P < P+I

The title of this week’s blog is an equation I came across in this video lecture. I have seen it elsewhere, but for some reason it's expressive power really hit me this time around. Principal is always less than principal plus interest. Since money is created as debt, yet the interest owed on that debt is not, a debt-money system slowly, but surely, sucks wealth to money lenders, until the entire money supply is debt owed minus the interest. “Bankers own the earth; take it away from them, but leave them with the power to create credit, and with the stroke of a pen they will create enough money to buy it back again.” (Attributed to Josiah Stamp, former director of the Bank of England.)

P < P+I is the simple equation that describes the forced-growth dynamic of pyramid or Ponzi scheme debt-money. The only differences between Bernie Madoff’s short-lived Ponzi scheme and fractional reserve banking across the globe, are the scope of operations, available man power, and the fact that the latter is state sanctioned. Because the global monetary system uses as much of the planet’s population and resources as it can to fuel its mathematically necessary growth—rather than the wallets of select Hollywood actors in Madoff's case—it takes longer to collapse totally. There are mini-collapses along the way, but new fuels are found in new lands, and the process boots up again. In periods of ‘growth’—better called expansion of the money supply—people do well, there are jobs to be found, prices seem stable enough, and so on. In periods of contraction unemployment grows, there is price volatility, and times are hard.

Banking is a pyramid scheme—if it's not growing, it's collapsing—networked and interconnected across the globe. Money as debt is what it sells. That everyone must have money to live decently adds spice to the brew, and gives the controllers and owners of the money-producing mechanisms enormous power, which they secure via a welter of propaganda, media ownership, secrecy, a ‘high priesthood’ of obedient economists, and sufficient control of the educational agenda too. Money influences almost every decision made in society; “Shall we do it?” “I don't know, how much does it cost?” Hence, if you control money, you control society. Not in fine detail of course, that’s impossible, but the ebb and flow are yours to steer, for a while. Nothing grows forever.

Money is not wealth. Money is not wealth. Learn that well. That we see money as wealth, or even a representation of wealth, is part of the propaganda, part of the myth we must penetrate. Money is a control medium, a medium of control more than of exchange. If you can create it out of thin air as debt, you can have as much of it as you want, certainly more than you could ever spend. Owning houses and jets and cars is quickly boring. Controlling nations and billions of people is a game of ever changing variety, and remains for this reason sufficiently challenging to keep a talented psychopath nicely entertained. Control, generating fear, wielding power, causing war, being saviour and destroyer, God and Devil, that’s what money is all about. That’s the game.

Money is the force that keeps the pyramid together. Money builds the pyramid. It is an energy of symbolic power enabling a vortex-like flow from the bottom to the narrowing top. It is a controlling idea we must learn to pierce if we want to grow up as a species and experience mature 'freedom.'

Now to Franz Hoermann’s “The End of Money”. (I have been in contact with the Professor and have his generous permission to translate excerpts from the book. He has also invited me to join him and his team in establishing an Internet portal on economics, something I have long wanted to do on my own. I shall keep you posted on developments.)

Any system not resting on physical foundations, whose operation depends on the belief of its proponents, is in truth a religion. Should this religion then be insisted upon by the state—the creation of debt-money as the legal medium of exchange—it is then a state religion.
But because the public is told none of this, people of today's so-called free market are actually in a secret state religion, which, without their knowledge and consent, determines the shape of their lives. Accountants, auditors, economists and every board contributing to the laws of this system, are therefore not scientists of our society, rather they are the secret priests of Money Religion, who ensure the uninitiated will forever subjugate themselves to their senseless, exploitative and harmful rituals.

[ … snip … ]

[On establishing the value and costs of things via standard accountancy.] All these questions are not, scientifically, unambiguously answerable. Sir Karl Popper would speak here of non-falsifiability, that is, the impossibility that other scientists can refute the allocation of future cash flows to individual assets [e.g. machine or let flat or increase in value of property]. The allocation of revenues to the individual components of a produced good always occurs arbitrarily. Each possible theory for such allocation can be supported by some arguments, but undermined by others. Hence, such theories of value are never falsifiable and for this reason are not part of empirical science.

[ … snip … ]

Today's money-values [prices] arise in the Market, allegedly from the Law of Supply and Demand. Even money itself is traded on the Market. But this means the measure of value itself possesses a variable value. A meter on the other hand is a length but does not possess length. Were the meter as a measure of length to behave as do the euro or the dollar as measures of value, then it would lengthen when measuring longer boards—because of higher demand—then shorten when measuring shorter boards, because of lower demand.

It is immediately clear to anyone with sound common sense, that is, to those without a formal education in economics, that, with this sort of measurement methodology, you couldn't even build a shed.

Money is not wealth. Value cannot be measured because it is relative and subjective. There can be no science that measures value, or beauty, or stink, or the sound of colour. Until economics concerns itself with planetary carrying capacity and sustainability it will remain propaganda of money value, money being a medium of control. The devise of that control is P < P+I. While we, the victims of this long, ongoing hoax, continue to allow The Great They to use money as sole judge of our worth, of the worth of everything, we subjugate ourselves to a myth which secretly enslaves us and keeps from us the real power we all possess.

“None is so hopelessly enslaved as he who wrongly believes he is free.”

Banking is a Pyramid Scheme

Dear reader, I find myself this week in a place more and more to my liking. It is the feeling that the argument—that money as we have it must go—is won. I have prodded and cut it from every conceivable angle, read for and against arguments from all sides, slept on it, dreamed about it, shouted it, endured setbacks and periods of doubt, and my conclusion is, its logic is unassailable. My intuition is in full agreement. Head and heart are one on this. The only other time in my entire life I have experienced such a feeling of inner unity was when I knew I wanted to marry my wife.

My growing acquaintance with the work of Franz Hoermann has contributed mightily to this, but I would not have been able to appreciate his work as deeply and easily as I do had it not been for others, for example Jacque Fresco, Peter Joseph, and Charles Eisenstein, to name three of many. A corollary of this quiet confidence that the logic is sound and the direction clear, is that my own work at this blog is more or less done. Actually I have used Econosophy not so much as a blog, but as a smithy for my book on money's effects on society, to which I must now turn my attention more fully.

Subsequent to today I shall use Econosophy as the place where I translate those of Professor Hoermann's Internet-based publications I feel should be available in English. Of course, should I want to do anything else here, I shall. Today's translation is not of Prof. Hoermann's own work, but of part of a letter he links to. It was written by a concerned Austrian citizen, one Dr. Guenther Hoppenberger, and sent to the Public Attorney's Office on the 3rd February 2009, inquiring into the legality of fractional reserve banking, which he calls a pyramid scheme. It is available on Franz Hoermann's website as a PDF, with the note, “As far as I know the Public Attorney's Office has not responded.”

So, without further ado:

“Statement of grounds and facts of the case.

Discussions of the financial crisis have given me cause to acquaint myself with the state-tolerated, indeed state-established—that is, secured by relevant laws and protected by state oversight—system of money creation and the mechanisms with which that money is then circulated. I quickly came to the conclusion (detailed below), that this system is a blatant violation of §168a (2), Criminal Penal Code, and urge the Public Attorney's Office to intervene accordingly.

The elements of the crime are effected in two ways:

1. The bank promises a property gain (interest) against a deposit, a promise based on the condition that this system (bank system) enjoys an increase of customers, whom it can only serve based on the condition of further increases of customers. This condition for the acquittance of the promise of property gain is kept secret from the system's customers. The guarantee shown, when such is stubbornly demanded, is itself based upon the very same conditions of a parallel system of similar legality, which is nothing more than the offsetting of the crime and obfuscation of the actual rules of the game.

2. Even the claimed promise—the source of money creation and extension of credit—that the bank can itself earn interest, is only met on the condition that ever more customers take on, in total, ever more loans, since otherwise the interest not created alongside the credit—though nevertheless the bank's property gain from this bank-demanded and debtor covenanted interest—does not exist. And even if the conditions for individual contracts appear satisfiable, because the crime, pursuant to §168a of the Criminal Penal Code, is made difficult to detect by splitting it up into subsystems, a systemic assessment of the total system (bank system as single bank) must be made.

Especially disconcerting is the fact that the promises of property gain described in both 1. and 2. appear to be sanctioned by existing laws, even though they clearly contravene § 168a of the Criminal Penal Code.

[… snip … ]

In light of the complaint I have brought to the attention of the state attorney's office regarding the crime pursuant to § 168a(2), I urge an investigation into the unjustifiable, ongoing continuance of the pyramid scheme by responsible bodies, and of the policy-level persons therein, and remain

yours respectfully,

Dr. Guenther Hoppenberger

A concerned citizen.”


The letter was written in very convoluted German which I have struggled to simplify without sacrificing its rather scholarly tone. I hope I have succeeded.

For those who might have stumbled upon this post and find its logical content impossible or untrue, consider the following. The banks/financial sector were rescued by the state because they were in financial difficulties. No one was borrowing, no one was lending. So the state steps up as borrower of last resort. From whom does the state borrow? From the bankrupt banks/financial sector. The state creates trillions of dollars by borrowing them into existence from the banks to rescue the banks. The state is the last sound borrower because of future taxes. That is, we tax payers have bailed out a financial sector addicted to gambling. We have borrowed from ourselves and our children, unasked, and have been so used for centuries, to sustain the perpetual raping of our future wellbeing for the benefit of a tiny minority.

And if, as is claimed, the banks have 'paid back' that 'money', why then austerity? Why the belt-tightening?

The system is so absurd it simply cannot be understood. We cannot process the evil done in its name. It makes no sense because it cannot make sense. It is a con, a trick, a mix of jargon, propaganda and mass hypnosis perpetrated by a psychopathic elite terrified the rabble is going to wake up and spoil their party. Well, we are waking up.

So, dear beneficiaries of this criminal system, you had better make best efforts to put things right, or you will likely be ripped to pieces by the monstrous rage of the dangerous crowd you have purposefully kept dumb for so long. Your time is running out.

Demote money, promote wealth.

FED Says Blah Blah Blah

Edward Harrison has a post over at Naked Capitalism 'explaining' quantitative easing. Although Edward does a good job, that it is as confusing as it is, and that the whole magic show is about keeping the economy growing, like, forever, really gets on my man-boobs.

I've noticed, recently, in my own little way, a beef up in the efforts of those who believe the system is just fine and dandy, to pump out a volume and amount of information designed to bamboozle and smooth. 'It's all under control, go back to bed little children. Look, we can tell this story and chat boring facts until you scream with boredom. Sleep is far preferable.'

There was this Bloomberg article telling us children not to be stupid and start believing the fucking experts. Get a clue, kids! I mean just look at those beautiful numbers! We put in thousands of top dollar hours massaging those beauties to a golden glow and you ungrateful, uneducated morons still feel unsafe!!??? What's an incredibly able and potent elite to do?

And Larry Elliot opined in the Guardian. Break up the big banks. Genius! Oh Larry, you're so fucking bold! Revealing your editorial manhood in all it's inky glory like that ... it makes me tremble. Sadly and depressingly, the comments reveal a lot of support for Larry's proposal. There is still plenty of ignorance out there. It's a worry all right.

Gentlemen, I am a wee nobody from uneducated nowhere, but I beg to differ all the same. Neither my anonymity nor the reach of my voice has any bearing whatsoever on the truth, or otherwise, of what I say. The world is the world is the world, funny money and Amazing Numbers or not. We can spew figures all we want, bewitch the natives with our accountancy chicanery until the crows roost in our ledgers, it isn't going to make a damn bit of difference. Fighting to keep this system upright is fighting to destroy civilization. So, gentlemen, get a fucking clue. You're killing us all.

In case you're wondering... Yes. I am angry.

This is what I posted at Naked Capitalism, indented quotes are from Edward's article.

Bernanke often speaks as if he believes reserves create loans. I prefer Janet Yellen, the Fed Vice Chair, and the way she recently explained how QE is transmitted to the real economy.

What does "create" mean? And why is there debate about this? This is money we're talking about, quite a fundamental part of the economy. You'd think they'd have figured out what's going on in that department by now! It's been a few years after all.

Truth is, we cannot know where the money goes. It gets squirted into the ocean of the economy then disperses. What are the effects of such squirting? "How long is a piece of string," is the rhetorical answer.

In actual fact, all QE2 does is drain the real economy of interest income by swapping an interest-bearing government liability for a non-interest bearing government liability. This decreases aggregate demand in the economy. So the real economy effects of QE are to slightly lower aggregate demand. This is offset by changing interest rate expectations, which alter private portfolio preferences and risk premia, leading to credit growth, leverage and speculation, forces which should pump up the real economy.

So what's the net effect, what's the net out here? We're reducing aggregate demand since lower interest rates mean those who earn money from money have less income (what proportion of the economy lives this way?) while borrowing and taking risks become 'cheaper' which pumps the economy into more activity. Is that a zero? Are we in equilibrium at long last? (That was a joke, by the way.)

Follow the money, huh? Problem is, we can't. Where it goes is secret, or more prosaically, is impossible to follow since the dosh has no serial numbers, and if it does, its journeying is not tracked throughout the system. Anonymity and all that. So any technical ability economists might otherwise have to say clearly what is going on is profoundly hampered. No one can follow the money, such is forbidden by the mechanics of the system. So right where it really matters we have guess work in place of certainty. Not even the FED is aware of what is going on.

Reserves create loans? Fascinating choice of words. Borrowers create loans by being, to some degree, credit worthy (although we all know how the rules are bent there). Banks lend to borrowers to earn money, and reserves ... well, they can be massaged, right? No people on earth as creative as modern accountants, the way I figure it. And obviously, if banks don't lend they don't make a profit. Banks are businesses; they have to make a profit. Profits from money creation. Money making money making money, AS DEBT. And then there's Ben B saying we should scrap the reserve requirement. Go Ben! It's all a joke anyway, right!?

The article is a good tracking of bullshit and jargon, in which obviously impossible Perpetual Growth is an unquestionable given. It's as if the real world doesn't have any relevance at all. So the article fails to address what really matters and what this is all about; globally sustainable management of resources. Why would humanity want anything else? Tracking how numbers are added to accounts then saying 'it does some opposite stuff out there, somehow' is, forgive me, a waste of time.

We are in a sixth extinction event. All living systems are in a state of decline. We have peak oil and peak everything else and yet we pontificate endlessly on how many dollars can dance at the tip of an economy. We are f*cking insane. The environment does not care two hoots about our imaginary numbers that we can't even track anyway. You're right Ben. It is all a joke. Let's scrap it and start again.

In the end money is for buying and selling stuff. We need a simple system everyone and their Grandma can understand. The opening comment says it all, "Going to have to read this thru about 4 more times to wrap my head around it, but thanks for covering it." Such confusion should not be necessary and is evidence of subterfuge and hoodwinking. Money is addition, subtraction, and percentages (and percentages only until we get rid of usury). That's it. Or that should be it.

Right now the system is based on debt, but needn't be. A professor of economics I have come to respect, Franz Hoermann, says we are transitioning from 'money as a good' to 'money as information.' That's a phrase that makes a lot of sense to me. We, as a species, are culturally addicted to a particular way of seeing ourselves and society generally, call it the Myth of Age, or the Story of the Times. It includes things like 'earning a living,' 'survival only of the fittest,' 'I'm all right, Jack,' 'there's no such thing as a free lunch,' 'objective facts,' 'hard science,' and so on. This story is crumbling. It requires a stiff and permanent hierarchy keeping the dumb dumb and the good information only in the hands of the elite. But nothing lasts forever. The bumps and the Information War we are experiencing are the outer signs of this change, the closing of one chapter and opening of another. Actually, more than a chapter. A book is closing.

We are beginning to write a new story which has cooperation, trust, and abundance at its heart. Debt-money will be unnecessary, will seem like a cruel joke, once we have taught ourselves, in as open and egalitarian a way as possible, how to set up a truly democratic system, political and monetary, that fosters cooperation and renders 'growth' unnecessary. What a wonderful world that would be.

A Prof. Hoermann Shmorgas

A “Prof. Hoermann Selection” translated lovingly into beautiful English by yours truly. Viel Spaß!
 
" Quite early in my so-called career, when I was still a research assistant, a professor said the following to me. He looked me in the eyes and said, “Herr Hoermann … You know, in a rational tax system the whole of our science [economics] would be superfluous.” I was 23, and that hit me like a bomb. [This would be around 1983.]
 
…
 
[T]hat is the key error in our reasoning. There is a stubborn belief, presented as is to the general public, that capital markets – and thus the people active therein – create new value, but that is exactly what does not happen. Already existing capital is feverishly sold back and forth, which can, of course, only [be profitable] for as long as new participants enter the system. Then, at some point, when there’s no one to be found to buy the paper, we say a bubble has popped. We have the expression, “bubble economy,” which describes an economy that can’t even exist without this repeatedly popping bubble. About 15 to 20 years ago we called this exact same process a pyramid scheme, which was actually, pursuant to paragraph 168 of the Austrian Penal Code, a punishable offense. Today our financial model [ … ] is therefore highly suspect and simply cannot work when an ever growing number of people live from it. That is, I can create relative prosperity for 3-5% of the population at the expense of the rest, but if more than 20% of the population, for example pensioners, want to enjoy this mechanism, then it simply can’t work any more.
 
…
 
It is an accepted theory that money is a motivator – and, allegedly, the same is true of the economy. It is the market that supposedly ensures every scarcity is resolved through money. But such control looks quite different [in practice]. Recently I saw in the Financial Times that, “Germany needs nurses, technicians, and teachers.” And yet what I don’t see is that qualified people, apparently so urgently needed, are offered 6000, 7000, 8000 euro monthly. Why doesn’t the market work here? And I cannot imagine that we have a shortage of bankers. Nevertheless they earn monstrous amounts. It’s true that money works as an incentive, but this money is created by a particular caste – out of thin air. These people misuse the printing press for themselves. And lawyers pen for them airy clauses so that they escape unpunished. For this lawyers may join them at the table and partake of their feast.
 
…
 
Money is rewarded with money. We don’t reward accomplishment in our system, we reward property. The economists Gunnar Heinsohn and Otto Steiger proved that modern money – worldwide – is not backed by value. Rather, whenever money is created an equal debt is created with it. The systemic problem arises out of the fact that the debt is loaned at interest. The money for this interest is not created. The money for the interest doesn’t exist at all.
 
…
 
The person recording the account transaction in some double entry bookkeeping ledger records only the value of the money, not its serial number. Yes, you have to prove you are such and such a person – you receive a password or ID – [but] the money is one moment there, then it’s gone. One moment it’s doubled, at another it comes out of a valuation, out of some mathematical model, yet another out of a company’s value. Money appears there where someone or something needs to see it, and the money-man pays the lawyer to make us believe him.
 
…
 
Double entry bookkeeping is a shell game invented in the middle ages. The shells are the accounts. And the real money is the pea, which could be under any one of the shells. [ … ] But now it’s really getting interesting. What happens when you turn over all the shells and find no pea? Banknotes have serial numbers, so that in earlier times we could catch bank robbers. Were we, in an electronic full-money system, to assign serial numbers to all “items” and “tokens,” as well as to all transactions and all natural people – not to artificial entities where no one knows who the real owner is – then all these systemic crimes would be physically impossible. And that is the sole reason why we don’t have such a system today – a system which would of course be better. [In the interview with swissdox.ch, from which this section is taken, Hoermann's German does not, to my mind, express correctly the mechanics of the serial number system he describes. I have tidied it up away from the assignment of "items" and "tokens" to people and transactions present in the original text.]
 
…
 
You only have to look at the math to know [systemic collapse] will happen, because in the foreseeable future many nations, even big ones, will no longer be able to pay the interest on their debt. Precisely this will occur this year, 2011, which many financial mathematicians have predicted, so I am by no means alone. That is sovereign default, since when you see that you’re no longer receiving interest on your government bonds, well, then the government bonds have no more value. Then the nation is officially bankrupt.
 
[The MMT folks would say this is impossible because the sovereign can always spend money into the economy and as payment on debt, but I agree with Prof Hoermann that it is the value or ‘respectability’ of the bonds/currency that indicates a state’s solvency, not the legal freedom of the sovereign to spend money into existence. And there’s inflation to consider too. Besides, Hoermann’s solution is, at a deeper level, similar to MMT – a truly democratic form of it – in that it sees money as a mere ticket for measuring commitment and accomplishment in the social realm. It is, in my opinion, far preferable to the more traditional MMT solution which changes nothing except the openness with which money is spent into existence. In brief, ‘sovereign bankruptcy’ has the effect of forcing currency reform. It does not mean the nation is suddenly devoid of wealth, only the money system du jour has broken. The question at that point will be: “What now?”]
 
…
 
[We have to] let this system run over the edge and inform the public. And I’m not doing that alone, I’m networked, you are networked, the world is increasingly so. Our approach is: Violence is no solution. In our book [The End of Money] we say: We seek no scapegoats. Because this is a mass-deception phenomenon, we know before we begin that the justice system could not cope. Prosecute all the criminals and accomplices, process all that data? Impossible! We have to change the rules. We don’t have to punish the elite, we don’t have to know them or make them known. We only have to take their toy away.
 
…
 
The so-called powerful, as you call them, don’t actually have any power at all, rather they are making themselves, by perpetuating the current system, an enemy of all society, and risk more and more, therefore, their own safety. [ … The] way the money system has been misused, for centuries, can now be read in the better literature in the Internet. That is to say, it is no longer a secret. Even politicians will at some point have to admit that we have a flawed construct. Actually, many of these so-called powerful people already actively support systemic change. [ … ] These people cannot, or do not want to, out themselves. Behind the scenes however systemic change is being busily prepared and pushed forward. One thing is clear: in a society in which all people do well, the elite do better too. This is a critical point. The general prosperity which they then can rightly enjoy will not be poisoned by envy and mistrust.
 
…
 
Actually money can only be created out of thin air, but it should be based on accomplishment, not created as debt. That is, it should be present in society as direct reward for accomplishment, not circulated as debt to be paid back with interest, which cannot work. [ … ] Here the Internet comes to our rescue. [ … ] For example, since 2006 we have at our disposal a Swiss software application that can do exactly what we want. It can easily handle over 9 billion accounts for individuals, and provide them with their own line of credit based on societal contribution and accomplishment.
 
…
 
We need multiple, independent “accounting circuits” (Rechnungskreisen) in the form of specialized, electronic vouchers. To cover people’s basic needs, such as shelter, energy, food, etc., all nations should take an inventory of all available resources and human needs. We would then divide these resources per person, such that everyone is cared for up to some basic standard of living. Here we must all work together to prevent a slide back into a profit-oriented exchange system. Society has to care, without ifs and buts, for all children, all old people, the sick and the infirm, as well as provide everyone with a basic standard of living, regardless of their societal contribution.
 
…
 
There are multiple Internet-based payment systems capable of replacing the existing money system [today]. “Money” will no longer be a medium of exchange, rather it will be created as an immediate form of reward (points) for socially motivated activity. This is also the only chance today’s elite has of escaping unscathed. In every other scenario it will end badly for them. And they know this.
 
…
 
No one can buy us. What we are sketching here is nothing other than an offer of societal intermediacy. A conciliatory proposal. "
 
[All emphases mine.]



All quotes here are taken from interviews with various online news outfits, hence it is spoken German, not written. I have tried to capture that feel. Prof. Hoermann's new book, "The End of Money", will be with me at the end of March (according to Amazon). As of that point I will be able to develop a fuller sense of what the Professor is proposing. This collection is meant only to whet the appetite.

For German speakers here's the professor's website. I just today (23.03.2011) received an 'OK' from Professor Hoermann, that my translation is accurate. He corrected my guessed interpretation of "Rechnungskreisen" from "billing circuits" to "accounting circuits."