Tuesday, February 23, 2010

(Insatiable Debt) Monster Inc.

I’m not a fan of any main stream outlets, but figures can speak louder than words:

€560bn matures in 2010
€540bn matures in 2011
€522bn German banks exposure to Greece, Italy, Ireland, Portugal and Spain

That’s some heavy duty debt in a debt saturated market. The UK and the US are staring at similarly eye-watering numbers. All of it must be rolled-over, which means renewed on different terms, and if the Telegraph’s Evans-Pritchard is to be believed, terms yet more costly for Governments everywhere. That means steeper interest payments, which means less money for fuelling the general economy, which means higher unemployment and deepening crisis. I’m not expert enough to predict sovereign defaults, but I think the call that this is a Bad Situation is a sound one. The important and interesting inquiry is into how things have come to this pretty pass.

There are all sorts of complex arguments about usury and reward for risk, but they mostly assume the current model can’t be beat, that interest is a must when money is created (otherwise it would be free), that “free” markets will take care of everything, and that Governments must borrow the money they need from financial institutions. These are assumptions. There are sound alternatives. Ellen Brown’s Web of Debt is fascinating on this topic, and there is even talk of a resource-based economy in the more fringe areas of debate (which is where I like to paddle). Whatever your preference, the logic that systemic change is essential – real change mind you – is unassailable. There now follows a short blurb on that logic in my own uncopyrighted style. No trademarks here.

As all Governments worldwide borrow at interest to fund their ventures, so debt-repayments rise as the additional money to cover the interest charged is also created as interest bearing debt. Because money is created as debt, the cost is higher than the amount created, so debt can only grow. With the exception (I think) of the tiny island of Guernsey, all money worldwide is brought into existence as interest-bearing debt. Money is therefore debt. This elegant system has unsurprisingly yielded a Debt Planet, where small matters (non-profit making) like education, health and infrastructure wither and die for lack of funding. The bright evidence of this process is there in the data presented above. There is much more if you care to look.

The debt monster bellows to be fed. It is a spoiled brat who will only eat money, morning, noon and night. We turn everything we can lay our imaginations on into money and hurl it desperately into the monster’s gaping maw, in a futile bid to keep it at bay. But it just gets bigger and hungrier. The only effect feeding the beast can have is to make it bigger, and the bigger it gets, the more food it needs. It is, after all, made of maths.

This is a design problem inherent to the system we humans created. We – not God, not Mother Nature – created this beast. We can uncreate it.

The system is wrong. Money is wrong. We need a redesign.

"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take away from them the power to create money and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money." Attributed to Josiah Stamp, former director of The Bank of England.

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