Will central bankers give up alchemy to save the world? I have my doubts. First of all, most people don’t know that central bankers are alchemists. In fact, most people have no clue that they are able to issue debt in the form of sovereign bonds, like treasury bonds, and turn them into gold.

That is right. Who needs gold when debt can be gold? No, I am not saying you can’t use gold as gold, because it is a valuable asset. But debt makes more gold available. Indeed, alchemy is the business of turning mundane things into gold. It has been an idea that has fascinated for thousands of years. Yet, the bankers did what Merlin could only hope to do, turn something as ungold-like as debt into gold.

This gold, that is in the form of sovereign bonds, is used in the derivatives markets. The debt is used as collateral, and is as if it were gold. Gold is used as collateral too, but not nearly as much as sovereign bonds are used. Even Greek bonds were gold and if the interest rates go down, the debt-as-gold becomes worth more and more. If interest rates go up, the collateral becomes less valuable.

Debt is gold, but it is not money. It is collateral, an asset. Same for gold, it is used as collateral and is not really money, but rather functions today as an asset.

So, the question is, would the central bankers give this system up for productive lending? Would they get rid of sovereign bonds? They should. After all, the real economy is almost a second thought to the bankers, who are obsessed with saving the biggest banks and growing them larger.

From a study done by Richard Werner, passed onto me by Ellen Brown, we are able to come up with  ideas as to why it makes sense for the bankers to get out of the business of turning debt into gold. The Study is entitled: The Quantity Theory of Credit and Some of Its Applications. Dr. Werner starts by analyzing the current situation with the following points:

1. Asset transactions are not a part of GDP. Credit for asset transactions does not help GDP.