Most of the videos, such as Zeitgeist, basically propound that central banking and a fiat currency unbacked by gold standard causes perpetual debt, inflation, and generally economic nastiness that is crippling our progress etc.

My question is this really true? If it is, then what the hell are we sitting around for? This sounds like a horrible thing! Perhaps it's exaggerated a la cardstacking? I'm inclined to believe this... but then again, knowing the state of economic theory as it is, with massive disagreements and various seemingly logical schools of thought which are directly in opposition, I'm wondering if this problem is only a matter of a certain interpretation, or a general misunderstanding of economic principles.

To start us off, I'm going to try to defend our current monetary system as best as I am able, despite having little economics background. For this, I admit, I'm going to be stealing information off of Wikipedia articles, but I'll be paraphrasing in my own words which I think are clearer and less muddied up by economic jargon.

Firstly, it doesn't seem to me like debt is as bad as these videos make it sound. The word debt carries a lot of connotative baggage, and I think it's this that leads to it's misinterpretation.There was one remark made in Zeitgeist that was along the lines of Money = Debt, because did you know, that if all debts were paid off now, there would be no money? This was said to show that money in our fiat system was inherently wrong, but it sounded to me like that should be how it works. When money is created out of nothing, should not an associated debt also be created as you cannot create value out of nothing, so an associated negative value is also created? I get the feeling that I could have this terrrrribly wrong though.

The following argument is derived from the following paper: "There's no such thing as fiat money" by Michael Sproul (http://www.econ.ucla.edu/workingpapers/wp830.pdf)

Say a bank agrees to take a person's 100 oz of Silver and in exchange prints $100 of currency, so at a rate of 1oz of silver per dollar. In this case the $100 printed is backed by a silver standard. But then say another person wishes to borrow $200 dollars from the bank. The bank prints the $200 dollars and loans it out to this person (for simplicity, at no interest). Does this devalue the dollar? It would seem like the bank has $300 dollars in circulation now, but only has 100oz of silver in it's vaults. Does this mean the dollar is only worth 1/3 of what it was before? No. The dollar is still exchangeable at a rate of 1oz of silver per dollar, because the bank has the assets to back up the dollar, even if it's not in the form of silver. This is because when it loaned out the money, it received the debt of the second person. If the $300 dollars were taken to the bank and asked to be redeemed, the bank could exchange 100oz of silver, and $200 worth of debt in exchange for its printed currency.

But what about interest? Well, now let's assume the bank has costs... say for printing, wages, anti-counterfeiting measures, etc. that amount to some number of oz. of silver a year. Interest pays for these costs. When the bank pays these costs they pay the money to real people, returning the money back to the market. When interest generates a profit for the bank, that money is re-invested into the market.

From what I can see, the monetary system is sound as long as the bank's assets cover the money they print. Even a "fiat" currency is backed, just not directly to some immutable resource, but to the bank's assets.

Feel free to tear it apart, because I'm here to learn. Read the paper that I linked to for further arguments, and information that I couldn't understand, but perhaps you can, and are willing to translate them to layman for all of us here.