Money supply growth has turned negative. There are 206 million fewer dollars in
existence today than there were a year ago (Myrmikan’s definition of a “dollar” is a unit
of liability of the Federal Reserve). M1 money supply, which includes demand deposits,
has shrunk by $346 million year-over-year. Simple math tells us that credit markets will
implode if the Fed allows this trend to continue.
To illustrate, imagine a model economy in which there exists $100 in gold. The owners
lend it out for 10% interest. The next year, the lenders are owed $110 in gold. But where
is the extra $10 of gold supposed to come from? (Mining and minted may have produced
another dollar or two, but this new money is probably owned by the lenders anyway). This
was the usury problem that the ancients wrestled with for millennia. Aristotle called the
making of money through interest “against nature” since, unlike chickens or cattle or
crops, gold and silver do not self-increase.1
If the lenders forbear collection for another
year, they are owed $121, and the imbalance between money owed and money in existence
grows worse.