“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” --Buckminster Fuller
Most legislation is formed in advance by “think tanks” funded by special interests, but nobody funds experts to think about how to reform the money system itself. Now, however, we have the Internet, where we can banter ideas about in “virtual” think tanks without funding. Getting anyone to pay attention, of course, is another matter; but before we even get to that stage, we need to agree on a plan. I’ve gotten a great deal of feedback on this subject by email, so am opening it up to blog comments. What should our money system look like and how should it work? Give your feedback here. Comments on the book “Web of Debt” and articles are also welcome!
Note: This page has gotten a bit long and unwieldy. Please keep entries short and to the point! Better still, please continue the debates using our new forum.
A wise old Indian Chief sat in his
hut on the reservation, smoking a
Ceremonial Pipe and eying two U.
S. Government officials sent to
interview him.
“Chief Two Eagles,” stated one
official, “You have observed the
white man for 90 years. You’ve
seen his wars and his technological
advances. You’ve seen his
progress, and the damage he’s
done.”
The Chief nodded in agreement.
The Official continued,
“Considering all these events, in
your opinion, where did the white
man go wrong?”
The Chief stared at the
Government Officials for over a
minute and then calmly replied,
“When white man found this land,
Indians were running it.”
“No taxes.”
“No debt.”
“Plenty buffalo.”
“Plenty beaver.”
“Women did all the work.”
“Medicine man free.”
“Indian man spent all day hunting
and fishing.”
“All night having sex.”
Then the Chief leaned back and
smiled, “Only white man dumb
enough to think he could improve
system like that.”
‘plenty taxes’
‘plenty debt’
‘no buffalo’
‘no beaver’
‘plenty mans work’
‘no mans play’
‘man too tired for sex’
– maybe white woman improve system
I’ve read through a lot of the blog posts on this website, but have not yet tackled the forums.
Most of discussion/argument seems to be about two broad themes, first is whether or not interest or debt creation of money is the problem. And second is the issue of how monetary reform can actually be realized.
I have posted elsewhere that I believe popular insurrection is the only way to overthrow our present system of debt-slavery run by an entrenched, powerful oligarchy.
Another, more peaceful, scenario might be to leverage the power of a societal pillar of historical significance, the Church. I will briefly outline my idea for this approach, but I want to first add my two cents about the debate on interest.
I agree with the view that money should not be a commodity. As an engineer, not an economist, I see money as a completely abstract construct — much like the system of measurement, or units.
As such, there is no reason why there should ever be a “shortage” of money, other than to oppose inflation. But the present system is one where money is a commodity whose supply is controlled by a caste that wields money as an instrument of power with which to rule the people.
Hence we have the situation where this very necessary thing called “money,” which is nothing more than a unit of exchange, is tightly controlled — with the specific intent of keeping people insecure, and in the case of the majority of the world’s population, in poverty. It is like the sadistic master who throws his dogs a few meager bones, just so he can watch them fight over the scraps.
And now to the part about interest. This is a completely unnecessary part of money. In fact it is extremely counterproductive. I believe that any plan to reform the money system MUST include the principle of interest-free lending.
Michael Hudson is onto something very crucial in his investigation of money in antiquity. From Aristotle we have “Usury is Unnatural,” a masterpiece of logic that equates interest with the “birth of money, from money.”
Such “breeding” of money is counter to nature, he rightly points out. “Wherefore of all modes of getting wealth, this is the most unnatural.”
And we use logic furthermore to ask: Why do we need to “breed” money in the first place, if we can create it as needed for the productive and economic capacity of society?
And the answer is quite simple. Because those who astutely identify money as a crucial resource in society, understand that it is a choke point by means of which powerful pressure can be brought to bear and complete control exerted. In other words, money is a means to rule.
Now if your goal is to rule — for reasons of your own ambition — then you will naturally oppose the use of money for its neutral intended purpose, as a means of exchange in society.
So you must by definition now oppose the creation of money on a rational basis and that leaves only the “breeding” of money as a way to increase it. Serendipitously, this method also means it is those controlling the money who get even more of it by means of breeding — so their power continues to increase.
So the question becomes, “What is the purpose of interest?”
The answer is, that in a system where money is created in a neutral way to fulfill the societies needs for a medium of exchange, THERE IS NO NEED FOR INTEREST.
Professor Hudson explains nicely that the problem with compound interest is that it outstrips the productive growth of the real economy. He points to the ancient Mesopotamian cultures as understanding this in quite a sophisticated way.
The result is that the levying of interest eventually brings great harm. This is unavoidable. That is why other cultures predating Roman times — including the Jews — also forbade interest.
It has been mentioned here that low-interest rates could be levied by state-owned lending utilities that create money. This would simply be a tax, but again, this tax would soon outstrip the productive growth in the society and would become an excessive burden.
Why not just tax?
There is absolutely no reason why an interest-free lending utility owned by the people, and with sovereign authority to be the only body able to create money, could not work in today’s world.
When any individual or business borrows money and puts it to work in a productive way — building houses, making products, etc — the result is that more goods come onto the marketplace and the scarcity and price of those goods declines.
This means everybody’s money now has more purchasing power. This is the “interest” that is distributed among all of society. The fact that the borrower does not have to enrich a parasitic interest-taker means the price of his product can be lower. So everyone benefits, not just the one extracting the interest.
In the agrarian societies of antiquity with interest-free lending utilities, a farmer that is loaned a cow will repay it with a calf borne of that cow. A cow for a cow, but he has one to keep.
That is the difference. If he has to repay that one cow with two cows, then only the extracting party benefits. No one else.
I will address the Church idea in a separate post.
First a fact. The struggle to reform the monetary system is an impossibility.
Our whole system of Western civilization is built on the foundation of power through usury. This has been true since Roman times and has only become more solidly entrenched ever since.
I want to also point to a very astute and informative article on the “Impossibility of Growth.”
http://www.israelshamir.net/Contributors/Tom_White.htm
The idea of perpetual growth is an impossibility in nature. Yet it is embraced by the economic profession, by the ruling class and by just about anyone else of any consequence.
We have a situation of idiot-savants telling us everything is great — right up until we go over the cliff. That cliff is in sight for many of us and it will entail unbelievable upheaval, human suffering, starvation and massive violence.
That is where we are being led by those who have usurped the power of the people, which is ours by constitutional right. In another part of this blog it was suggested by one Dr. Bob that we should embrace a plan of citizen revolt whereby we place under citizen’s arrest elected politicians and try them for treason.
Dr. Bob was mercilessly attacked for suggesting this very good idea, even though we have a constitutional right to do exactly that. The idea that an overthrow of the ruling hierarchy can be achieved by the common people simply by asking politely for it, is ridiculous. It will not happen.
However, there is an avenue that might be able to gain some traction. I mentioned the institution of the Church. Of course the Church is not the major force it was in centuries past. The religion of capitalism is the worship of Mammon — the religion of money.
However, the Church could still be a place to start to build awareness and a movement. I’m also including here the temple, synagogue, mosque, etc. All of the major religions are against usury and greed, so it should be an environment that will be receptive to the message that mankind is enslaved by evil-doers who are driven by greed and lust for power.
Christianity, Judaism and Islam all forbid usury and the charging of interest. “A man cannot be the slave of two masters at once…You must serve God or money, you cannot serve both” — Matthew 6:24.
Regardless of you view of religion — believer, atheist, agnostic — there is much here that is the core of our message on money reform. What we are espousing is the same rules and laws of these ancient religions and the even more ancient societies that preceded them. In a historical sense, we have wandered from the true path.
In this sense, the local place of worship could be the ideal forum for discussing this important issue and also a good way to spread the word.
However, it is not a slam dunk. Anyone that goes to church knows that there is not much real thinking about real issues going on there. Mostly it is a social club and, even worse, you often hear the ministers embracing the rotten ideology of our current system — along with its militarism, imperialism and all the rest.
Most of the people in charge of “The Church” will not be receptive to our message. However, there are some quiet decent folk in the congregation who will be interested.
It is at least an avenue worth exploring. There were times in the past when major religious figures spoke very plainly about the evils of money:
“In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few. . . . This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.” — Pope Pius, 1931.
Even today some men of conscience are at the helm of the great churches and other religions. (The problem is that the local leaders are not cut from any similar cloth). But can it be such a stretch to imagine that the idea of defeating the money men once and for all could not be an idea to gain real force in organized religion? And from there, who knows?
I’m going to just add a couple of more thoughts here about the question of money creation as debt.
I’m not an economist — which I see as an advantage — but it seems to me that creating new money as new debt is not the problem, with one proviso. As long as the debt is interest-free.
There seems to be a school of thought here that says the only way to create money should be to inject it into the economy directly as grants, subsidies, relief and such. I agree there is a place for this, especially in circumstances of economic downturn where it is necessary to get people spending.
This is the situation presently of course and the government is injecting some money, although not enough. Problem is that this government money is actually borrowed from the money-creating private banks, so there will only be more chickens coming home to roost down the road.
However, in a reformed money system where the sovereign state is the only issuer of money, creating new money by way of new loans is perfectly fine — provided the loans are interest-free. I think this is the crucial point.
If interest is charged, we will start entering the whole debt cycle anew — regardless if the issuer of money is the state. The problem with interest is that it is perpetual. It is an artificial construct that is tied to the passage of time. As more time goes by, the debt increases by a fixed mathematical formula (the interest rate).
It is important to look at this in terms of the real economy. Does the real economy also increase in value with the passage of time? Absolutely not. The real economy CANNOT grow ad infinitum, like a mathematical formula. It has limits.
The Mesopotamian economists of 5,000 years ago were infinitely more astute than the idiot-savants we have today. They left very nice records showing exactly this — that the real production of the economy starts off growing in a fairly steep curve, but then begins to flatten out as natural limits are reached. Interest does not flatten out. It continues to climb at the same steep rate.
That is the disconnect and that is why the levying of interest is destructive to an economy. That is why the idiot-savants running today’s system insist on perpetual growth, which is an impossibility in the physical world. Perpetual growth has only been able to continue up to the present time because of the imperial/colonial system of global conquest and pillaging, which continually finds new victims to enslave on distant shores.
But what happens when there are no more victims available? Yes the world is going to run out of them eventually — it was not so long ago that China, India and Brazil were impoverished countries. Look at them now. They are challenging the dollar hegemony in a real way. Some argue persuasively that that turning point has already been reached.
http://original.antiwar.com/engelhardt/2009/10/26/the-great-superpower-meltdown/
Some could argue that the whole consumer credit bubble that just collapsed was created for only one reason — to provide the growth that this debt-interest monetary system requires, like a drug addict requires a fix. Do not forget we are talking about a Ponzi scheme here. That is what perpetual growth means.
If there are no new suckers coming in (growth) the system collapses. In recent years many of the developing countries have been able to throw off the debt-bondage yoke. One year ago, the IMF was just about done as an entity of any significance. Nobody was biting any more. The BRIC countries said “no thanks” long ago. The Asian Tigers, etc. Oh sure there are still a few Eastern European serf countries that borrow from the banks, some in Africa etc. But htis is not nearly enough to provide the necessary growth fix.
And it is not just the Western banks, but also the industrial corporations that are addicted to the growth fix. All of the loans to third-world countries come with strings attached. Those strings are that most of the money loaned goes right back to the giant multinational corporations who garner the contracts that the money is loaned for in the first place — whether it is infrastructure, industrialization, public works, whatever. The multinationals actually end up with the money that the banks create out of thin air.
Just like when you buy a new car. The bank creates the money out of thin air and GM gets the cash for the car. All you get is the debt burden. (And the car, as long as you make the payments.)
That is why the consumer debt bubble happened. It’s because it was the only way to bring into existence the growth that is necessary for the very survival of this system. They inflated the economy with lots of easy credit, so the hapless consumer would spend, spend, spend. Of course all of the new debt money now requires even MORE growth, just to pay the interest.
That is the problem.
The money men are now hard at work coming up with the next smoke and mirrors trick to create the new growth needed to keep this system breathing for another couple of years. Gee I wonder what it will be? Can you spell b-u-b-l-l-e?
So what happens when the inevitable happens, when there is no more growth left to be had for the Western economic system? When they have looked under every rock and tried every trick they can think of?
Complete and utter devastation is what happens.
The collapse of the banking system will mean the collapse of the corporate system which depends on a revolving door of credit. Unfortunately we have allowed our entire food supply system to be snatched out of the hands of local, family-based producers — and it is now entirely in the hands of the corporate sector. When the credit system inevitably collapses and the corporate system that depends on credit as its life-blood follows suit, what happens to our food supply?
Yes, there is an urgency to this whole question of money reform.
That is why we should be very clear about how the new system must look.
The bottom line is that monetary reform can only work if the new state-owned money-creation utility provides loans interest free. There can still be a place for private money lending, provided they actually lend real money — ie, 100 percent reserve. They can charge interest if they like and there may be some who will avail themselves of it. Good for them.
But they will be relegated to the sidelines.
My view would be, it’s okay if money is lent into the system so long as it is lent by a publicly-owned bank, EVEN IF the money is lent at interest. To come up with the interest, you just need to allow the state to issue some money that is NOT lent but is spent directly into the system. Thus: you create $105. You lend $100 at 5% interest and spend $5 on the government’s budget. $105 is now out there circulating in the system, which can all come back as principal and interest. You don’t have to print any more, creating a bubble or pyramid scheme; you can lend the same $100 and spend the same $5, ad infinitum. If they were 30 year loans, you would want to print $200, lend $100 and spend $100, since the interest compounded annually would equal the principal (roughly). Ellen
Ellen, your example exactly proves why the idea of interest is so dangerous.
If the proposed state-owned bank lent $100 at an interest rate of 5 percent and a term of 30 years, the debtor would have paid back $432 at the end of 30 years, not $200. (Assuming the principal is paid back in one lump sum at the end of the term and not paid down gradually).
The bank would have to print more than $300 and inject that into the economy.
Let’s say this same loan is repeated a million times in the entire economy. So we can just look at this one loan of $100 as exactly representative of the whole economy (divided by 1 million).
What this means is that after the 30 years the economy will have HAD TO have grown by more than 300 percent! That is the problem.
We are right back to the physically impossible perpetual growth paradigm that is the seed of destruction.
Can the economy more than triple in the space of 30 years? Maybe it could for the first 30 years, but what happens after that? We are right back on the same slippery slope.
The problem is that we have chained the physical economy, which depends on the physical creation of goods, and which has real physical limits, to an artificially skyrocketing multiplier that has no bearing to reality whatsoever.
I think we should take our cues from the physical world. The idea of limits is central to the physical world. It is central to the mathematics of calculus, which is our main tool for understanding dynamic phenomena like motion (whether celestial bodies or any other kind). Without this tool we would not have modern science.
Interest is completely unnatural as Aristotle so wisely figured out. He understood that money creating money is like a circular argument that has no logic. It is stupid.
Perhaps the population in this said city-state will also grow by 300% during those thirty years, thus will the need for proportionate goods and services.
Also, the money does not have to be printed right away, just the appropriate amount during the period that the loan is outstanding.
In addition, money lent on a thirty-year note is typically repaid or refinanced prior to when it is due. So the actual amount of potential interest paid will not come to fruition.
Even in this system, there will be periods of inflation and deflation that are self-correctable by elected officials and responsible monetary policy. At the end of the day, the money is the property of the people, not the disinterested elite.
There is a place for Interest, Debt and Debt-free in medium of exchange creation and transactions. They all can serve the advancement of a society’s co-operative way of life in providing a public & efficient value system, one of whose characteristics is in providing choice.
The perpetual & regimented growth requirement only comes about when the systemic Credit function is served by Debt & Interest – whether public or private.
Ellen Brown’s state owned historical bank model would be a much used & beneficial choice in a new paradigm while at the same time not being the entire reform in of itself.
Nik, I have no idea what you just said.
If there is a place for interest what is it?
Gordan, my apologies about the delay in replying.
Interest has a place in covering legitimate administrative costs in a banking system. I t also has a place in recovering opportunity cost in lending out money for enterprises as well as the above admin. costs of a banking system. The key is for this cost to be subjected to non-monopoly supply & demand in this market – which cannot happen in the current structure.
Also interest has a place in the use of state owned banking as Ellen Brown tirelessly advocates for. This interest is spent into the system in the first place in order for it’s re-payment to not create a short fall & associated un-sustainable growth through the servicing of un-payable Debt. The Debt that is lent into the system through these public banks is repaid through the creation of goods & services that the public bank has enabled to be created. Once the principle is paid ( & therefore transferred in wealth back to the public bank – i.e. the money is not about being created for nothing in this process) these goods & services are now increasing the ratio of wealth to money in circulation and are therefore anti-inflationary. The paying of the principle is similar to a tax that has to be paid, but it is a direct tax and is not like the current system, which just goes to pay the financial masters the interest on the exponentially increasing debt that they create out of nothing in the exchange.
If the public bank is co-opted by un-productive projects ( via politics), the debt ratio, if not out of hand, would be settled from the Debt-free credit that is being injected into the economy separately to equalize the previously earnt ‘price-purchasing power gap’ dynamic characteristic of large scale & scientifically aided enterprises that exist in all modern economies, preferably via a dividend to citizens method. But it is likely that a naturally balanced means of exchange system would anchor what political processes there are to the tasks & challenges at hand as determined by a free & co-operative population.
All these aspects ( from un-monopolized Demand & Supply private risk enterprise in relation to the banking system utility, publicly owned banks spending into circulation their interest requirements & Debt-free Credit fulfilling the annually earnt inherent purchasing power gap ) have the attributes of being self-liquidating in direct relation to a physical economy; Thus achieving sustainability naturally without coercion.
Sorry for longer post, but does seem to require a couple of paragraphs to explain a logical alternative to the current monetary system, but four paragraphs isn’t too over the top I hope.
Nik, I do not agree that interest is a legitimate way of charging for the service of arranging a loan.
The legitimate way of paying for the service is a service fee. When you pay off your mortgage you have paid back three times the principal you borrowed. Does it seem proportional that the mere act of arranging a loan, which only involves at most several hours of human effort, should be compensated by twice the amount that is borrowed?
That is preposterous.
As to your other points, I still do not understand what you are trying to say.
Here is what I am saying. Let’s say we can institute a publicly-owned lending facility that will take over the creation of new money as debt, as well as injecting new money created as gifts.
That is a fine plane, no question. However, there are several problems with this plan.
The biggest problem is that interest-lending makes the economy into a pyramid scheme.
A pyramid scheme MUST have growth, year over year, or it will collapse. In fact it must have ACCELERATING growth year over year — where the growth in each subsequent year, outpaces the rate of growth in the previous year — or it will collapse.
Now Ponzi schemes can go on for quite some time. Look at Madoff. Our Western civilization, based on interest-lending has been going on close to 500 years. But now we are bumping up against the immutable reality of physical limits. The Ponzi scheme WILL collapse.
Let us review first what a Ponzi scheme is and then do a numerical example. A Ponzi scheme is like a bank that solicits depositors. Each of the depositors is promised a good rate of interest on his investment. As more depositors invest, the interest is taken out to pay last year’s investors.
Let’s look at it year by year. In the first year, the scheme takes in 1 million dollars. The promised interest rate is 10 percent. It means that at the end of the first year, Mr. Ponzi must pay $100,000 in interest to the investors. In the second year, the growth doubles; $2 million in new investment comes in. At the end of the second year Ponzi must pay out $300,000 ( $100,000 to the year 1 investors and $200,000 to the year 2 investors).
So far so good. Let’s say the amount of new investment keeps doubling each year until year 5. In year 3, new investment is $3 million, bringing the total investment to $6 million and the total interest payments to $600,000.
Let’s see what we have at the end of 5 years. The total money that has come in is $31 million. The total amount of interest payments is $5.7 million, leaving $25.3 million in the kitty. So far so good.
But in year 6, the number of new investors is less than double the previous year. It is hard to come up with more than $16 million in new investment money each year. There are limits to the number of people who are willing and able to invest. The growth rate has stopped accelerating.
Let’s say the growth in year 6 is the same as it was in year 5, which is $16 million in new investments. That is still substantial growth, only the rate has stopped accelerating. The rate of growth is positive but it has leveled off. So we add the $16 million in year 6 to our kitty total of $25.3 million.
So the total left in the kitty after year six is $36.6 million after paying the interest. (If you want to verify the math just build yourself a simple spreadsheet).
Total interest payments in year 6 are over $10 million. If our growth slows down even more we will soon be in trouble.
So let’s say we are very clever at finding new investors and we maintain the growth of $16 million in new investment each year for the next five years. At the end of year 10, we will have taken in a total of 111 million, paid out a total of $38.9 million in interest, and have $72.1 million left in the kitty.
That does not sound bad. We are actually doing pretty good after 10 years. Maybe the Ponzi scheme is not so bad after all.
But let’s keep going. Time does not stand still. Let us say we continue to take in $16 million of new money each year. Not bad. We are still growing each year. How could we possibly get in trouble?
But a funny thing happens in year 14. Our total interest payments for that year are $17.5 million. For the first time our interest payments have outpaced the amount of new money coming in each year ($16 million).
Hmm. Unless we increase the pace of new money coming in, we are starting to eat into our kitty at this point.
Let’s take stock at the end of year 20. We have taken in $271 million up to this point. We have paid out $237.9 million in interest up to this point. The kitty is down to just $33.1 million. The end is near.
At year 23 it is all over. We are on the minus side of the ledger by $9.8 million. The Ponzi scheme is kaput. And we have not even spent one cent of the money on high living. All of it has remained in the kitty.
What’s more, we have had continuing growth of $16 million each year. We did not have one single year of no growth.
But our Ponzi scheme collapsed anyway. Why? Because our growth simply stopped ACCELERATING.
Can our economy continue accelerating? You tell me.
An economy that is based on introducing new money with interest attached is nothing but a Ponzi scheme. Our Ponzi scheme was very conservative. We only paid 10 percent interest. We had growth right up until the very end. Good growth.
In the very last year of the scheme (year 23) growth was 5 percent. Problem was that interest rate was 10 percent.
Remember we started off with very steep growth, doubling every year (100 percent growth). Obviously this kind of growth rate is not sustainable.
After year 6, the doubling stopped. In that year growth was still 34 percent, which is very high growth. By year 23 growth had slowed to 5 percent which is still good growth. But it was not enough to stave off total collapse.
This is the problem with interest. I have to wonder if economists know any math at all?
Btw, if there is a way to post this spreadsheet somewhere I would happy to do that. See the numbers for yourself and then I challenge anyone to tell me that an economy based on interest is not a Ponzi scheme.
Obviously I can’t spell “bubble.”
Actually, the economy would have to grow by 432 percent. However I consider the original growth of $100 as organic and sustainable — because this was the amount borrowed and put to productive use. So that is why I am saying 300 percent (rounded off).
And yes, Paul, if the population does grow by 300 percent there is no problem. (Assuming the interest money is actually injected back into the economy in a productive way and not wasted on high living or hoarding of crucial resources by a new governing elite; another very big IF).
But what if the population declines? Or stays steady?
Why do we need to chain the economy to an artificial decree that it MUST grow by some amount? Because that is what interest really is, an artificial decree that the economy must grow by a SPECIFIC rate (the rate of interest).
More fundamentally, why do we need to be wedded to the idea of interest?
I think it is because it is difficult to let go of a concept that is so firmly entrenched in our collective psyche. Nothing more. It’s time to let go.
Interest-taking is very dangerous to the collective good. The ancient societies recognized this and that is why interest was not allowed to exist. We must do the same. I believe this is fundamental to a new money system that will actually work.
I really should add that the world’s population growing by 300 percent over 30 years would be a disaster. There would not be enough food and massive starvation would be everywhere.
It takes us right back to the fact that the idea of perpetual growth is very dangerous.
Ever see those night satellite maps of the world, showing the population centers? Look at all the dark area! The world’s got plenty of room.
Done the right way, more people means more productivity, more ingenuity, more goods and services, and ultimately, more purpose to being here.
Thankfully, our parents and ancestors felt the same way, and as a result, you and I are here.
When we think “overpopulation” we visualize crowded third-world urban areas where money supply is one of the chief issues. In Web of Debt, Ellen describes a banking system in Bangladesh that is very promising.
Once the world’s people have control of the money and food supplies (which go hand in hand), they will be able to self-sustain whatever the population ends up being.
Paul,
Just because there is lots of room on our planet does not mean there is lots of capacity for producing food.
Stop and consider that there is a finite amount of arable land. Can we cut down all the rainforests in order to create more land for food production? That’s what they are doing in Brazil — and finding that the soil is not able to support crop growth for more than a few years. Then it just becomes grazing land.
Also, the production of food requires massive amounts of energy, which means hydrocarbon fuels. There are lots of problems with this, mainly that there is a finite amount of oil, and also the global warming that results from the carbon emissions from the burning of oil energy. Combined with the deforestation (trees breathe in carbon dioxide and exhale oxygen), the CO2 problem is only made worse.
A similar situation exists for wetlands. You can’t just drain the wetlands and come in with factory farms to grow food. Wetlands are crucial to the ecosystem and when they are destroyed, the result is a disruption in climate patterns, erosion and ultimately destruction of arable land. So the net result is that it makes matters worse, not better.
Then we have mountains, deserts etc. Mountainous areas cannot be used for croplands for obvious reasons. Some desert areas have been converted to arable land on a small scale basis through irrigation. But diverting water flows has consequences elsewhere. The Soviet Union experimented with large-scale diversion of water flows to create new arable land and this ended up in disaster. Look up the Aral Sea, which has completely dried up. One of the largest inland seas in the world is now gone in a space of a few decades of human intervention.
The idea that the earth can continue to support increased human population and activity is completely nonsensical. We have already damaged Mother Earth in profound ways, perhaps irreparably.
We must get away from industrial farming which is causing massive soil erosion and depletion of nutrients. This results in food that is completely devoid of the antioxidants and other cancer fighting nutrients that we had in previous generations. That is why cancer, which used to be a very rare disease only 50 years ago, is now hitting one out of every two people.
The massive soil erosion is also ending up in lakes and oceans and is causing devastation from the microbial level all the way up the food chain. Massive algae blooms and other such aberrations are the result. The death of oceans follows the death of the land.
The simple fact is that our environment simply cannot continue to even support the population we have now — unless we drastically change our ways of cultivating and producing food, and using energy.
I am certainly in agreement with Gordon on this one! There is an optimal land to man ratio, and I suspect we have already exceeded it. That is why so many are barely subsisting or starving in order to provide comfortable or luxurious livings for a small minority. Is that any way to run a planet?
Cheers, Jere
Lots of mistakes have been made in the 20th century, no doubt, both monetary and environmental. I would recommend you pick up a copy of Pope Benedict XI’s latest encyclical, Charity in Truth. Catholic or not, it’s worth a read, because he says it better than I can, and he is no stranger to the environmental issues that we face today. Richard Cook (who’s not Catholic) has an excellent review of it on the Global Research website.
see link:
http://www.globalresearch.ca/index.php?context=va&aid=14912
Paul, globalresearch.ca is an excellent website. I think we are on the same page.
Getting back to the debate about interest, it occurred to me that a reform that prohibited interest would probably be easier to achieve and would be less disruptive of the present financial architecture.
I have not really thought this idea through very deeply, so there are probably some holes in it. But here is what it boils down to. Let’s say the forces of progress and human emancipation can triumph over the forces of enslavement at some point in the future. This could be precipitated by a calamitous crash of our present system, which is inevitable.
Such a window of opportunity actually opened up in 2008, but the actions of the Obama administration in rescuing the oligarchs while pushing down the people, shows just how entrenched this oligarchy is. They are so arrogant that they are right back to giving themselves billions in bonuses — this after being gifted literally trillions of dollars in welfare. All of it paid for by you and me.
But there will be a next time — and a next financial meltdown. It is inevitable, simply because of the unsustainability of perpetual growth. When that time comes, it will be much worse than this time around and who knows, the people might actually rise up and throw off their tormentors.
But what then? The question becomes how to implement money reform in a way that will work.
One of the questions about putting in a state-owned lending utility is where would the human and organizational resources come from? Lending money to millions of people means doing a lot of paperwork, computerwork, face-to-face, etc. That’s what the banks are already set up to do.
It would be daunting to try to put in place this infrastructure overnight. We are talking thousands of physical locations, thousands of trained people, etc.
Now if a law is passed giving the state absolute control over the creation of money, it does not matter if the actual task is delegated to the infrastructure that is already in place. In other words the existing banks.
But the only way this could work is if interest-taking is prohibited. Otherwise the banks would be right back where they are.
The scenario is this. The banks are allowed to lend to either individual or corporate entities, just as they do now. The only difference is that interest is not allowed. The repayment is principal only.
This would be a great help to individuals who need to finance major purchases like homes. And it would also be great for industry that produces goods. They now do not have to build in additional cost for servicing the interest, and passing that burden on to the consumer who ultimately buys the product.
The only party that loses is the financial sector. Which is as it should be. The financial sector right now makes up something like 43 percent of GDP. This is insane. They create money and lend it out to “players” in a “casino” in such unregulated trade as derivatives.
Meanwhile the consumer pays a built-in charge for everything he buys, because the producer of that good has to pay interest to the financial parasites. This is nothing more than a tax that is collected by the financial sector. This tax is completely extractive and is hugely harmful, not just because it transfers wealth from the consumer and productive elements of the economy (industry), but because it chains the economy into an artificial and unsustainable need for perpetual growth, just like a pyramid scheme.
Now this is just the tax burden that comes built into everything we buy. We can look at this as a value added tax for servicing the manufacturers interest payments to the banks.
There is also a direct tax that the consumer has to pay to the banks, because he is paying them interest on the money he borrowed. This is like an income tax. So the consumer is paying TWO taxes to the parasite sector of the economy. One that is built into everything he buys. And another that comes with the money that he is loaned so he can buy those things in the first place. They get us coming and going.
Could there be anything more wrong with this picture?
Now just think of the positive benefits that would flow to the marketplace if the producer of goods did not have to pay interest. He could provide those goods to the consumer at a lower price. The consumer now goes to borrow money to buy that house or car. He does not have to pay a tax to enrich the parasites and keep himself in perpetual serfdom. Result: He has more money to spend, and he uses it to buy the other things he wants or needs and which he otherwise could not afford to buy.
The result is that the manufacturers can increase production AND EMPLOYMENT. They need to make more because the consumer is richer and is demanding more stuff.
The only one left holding the bag is the bank. They get no interest. They do however charge a modest “service” charge for doing the actual work involved. That is as it should be. We cannot expect to get something of value for no outlay.
And here is the beauty of this whole thing. The SIMPLICITY. All it requires is a law making interest illegal. NOTHING MORE.
Yes, there would be an additional law that says only the government is actually creating the money. The banks are only allowed to do so by grace of the sovereign. The government could create money at any time by injecting it into the economy by means of a direct transfer to consumers (tax returns, rebates, credits), or corporations.
In the case of inflationary pressures, the government could also set limits on bank lending, which would have the effect of slowing down the creation of new money (and debt).
So here we have a system that can be enacted by nothing more than the legal force of the government. It does not require the government to get into the banking business. Why should it? There is already a banking business in place. The wheel has already been invented.
And most important of all, the issuance of new money as debt would not be tied to a requirement for the economy to grow artificially. The economy would request new money as it needed it. Just as a hungry man sits down at the table and eats as much as he needs.
The Damocles Sword of Perpetual Growth would be removed from atop our heads. This is the real problem with interest, and that is why interest must be abolished.
You are right Gordon, there is absolutely no need to waste more resources duplicating the banking infrastructure. Removing interest from the current system would be a far more effective solution. Why people can’t see that interest is antisocial, counterproductive and totally unnecessary is beyond me. We should at least start calling interest what it really is – welfare, then maybe people will start to understand.
If you want to see how “productive” financial capital is on its own, take a look at the empty buildings and idle machinery in Michael Moore’s latest flick. Without PEOPLE to run them, they don’t produce a damn thing.
Well, Don, I always value your comments, but I guess we have finally found something we disagree on. Please see my responses to Gordon on this subject on the Open Letter to AMI thread. The solution is not to abolish interest, per se, but to redirect it, reduce it as it pertains to money, regulate it as it pertains to lending existing wealth (real capital), and to insure that the wealth generated from labor and natural resources is better distributed between all citizens and those that are in the businesses of converting those resources into real wealth.
But you are certainly correct about duplicating banking infrastructure. Why duplicate what already exists, or reinvent the wheel? Those parts of banking that involve creating (origination) money should be nationalized, or brought under government (taxpayer) control. People need to realize that in a democracy, the government is US.
Other banking functions that do not involve money-creation should be left to private enterprises to run, with the exception that no corporation or entitiy should be allowed to become “too big to fail”. That is what anti-trust and anti-cartel laws were about 100 years ago, when T. Roosevelt fought against those interests. But we need to re-define and re-think the proper lines between private and public enterprises.
I do not agree with you that “interest is anit-social, counterproductive, and unnecessary”. I agree that SOME of it is, the excessive part, and the part that is changed on private “money-creation” or debt-created money that did not pre-exist.
I see no problem with charging a fair rate of interest, or increase, on the advance of real capital wealth. Neither did Jesus, if you know and understand scripture. It is important to make real distinctions between justified interest (or return on loaned capital wealth) and unjustified interest (on “conjured” money) really is.
Otherwise you are “throwing out the baby with the bathwater” or pitching the wheat out with the chaff.
Oversimplifying such a complex problem and money and interest does not help solve it. Quite the opposite.
Cheers,
I’m going to post below a table that shows how a Ponzi economy works.
I hope it comes out okay, in terms of spacing of the table. It shows a Ponzi scheme over a span of 25 years. The first column shows the year.
Each year new money comes in, shown in the second column.
The third column shows total money that has come in to that point.
The fourth column shows the growth of the total money.
The fifth column shows interest paid each year at the interest rate of 10 percent.
The kitty is the amount of money left after interest is paid.
The last column shows total money + interest. Ignore this for now.
A brief look at this table shows that new money coming in starts off growing very quickly in the first five years. let’s say each “1″ represents a million dollars. It could just as easily be a billion, or whatever.
So the first year a million comes in. We see that the amount of new money doubles every year for the first five years. After that it levels off and stays constant at $16 million a year.
The growth column shows that we start with spectacular growth of 200 percent, but by year 25 growth has slowed to 4.8 percent. This is still positive growth. We never actually record zero growth or negative growth.
We see that the kitty reaches a peak in year 13 at just over 70 million dollars. From there it is all downhill because at this point we are paying more for interest than there is new money coming in.
By year 22, we are in negative territory. All the money is gone. By year 25 we are more than $50 million in the hole.
Year New Money Total Growth Interest Kitty Total Money
Money % Paid + Interest
1 1 1 0.1 0.9 1.1
2 2 3 200 0.3 2.6 3.4
3 4 7 133 0.7 5.9 8.1
4 8 15 114 1.5 12.4 17.6
5 16 31 107 3.1 25.3 36.7
6 16 47 52 4.7 36.6 57.4
7 16 63 34 6.3 46.3 79.7
8 16 79 25 7.9 54.4 103.6
9 16 95 20 9.5 60.9 129.1
10 16 111 17 11.1 65.8 156.2
11 16 127 14 12.7 69.1 184.9
12 16 143 13 14.3 70.8 215.2
13 16 159 11 15.9 70.9 247.1
14 16 175 10 17.5 69.4 280.6
15 16 191 9.1 19.1 66.3 315.7
16 16 207 8.4 20.7 61.6 352.4
17 16 223 7.7 22.3 55.3 390.7
18 16 239 7.2 23.9 47.4 430.6
19 16 255 6.7 25.5 37.9 472.1
20 16 271 6.3 27.1 26.8 515.2
21 16 287 5.9 28.7 14.1 559.9
22 16 303 5.6 30.3 -2 606.2
23 16 319 5.3 31.9 -16.1 654.1
24 16 335 5.0 33.5 -33.6 703.6
25 16 351 4.8 35.1 -52.7 754.7
351 403.7 754.7
Total Total Interest Total Money
Loans Due Supply Needed
This is graphical proof of why a Ponzi scheme must collapse, unless its growth rate continues to ACCELERATE.
Now let us consider our hypothetical government-owned bank which creates money by lending it at interest. Let’s say the interest rate is 10 percent.
We can use this exact same table. The only thing is that now the “New Money” column represents new money that is created by lending it out. We can call this column “Loans.”
Instead of taking money in, we are lending money out — a bank does both. We will see that it does not matter in which direction the money flows, the result is the same. Let’s pretend each digit is worth a billion now.
We see that we have created 351 billion in new money over 25 years by lending it out. The interest on that money totals 403 billion.
Question: Where does that 403 billion come from? It has to exist because we are expecting our debtors to pay it to us, right.
But we have not created it. We loaned out exactly as much as the economy needed and asked for, every year. All the money that we created is in that column called “new money.”
Now we see that in order for all those debtors to pay us back, we need to create another $403 billion. That’s more than we loaned out to begin with.
What do we do now?
Well we can print that $403 billion and inject it into the economy by way of gifts.
But guess what? That money is not tied to anything tangible in the economy. There are no new goods or services. All the goods and services are accounted for by the money we loaned out to begin with. That’s why we loaned it out, because people needed money to increase economic output.
This money that we are injecting now to allow the interest to be paid, does not represent any economic output. Hence we have doubled the money supply, but the total value of real goods and services remains the same.
Result: We have cut the value of our money in half. That is called inflation.
And now for the worst part. What happens when the economy stops growing as it inevitably must?
Where will the interest money come from then? Interest keeps going, as long as time is ticking away. It does not care whether the real economy is increasing its output or not.
Eventually what happens is what we have now. An economic collapse.
There is so much interest piled up that the people running the bank decide to lower interest rates or charge no interest whatsoever. But it is too late. The clock is ticking and the interest that is piled up is only growing.
Conclusion: as long as new money is created with interest tacked on, the economy is shackled to an unsustainable Ponzi scheme.
What I’m suggesting is a work in progress. I should have previously said, that we should understand the difference between “store of wealth” value and “exchange” value. Sometimes the desirability of trade outweighs the supposed value of the underlying commodity, and at other times it would be the reverse. Government could adjust the ratios between the three suggested currencies, gold, silver and government issued money for taxing purposes, only after the period in which the market has given its input as to what that ratio should be. The sole concern of the government is setting growth projections, and undertaking those necessary projects which the market is unwilling or unable to undertake itself. These projections for the underlying economy, would also factor in the contribution that government makes to the economy in such things as, for example, infrastructure. Inflation and deflation could be brought into check by allowing the people to retain the currency of their choice. Inflation and deflation and their projections is market information, and it can be determined more or less accurately. So if gold, and silver is a fixed quantity, then government paper money can be inflated or deflated according to the economies need, while these tendencies could be held in check, if government projections are inaccurate, by the peoples choice of money. The difference between the governments growth projection, and the reality of economic growth is a measure of the inflation or deflation in the economy.
For some reason the second part of my post was posted, but not the first. Here is the first part of my Post:
There seems to be a growing divide, although there being a temporary alliance between two factions Their alliance is in opposing the Fed. One thinks the State should spend into the economy debt-free money, and the other promotes a market based solution, as in a gold standard. Both sides of the argument have valid points.
I believe a compromise between these factions is possible, but I believe that we should repeal legal tender laws. Why not let the people themselves decide what they will accept in trade.
The government could spend money into the economy on important projects it sees as necessary. Thus its value would be based on the economic value of its projects. Inflation would be suppressed through a free-market in gold. If the paper money begins to lose value through inflation then people would naturally gravitate towards silver and gold to maintain purchasing power. If silver and gold becomes too restrictive for purposes of trade, then people will prefer the paper currency. Gold, silver and the government’s paper money would be acceptable in taxes according to a fixed ratio between them set by the government, and the people would be allowed to pay in the medium of their choice. Understanding Gresham’s Law, the bad money would leave the system in taxes, while the good money would be kept in trade simply because there is no mandated fixed ratio when using the money for purposes of exchange. The fixed ratio in the payment of taxes could be adjusted year to year. The government would spend into circulation, whatever the people would accept in payment; the only restriction being what the government has on hand in the preferred medium.
The entire point is freedom, recognizing that government may be necessary for some purposes, and simultaneously maintaining the freedom of choice, that is necessary for voluntary exchange. In brief the whole thrust of my argument is understanding the distinction between exchange value and intrinsic value. Sometimes the need to exchange is more important that the underlying commodity. Other times the stability of a commodity that is gaining in value relative to other mediums is more important than the opportunity for exchange. Thus we reconcile the freedom which gold represents, with the responsibility the government owes to its citizens. This whole system would be in dynamic equilibrium where the government merely sets the exchange ratio for paying taxes, this to aid a developing economy and this could be done more or less scientifically.
Dave
Dave, You haven’t defined “intrinsic value” when it comes to commodities. Nor have you explained how “gold represents freedom”. I also do not follow that retuning to a gold standard would be a “market-based solution”.
There is no “free market” in gold. It is all controlled by the biggest holders of that commodity, the international central bankers, and their primary dealers. But please explain to us how you propose that a gold standard “free-market” currency would work? Where would the government get the gold? What would be used to buy it with?
Don’t you understand that the money you do always with “legal tender” you no longer have “money”? Furthermore, whatever you DO have will not have the confidence needed to be useful as a means of exchange.
Money is “money” BECAUSE it is “legal”. It is money by law. It is money because the government decrees that is is money, and must be accepted in payment, not only for taxes and fees, but all debts.
If two parties to an exchange of goods or services which to designate something other than “money” of the realm as payment then they are free to enter into such a contract. Nothing is stopping them, now or ever, unless the substance is contraband, or illegal, such as heroin or methamphetamine.
You argument is one we have considered deeply, long and every way imaginable, and we have dismissed it as unworkable. These ideas are just not good for society and other living things. They are variants of the ideas that have been killing us, and will continue to do so, until we change the system.
Cheers, Jere
I may be able to help here, Jere, as I suspect you may not have considered some of these ‘angles’.
Firstly, the “value” of anything (even gold) is not in the thing itself; it is in “your mind”. Think about that carefully. If you don’t believe me, think again. Once you’re comfortable with that fundamental point, we need to establish an underlying concept of ‘price’ which does not rely on the mechanism called ‘money’ (which will carry the units for prices).
To establish a stable unit for ‘prices’ (which is what we desperately need for our money) you need to understand that a ‘price’ only exists when an exchange of goods and/or services actually takes place – and that ‘price’ is the ratio of the ‘values’ given and received, which should always be exactly 1 : 1. If the ratio is not 1:1, then the exchange won’t happen. Or if the exchange should be forced to occur when the ratio is not 1:1, then you see the true nature of coercion (or fraud). No money is involved here, yet.
That being understood, it is possible to see how some statistic based on the prevailing gold-for-silver “exchange ratio” (1 oz of gold for 64 ozs of silver = 64:1 “value ratio”, as I type this) can form a basis for establishing a stable unit for ‘price’. It was, in fact, the basis for the dollar coin design which prevailed in the US of for decades before the Legal Tender Cases were decided (1869-1871 or thereabouts).
You can study how the physical exchange ratio between gold and silver has varied through history: 12:1 for 1,300 years in Roman times; 15:1 in England for 59 years; from 15:1 to 16:1 in the US before the Legal Tender Cases; , between 70:1 and 90:1 during the 90’s, and now down to 64:1. These are all weight-for-weight ratios, not money-price ratios (although they could be) and they remained relatively stable over very, very long periods.
But the useful fact to note is that changes in the ‘values’ of those metals (which commonly follow each other up and down) will not greatly disturb that exchange ratio in the short term and a suitable statistic based on that ratio (like a 30 day or 100 day moving-average) will be inherently more stable than either of the metal values or the basic exchange ratio.
So, if today we again made a 1oz silver coin the legal definition of “one dollar”, following the 1860’s US model, a 1oz gold coin would today have an exchange value of $64.00, and all money-prices in the US would immediately be reduced by a factor of 17 (1oz of silver sells for about $17.00 at present). I’m not recommending the US do this, just stating what the old standard coin used to be and how our present values measure up against it, as a reference point.
Using this metal ratio to establish a more stable ‘exchange value unit’ is not unlike using a Laser Interferometer to establish the unit of length, or a Caesium Atomic Clock to establish the unit of time. While few people would know what either of those instruments looks like, we all obtain the immeasurable benefits of their ’stabilizing influence’ on our units of length and time and it will be much the same with correctly sized and imprinted gold and silver coins. They are not intended to be our common, everyday pocket money or the means of exchange for business, just the “reference point” to which all other forms of money must be compared, like comparing your wrist watch with the time pips broadcast over our radio networks, or the NIST standard against which commercial manufacturers of tape measures would check their master tape-printing machines.
Electronic credit mechanisms and paper notes will serve just as well as our everyday ‘tape measures’ and ‘egg timers’ do for ordinary trade purposes, so long as they are compelled by law to “agree with” the reference standard coins, so that one paper dollar will get you exactly the same ‘value’ of goods or services as our new 1 oz silver coin will, for example.
Can you imagine how far-reaching the effects of a more stable reference standard for the ‘price’ measurement system would be? Think about it for a moment, in relation to tape measures and clocks. Does the length of an hour vary depending on how many digital wrist watches are ‘in circulation’ or how often people are reading them? Is there any sense in borrowing a 10 ft tape measure from a length-bank to measure a piece of lumber in a lumber-yard, then giving it back to the ‘bank’ (together with an extra 12” ruler!!) when you have finished that transaction?
The true ‘value’ of having a legally defined unit of exchange value (fixed and realized in the form of a 1oz silver coin, for example) cannot really be measured in dollar terms, any more than the ‘value’ of a Caesium Atomic Clock can properly be assessed in minutes or seconds, and cannot be measured in terms of the cost of building it. It’s true ‘value’ (as a reference standard) for determining the precise extent of 1 second, is immeasurable: like the value of ‘justice’, which should never be ‘for sale’; or the ‘price of liberty’, which is ‘eternal vigilance’. The real question is, “Why have we tolerated ‘flexible’ dollars for so long?”
Jere:
It is not true that money is money only by law, however the government can make it illegal as Roosevelt did in 1933 when the possession of Gold was made a Federal crime. The government also makes it a crime to compete with the FRN, as for example, what it is doing to the Liberty Dollar (look up in Wikipedia). Also if the value of FRNs goes down in relation to the value of gold, you have to pay Capital Gains taxes on the Gold. I’m not suggesting that a free-market solution would only rely on Gold. Silver and the government’s issuance of paper money spent into the economy would also serve that purpose.
I, in my later post suggested the term “store of wealth” value, instead of “intrinsic” value. This becomes important when the “exchange” value of money serves a lesser purpose than its purpose as a “store of value”.This is important to freedom, because it represents an independence from irresponsible or repressive government, and is a check on inflationary proclivities.
If the government or the people have no gold or silver, although this is a remote possibility, then they will have to rely on the issuance of the government’s paper money. This would be an important check on the monopoly and manipulation of the gold and silver market by a few.
What I mean by a free-market in gold, is, whether it is acquired or relinquished, it is done through mutual and voluntary exchange.
When I refer to money, in what I am proposing, I mean the three forms it commonly takes; gold, silver and government paper money. If the economy grows in relation to this monetary base, the value of money, in general increases, and the more likely the government money, and even silver will be taking an increasing role, as the extent of the economy broadens. If the economy shrinks in relation to the monetary base, then there will be more money in circulation than their are goods and services to purchase. This inflation will be offset by people exchanging their paper government money for silver and gold, and this is because of the importance of this money’s “store of wealth”, over its “exchange” value. Gold and Silver are actual wealth, as is generally accepted the world over, while government paper money, is a local solution and a “representation” of value or wealth. Its primary purpose is in “exchange” which would not be possible to do with what it represents.
David, The above makes no sense at all. Please read Ellen’s book.
Ellen explains in some chapters in Web of Debt various proposals and attempts that have been made to use a “basket of commodities” to establish a stable currency – “Building a bridge to a New Bretton-Woods”. This makes more sense to me, because oil, wheat, and other commodities are what we actually live on, while gold and silver are luxury commodities with minimal practical use.
I urge everyone who blogs here to refer to and cite her book more often. I read and re-read it continuously. It has so much upbeat, can-do spirit that we all can use a little of now an then.
I also think we can get lost in the details. Our ship is sinking, and we need to act now, figuring out the cause in due time. The Audit the Fed bills are a good start. State banks are sorely needed.
Yes, Paul. Audit the Fed, transparency, state banks, making the “Federal Reserve” truly federal, ending “fractional reserve lending” by private banks (which is really private money creation with interest attached), these are all decent starters.
I think Michael Moore’s “15 things” is priceless:
http://tinyurl.com/yfk28wa
As for valuing new money, a basket of commodities is certainly a better starting place than “A” commodity, like gold or silver. However the only way I know to accurately measure value is in relation to an hour (or fraction thereof) of work (labor). Once established, a stable currency should be the standard measure of value, IMO.
A “stable currency” would also serve as a store of value, unless some penalty was attached to taking it out of circulation as savings (or hoarding).
Personally, I think the best form of savings is local capital investment, i.e., productive plant (place) & equipment (tools, machinery, etc.)
Cheers, Jere
We also MUST find ways to get massive corporate campaign contributions out of our political system. Middle class citizens cannot hope to compete with the kind of money the bankers and Wall Street financiers can pour into elections and primaries. It is through money that the electoral process is controlled, and the will of the people violated.
Cheers, Jere
Amen to that, because value comes from the actions of the human person, not just something dug up from the ground and smelted/refined.
My question: How does one measure an hour of work across different diciplines and different skill levels (the fruit-picker compared to the physician?) (Or does Howard George address this?)
I like your concept of savings as a paradigm shift from personal investments in a portfolio to investment in the community. In order for this to work, we have to re-gain a sense of an interdependent community, as was the case during the Colony of Pennsylvania and the like. Some communities in Europe were stable for hundreds of years.
I never thought of savings as a detriment. Doesn’t that create a reserve for loans? Or are you suggesting a “real bills” scenario, or the community capital in factories and agriculture alone create a fractional-reserve basis?
Reading through the posts – I must again pose the question:
What is the fixation with interest?
It is easy to introduce money into circulation – everyone does this when they extend time to pay. The ‘money problem’ is not the creation of money – but the removal of money from the system
The debt based monetary system solves this by creating money as debt – the money is extinguished when it is repaid. The problem with the debt based monetary system is not the debt itself – but t he compound interest attached to this debt.
Interest is the time value of money. If I loan you $100 (assuming it’s a real dollar and not something I just created on-the-fly out of nothing as a monetization of your promise to repay the dollar), I will charge you 5% each year you hold on to both the $100 plus the accrued interest. Either way, it is worth my while. If you pay it back to me today, I can lend it to someone else. If you pay me back next year, I have to wait to re-lend it out, but I earn $5 on it. In order to make sure the extra $5 is in the system, I’ll have you do some task worth $5 of labor (bake me some brownies) , and write a receipt that can be fully monetized, like the Ithaca “hour”.
Compound interest is simply interest on your interest. It’s a two-edged sword. It’s a great incentive to save as well, because if I deposit one dollar at a bank at 5%, I end up with 5% at the end of the first year, but at the end of the second year, I end up with 5% of $1.05, not just 5% of $1.00.
Then, assuming that the bank put an additional $5 into the system this year (they got the windows washed), the capital reserves also grow at the bank, because they can lend 900% of my $1.05, compared to 900% of my$1.00 a year ago.
For banks, they create the principal as a book-entry (based solely on the promise to repay, which they behold as an asset of equal value), and not the interest, so that in order for interest to be paid back, more money must be created, also in the form of loans that charge interest, and so fourth. However, 10% of this money needs to be in reserves of real value, in order to continue to create the loans that perpetuate themselves to keep the money supply in existence.
This is fine if the 10% reserve comes from newly created state notes, recirculated currency, and/or “capital” with real value, such as buildings, property, or commodities.
The problem with today’s banks is that this 10% reserve is bogus capital in highly suspect vehicles such as derivatives and “toxic” assets, which cannot be accurately measured. Therefore, when it’s time to pass the audit, books have to be balanced, lending ceases, so as loans are paid back (or defaulted on), the money supply shrinks. Collateral property (real estate) also shrinks in value, because it just sits on the market when fewer “qualified” buyers are available.
What Ellen is suggesting in Web of Debt and her articles is that “state” banks can be created with capital from state buildings, property, and other capital, and continue to use the fractional-reserve system. But here, the interest earned is re-spent into the system for the common good in the state or community, thus relieving the tax burden, while funding public projects, hospitals, schools and services. Some newly-created money (fiat, debt-free) is spent directly on projects, mainly to keep money in the system to cover the interest.
As a former loan officer, what bothers me the most is not interest rates but accrual periods. I actually respect the pay-day loan more than the thirty-year mortgage. One may cost me hundreds, while the other will cost me hundreds of thousands. People out there, look at your mortgage stub. How much of your payment today is interest alone? The newer the loan, the less principal you are paying down on your house. And if you refinance, the process resets all over again. The whole system was designed to keep you from ever paying off your house. Of course, we love the fact that the interest is tax-deductible, but big whoop! You’re still paying interest that is like paying rent, just 60 cents instead of a dollar. Uncle Sam wants you to “own” a home, so you’ll keep the money supply propped up by staying in debt! Believe me, they’ve got this whole thing figured out!
My proposal is that loan terms be limited to seven years. Most people don’t live in one particular house for more than seven years.
Correction on second paragraph:
Compound interest is simply interest on your interest. It’s a two-edged sword. It’s a great incentive to save as well, because if I deposit $100 at a bank at 5%, I end up with 5% at the end of the first year, but at the end of the second year, I end up with 5% of $105, not just 5% of $100. Then, assuming that the bank put an additional $5 into the system this year (they got the windows washed) to cover the interest accrued(so that it doesn’t have to be taken out as another loan), the capital reserves also grow at the bank, because they can lend 900% of my $105, compared to 900% of my $100 a year ago.
The primary function of money is ‘time to pay’ – this allows real investment. As a by-product we also get ‘time to buy’ (saving.)
I have never seen any necessity for anyone to bribe me to save – if I would prefer to spend my money later – then I am prepared to pay for that privilege.
Compound interest has a far more sinister function.