Free The Crash Course: The Unsustainable Future of Our Economy, Energy, and Environment by Chris Martenson Page A

with a single dinar. However, throughout the 1980s, the Yugoslavian government ran persistent budget deficits and printed money to make up the shortfall. By the early 1990s, the government had used up all of its own hard currency reserves, and turned next to the private accounts of citizens as a source of funds. As the dinar slowly and then more rapidly began to lose value to the process of inflation, successively larger and larger bills had to be printed, finally culminating in a rather stunning example of the use of zeros on a piece of paper: a 500 billion dinar note.
     
    At its height, inflation in Yugoslavia was running at over 37 percent per day . This means that prices were doubling roughly every two days, which is hard to even imagine. But we can try. Suppose that on January 1 of this year you had a single U.S. penny and could buy something with it. Inflation running at 37 percent per day means that by April 3 of this same year, you’d need a billion dollars to purchase the very same item. Using the same example, but in reverse, if you had a billion dollars on January 1, by April 3 you would only have a penny’s worth of purchasing power.
     
    Clearly, if you had attempted to store your wealth in the form of Yugoslavian dinars during the early 1990s, you would have lost it all, which is how inflation punishes savers. It literally steals value from their saved wealth while their money sits in storage. Inflationary regimes promote rapid spending by people concerned about using their money while it has the most value, and increase the amounts wagered on speculation in order to at least try to keep pace with inflation. Of course, investing and speculating involve risks, so we can broaden this statement to make the claim that inflationary monetary systems require the citizens living within them to subject their hard-earned savings to risk. There’s really no escape. You either opt out of the game by holding onto your money and lose for sure, or you play the game by speculating on stocks and bonds and risk losing it in the markets.
     
    Even more important, since history shows how common it is for currencies to be mismanaged, we need to keep a careful eye on the stewards of our money to make sure that they’re not being irresponsible by creating too much money out of thin air and thereby destroying our savings, culture, and institutions by the process of inflation.
     
    Money Creation
     
    What do we mean by “creating money out of thin air,” and how exactly is it that money is created?
     
    John Kenneth Galbraith, the famous Harvard University economics professor, was active in politics and served in the administrations of Franklin D. Roosevelt, Harry S. Truman, John F. Kennedy (under whom he served as the United States Ambassador to India), and Lyndon B. Johnson. He was one of only a few two-time recipients of the Presidential Medal of Freedom.
     
    Clearly, Galbraith was a pretty accomplished kind of guy, one whom you would correctly suppose was a rather calm and collected fellow who wasn’t given to hyperbole. He once famously remarked about money: “The process by which money is created is so simple that the mind is repelled.” 3
     
    What he meant by this is that the gulf that exists between the effort required to obtain money by working for it and the ease of creating money by creating it out of thin air is too enormous for most people to fully accept on the first go. Some find it just too unfair to believe.
     
    To begin with, let’s look at how money is created by banks.
     
    Suppose a person walks into town with $1,000, and lo and behold, a brand new bank with no deposits has just opened up. This is lucky for the town, because prior to this person arriving, there was no money anywhere in the town. The $1,000 is deposited in the bank, so now the depositor has a $1,000 asset (the bank account) and the bank has a $1,000 liability (that very same bank account).
     
    There’s a rule on the books, a federal