According to the current view, the maintenance of sound monetary conditions is only possible with a 'credit balance of payments'. The confutation of this and related objections is implicit in the Quantity Theory and in Gresham's Law. The Quantity Theory shows that money can never permanently flow abroad from a country in which only metallic money is used (the 'purely metallic currency' of the Currency Principle). The tightness in the domestic market called forth by the efflux of part of the stock of money reduces the prices of commodities, and so restricts importation and encourages exportation, until there is once more enough money at home. The precious metals which perform the function of money are distributed among individuals, and consequently among separate countries, according to the extent and intensity of the demand of each for money. State intervention to assure to the community the necessary quantity of money by regulating its international nlovements is supererogatory. Ludwig Von Mises
About This Quote

Since the creation of the Federal Reserve System in 1913, the United States economy has been subject to the control of commercial banks through the creation of money out of thin air by means of loan agreements. The Federal Reserve Board issues money that is loaned to banks and other financial institutions at interest. The amount that may be loaned by a bank at any one time is based on its reserves, which are determined by a formula set by the Federal Reserve Board. In other words, banks in the United States do not issue their own money, but instead receive their reserves from a central bank in a process known as fractional reserve banking.

The banks then loan out this money to individuals and businesses at interest, thereby creating an economy that runs on borrowed money. Money is created when real assets are moved from one location to another. In this case, the Federal Reserve Board creates new dollars when loans are made at interest.

These dollars are then deposited into banks and used to purchase government bonds or other assets from which they can earn interest. However, according to Gresham's Law, when there is too much money in circulation, its purchasing power will decline due to inflation.

Source: The Theory Of Money And Credit

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