The Fundamental Principle of Conservation of Physical Money: Its Violation and the GlobalFinancial System Collapse

Murad Al-Shibli

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DOI: 10.4236/ib.2011.31013                

Abstract

Over the last two years the world has witnessed a financial tsunami that rocked the global financial systems. This paper presents the fundamental principle of conservation of physical money of the global financial system that guarantees its equilibrium and stability. Similar to the principle of conservation of mass-energy systems and based on the commodity money concept, then the physical money cannot be created from nullity nor can be destroyed. As a result, violation of such a system will lead to a deficit in the financial system which cannot be paid off. Additionally, violation of gold standard and the breakage of the Bretton Woods system are the reason behind the current world financial crisis. Paying non-zero interest on money loans will violate this principle as well. The international banking system is volatile and over-valued since it is based on the fractional banking technique that banks do not actually need to have the money to back up the deposits their clients have made into their accounts. Instead, the banks are required only to keep a small fraction of such deposits on hand. The world Today’s reserves wealth of Gold, Silver and Copper is estimated by 8.63 Trillion US$ compared to 4.3 Trillion US$ in Currencies. Moreover The Bank of International Settlements (BIS) in Switzerland has recently reported that global outstanding derivatives have reached 1.14 quadrillion dollars: $548 Trillion in listed credit derivatives plus $596 trillion in notional OTC derivatives. Furthermore, by 2007 credit default swap total value has dramatically increased to an estimated $45 trillion to $62 trillion. Subprime mortgage crisis, credit crisis and banking closure all have resulted from the violation of conservation money. Taking into the account that the World's GDPs for all nations is approximately $50 trillion and all of the asset value of the world is only $190 Trillion, it can be seen easily that the over-valued $1140 trillion financial derivatives will lead in the near future to the collapse of the international financial system similar to Iceland, Greece, Ireland crises and potentially in Spain, Portugal, and Italy.

Keywords

Conservation of Money, Fiat Money, Commodity Money, Gold Standard, Fractional Banking, Financial Derivatives, Credit Default Swap, Ponzi Scheme, Iceland Crisis, Greece Crisis

Conflicts of Interest

The authors declare no conflicts of interest.

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