Most people assume that if all debt were paid off the state of the economy would improve. It’s certainly true on an individual level. Just as an individual has more money to spend when loans are paid off, we assume if everyone were debt free there would be more money to spend in general. But the truth is the exact opposite. There would be no money at all. We are dependent on continually renewed bank credit for there to be any money in existence. No loans. No Money.
“…Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve.
We are, absolutely, without a permanent money system.”
Robert H. Hemphill, Credit Manager ~ Federal Reserve Bank, Atlanta GA
Have you ever stopped for a moment and asked yourself how it is possible that the United States National deficit is over 12 Trillion dollars while there is less than 1 Trillion dollars of currency in circulation? The answer is that banks loan money that doesn’t exist. The more debt is owed to the banks the more they loan at interest. The money can never be repaid in full because debt exceeds the money base.
Everyone is chasing the same money in existence to repay his or her individual debts and cover the interest. But the money to cover the interest doesn’t exist. The pool of money from which we can draw is made up of only principal. Because of this it is impossible for everyone to repay his or her debts plus interest. Inevitably someone falls into foreclosure.
For long-term loans such as mortgages and government debt the total interest far exceed the principal. So unless a lot of extra money is created to pay the interest, the result will be a very high rate of foreclosures and a non-functioning economy.
To maintain a functioning society the rate of foreclosure needs to be low. In order to accomplish this more and more new debt money (household, state & local, federal, corporate, financial) has to be created to satisfy today’s demand for money to service previous debt. Of course this just makes the total debt bigger which means that more interest must ultimately be paid. This results in an ever escalating and inescapable mountain of indebtedness.
It is only the time lag between money’s creation as new loans and it’s repayment that keeps the overall shortage of money from catching up and bankrupting the entire system. However as bank’s insatiable debt monster gets bigger and bigger the need for more and more debt money to feed it becomes increasingly urgent.
Why are interest rates low? Why do you get unsolicited credit cards in the mail? Why is the US government spending faster than ever? Could it be to stave off collapse of the entire monetary system?
The rational person must admit that this cannot go on forever. Isn’t a collapse inevitable?
As the amount of money in the economy increases it will become more and more worthless unless the level of production and trade rises by the same amount. The economy grows at ~ 3-4% per year but that rate is not constant. This year’s 3% represents more than last years 3% because it’s 3% of the new total. This results in an exponential curve that keeps getting steeper and steeper.
The problem with this of course is that perpetual growth of the real economy requires perpetually escalating use of our natural resources and energy. More and more stuff has to go from natural resource to garbage each year,forever, just to keep the system from collapsing.
A sustainable economy and society, which lives within the limits of its non-renewable resources, cannot exist using a money system utterly dependent on perpetual growth.
A stable and sustainable economy requires a money supply capable of remaining stable without collapsing. In other words, a stable economy requires money that is constant and retains value over long periods of time.
Any monetary system in which interest is accrued with debt will eventually be depleted. This is due to the simple fact that additional money to cover the expense of interest is never created. Therefore, with interest, even if the total money supply were used to pay off the cumulative debt of society and government, the outstanding interest would still remain without money in existence to repay it.
1. Why do governments choose to borrow money from private banks at interest when the government could create all the interest-free money it needs, itself?
2. Why create money as debt at all? Why not create money that circulates permanently and doesn’t have to be perpetually re-borrowed at interest in order to exist.
3. How can a money system dependent on perpetual accelerating growth be used to build a sustainable economy? Perpetually accelerating growth and sustainability are incompatible.
To learn more watch this movie, “Money as Debt”
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