"When a client takes out a $1 million loan to buy a house, the lending bank does not take a preexisting mature $1 million present in its cash reserves, or from a depositor’s balance at the bank. It will simply issue the loan and create the dollars that are used to pay the seller of the house. These dollars did not exist before the loan was issued. Their existence is predicated on the borrower fulfilling their end of the bargain and making regular payments in the future.
No present goods are used in the home purchase; no saver had to set the tokens aside to give to the borrower to pay the house seller. The present good of the house is handed to the borrower without them having to offer a present good in exchange, and the house seller does not grant the credit to the borrower nor take on the risk of default. The bank grants the credit, and the credit risk is ultimately borne by the central bank guaranteeing the bank, the loan, and the currency. Had the house seller granted the credit, they would be taking on the risk of default and giving up their present good willingly, affecting no other parties. But by utilizing the fiat standard, the house seller receives their payment in full up front, and the buyer receives the house in full up front. Both parties walk away with present goods they can use in full, even though only one of these goods existed before the transaction took place. The new fiat tokens created to allow this transaction place the risk of the buyer defaulting on all holders of the currency.
All three parties involved in the house transaction are happy, but could such a system survive in a free market? It appears favorable to the buyer, who can buy a home without having to pay the full price up front. It appears favorable to the seller because it finances more potential buyers and bids up the price of their home. It also appears favorable to the bank, which can mine new fiat tokens at roughly zero marginal cost every time a new lender wants to buy a house. However, the transaction only works by externalizing the risk to society at large, protecting the buyer, seller, and bank from default by having the government’s currency holders effectively absorb the risk premium through the inflation of the money supply. The sacrifice of the present good that allows both to spend can only come at the expense of the currency being devalued."
- "The Fiat Standard" by Saifedean Ammous.
"The total goods and services represent real capital called the gross national product, and currency may be printed up to this level and still represent economic capacitance; but currency printed beyond this level is subtractive, represents the introduction of economic inductance, and constitutes notes of indebtedness. War is therefore the balancing of the system by killing the true creditors (the public which we have taught to exchange true value for inflated currency) and falling back on whatever is left of the resources of nature and regeneration of those resources."
