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<p>[QUOTE=&quot;fatima, post: 1357038, member: 22143&quot;]I agree with you on the single function but until mathematical proof is given otherwise, it can be considered a valid effect.&nbsp;&nbsp; </p><p><br /></p><p>The fundamental problem with fiat money is this.&nbsp; (My math hints at it.)&nbsp; How does the interest get paid?&nbsp;&nbsp; This sounds like a simple and easy question at first glance until you realize that unless the system is inflated the interest can&#039;t be paid.&nbsp; This is why they tell you that 2%-4% inflation is good.&nbsp; It really means we had to grow the money supply to cover the interest owed on loaning you the dollars.&nbsp; Remember what I said earlier, new money only enters the system via government debt or debt created via fractional reserve banking.&nbsp; The key word here is debt.&nbsp; New dollars are always loaned into existence which means interest is owed.&nbsp; </p><p><br /></p><p><font size="1">(This is probably worthy of its own topic on how fiat money works but I&#039;ll touch on it here. It&#039;s too long so anyone feel free to ignore it.)</font></p><p><font size="1"><br /></font></p><p><font size="1">This is exactly why we had to go through the entire political mess of TARP.&nbsp;&nbsp; Why didn&#039;t the Federal Reserve simply print the money and hand it over to the bankers instead?&nbsp; Before this question is answered, you have to understand there are two classifications of money in a fiat system.&nbsp; <i>Base money</i> and the <i>money supply</i>.&nbsp; Both kinds of dollars are created, but from the prospective of the Fed they are completely different.&nbsp; The base money supply, MB, is the real hard &quot;asset&quot; of the Federal Reserve.&nbsp; It is backed $ for $ by either gold or US Treasury Paper as specified by the FR act.&nbsp; In simple terms if the Fed was a real bank, Base Money would be the hard assets locked up in it&#039;s vault.&nbsp; It then can make loans for many times this amount to customers i.e.&nbsp; Fractional Reserve Banking.&nbsp;&nbsp; </font></p><p><font size="1"><br /></font></p><p><font size="1">In the real world the base money supply (MB) is all the US government debt + the value of the gold seized from the people by FDR in 1933 which remains under the Fed&#039;s control.&nbsp; &nbsp; The Money Supply, M0, M1, M2, M3, .... etc (MN) is all the money created by the Fed system of banks.&nbsp; This includes all the money created by the mortgage mess, and the huge number of dubious financial instruments that surround the banks.&nbsp; Thus MB is liability of the US taxpayer, MN is a liability of the bankers.&nbsp;&nbsp; In the real world, MN is actually a liability of 1000s of individual companies that include investment and retail banks including the TBTF banks.&nbsp; This is important because they are subject to local laws that dictate how corporations maintain their balance sheets. </font></p><p><font size="1"><br /></font></p><p><font size="1">So if you followed this, you start to realize that TARP was necessary because the bankers needed MB increased substantially because MN was out of control and that requires an act of congress because the liability gets transferred to MB. ...........</font></p><p>-------------------</p><p>(Hmm, this IS getting too long and too far off the point.&nbsp; Maybe I will finish it elsewhere if there is interest.&nbsp; )&nbsp;&nbsp; </p><p><br /></p><p>The only way to pay back the interest is to inflate the system.&nbsp;&nbsp; If the entire system is inflated on a percentage basis each year and furthermore the base and money supplies are increased as well, then it becomes a simple matter of plugging those numbers into my chart and letting the math do its business.&nbsp; Over time this is how inflation becomes geometric.[/QUOTE]</p><p><br /></p>

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