Fiat Money in the US and China
by John Lawrence, July 28, 2018
Most people are amazed to find out that, when a bank loans you money, it creates it out of thin air. It is not backed by gold or anything else. Nixon took us off the gold standard in 1971. Before that people could cash in US dollars for an equivalent amount of gold. Money not backed by anything is called fiat money. It is created by private banks in the US when they loan you money. In China the government creates the fiat money. A new wrinkle was added during the 2008 financial crisis. Money was also created by the US' central bank, the Federal Reserve which is privately not publicly owned. That money was given to the big banks to keep them solvent. It did not trickle down to the average citizen.
China uses fiat money to keep its workers employed. In addition to activities within China, they are building infrastructure in other countries recreating the Silk Road which was a trade route that connected the Eurasian land mass. It is called the Belt and Road initiative. Since the US government has no mechanism to create fiat money(despite the fact that Abraham Lincoln did it during the Civil War with the introduction of greenbacks), the only fiat money being created in the US goes to big banks and through them to hedge funds which have connections with the big banks.
Fiat money in the US fuels the class division between the 1% and the 99% because it is only made available to Wall Street which actually owns the Fed. In China fiat money not only keeps its workers employed, they are employed doing something constructive - building infrastructure. The only way the US could build much needed infrastructure in the US is for the Treasury to issue more bonds which would only add to the national debt. If there were a true government owned central bank in the US, it could create money to build infrastructure thus creating jobs without the US government going into debt.
China just might have a better way to create fiat money and use it for a constructive purpose. The US fiat money goes mainly to hedge funds which use it to destroy businesses as was the case with the recent Toys R US and Hostess fiascoes. Instead of using fiat money to create jobs, in the US jobs are destroyed when a hedge fund takes a business bankrupt after loading it with debt, extracting money in management fees and shutting it down when it collapses under the weight of all that debt. Employees lose their jobs with no severance pay as was the case with Toys R Us.
China is using fiat money to build the economies of China and other nations from the ground up keeping its workers gainfully employed at the same time. The US is letting its infrastructure and its work force wither while making banks and bank connected hedge funds rich.
