit itself and the co-creation of
its corresponding debt which comes along with the cost of interest.
If you think carefully over the last
sentence credit creation which is same as money creation is equivalent to
giving loan which is not only counter intuitive to me but almost paradoxical.
Therefore when a bank creates money in the
form of credit it effectively does so by disbursing loans thereby owing the
money to itself.
Stay tuned to the voice of an
average story storytelling chimpanzee or login at http://panarrans.blogspot.com
Good night Mon Ami and my fellow cousin ape.
Advertisements
Another great educator and a teacher that I am aware of is
Professor Subhashish Chattopadhyay in Bangalore, India.
While I narrate stories, Professor Subhashish an electronic
engineer and a former professor at BARC, does and teaches real mathematics and physics.
He started the participation of Indian students at the
International Physics Olympiad.
Do visit him here:
All his books can be downloaded for free through this link:
For edutainment and English education of your children, I
recommend this large collection of Halloween Songs for Kids:
No comments:
Post a Comment