Money as debt cannot work

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Dasavin's picture

In a monetary system in which all value of a currency is nothing

more than debt, if all debts were to be repaid, the monetary system

would disappear.  In other words, there would no longer be any money at all.

(This is a reproduced statement from the Fed. Reserve itself)

In this system, growth therefore equals increasing debt.  This is seen in the

banking practice in which fractional banking allows banks to create money

by a mere book entry as they loan out $9 for every $1 they actually have

on hand.  Each of the $9 becomes the basis for other loans of $9 by other

banks as the dollars are deposited throughout the banking system, creating

ever more "money" which is nothing more than debt.  There is nothing of

real value backing it up.


Banks, therefore, make more money by creating more debt.  It is not in their

interest to see debts repaid because a repaid debt reduces the money supply

(erases the phantom money/debt).  Rather, they want the interest payments

on debt - this is their ever-expanding wealth because the debt they produce

is ever-expanding.


It is difficult to imagine a more lucrative business than banking.  For producing

nothing real, and for printing fiat money to loan, banks demand payments in interest

for essentially doing nothing more than creating the illusion of value.  The only real

value is in the labor and creativity of those who obligate themselves to repay

the loans.  Hence, banks are repaid in dollars earned by human work and ingenuity,

the banks then take that value and dilute it 10 to one in order to loan out more

book entry money on which to make their ever-increasing interest payments.


Add to this the banks' ability to leverage up to 20-30 to one and invest in their

various ingenious forms of "paper" such as default swaps, and the wealth generated

can be staggering.  Of course, it is phantom wealth, based only on the continuing

labor of the  working masses who actually create something of use every day.


With such ever-expanding money supply via debt, the value of the labor that sustains it via taxes

and real work/production cannot expand fast enough to keep up, and people find they must pay

more and more for the same things.


Therefore, the money-as-debt system inevitably must fail because the debt creation

has to eventually so outpace the real value of work and production by human beings

as to make the money worthless.


A general malaise sets in because the working public becomes convinced the only way

to have the good things of life is to go into debt.  Saving money is a losing game because the

value of the money saved is falling daily via the system's debt creation which equals hidden inflation.


As they watch the money they earn decline in purchasing power so mysteriously, requiring

more hours of work just to have what earlier generations were able to purchase, faith in

the national life as a whole declines.


But those who create money by loaning it out do very well.  They are not concerned about

the weakening value of money because they are able to print whatever the system needs.

As the number of dollars increases for people to live, the number of dollars printed by

banks increases bringing in an increasing number in interest payments.  In this way,

bankers know they will always have an ever-expanding income.  The banking/monetary

system is set up to insure this.


The debt, however, eventually has to destroy the system because it has no restraints.

Banks keep expanding the debt in order to expand their incomes with ever-weakening money.

The system reaches the point where no one really expects any debt to be repaid, but just

the continuing re-financing of debt to keep up the illusion that the society/government/business

activity of life is creating value ("growing") when in fact it is only generating debt.


The idea that a nation can "grow itself out of debt", therefore, is another illusion.  All "growth"

under this system is only more debt.  Therefore, increases in production and consumption

are nothing more than an increase in the creation of more debt - putting lipstick on the pig.

Wealth will continue to be based entirely on debt and therefore must eventually collapse

under a requirement that interest be paid on all of it -


There simply is not enough real work being done by enough people to sustain the interest

payments on the ever-expanding debts owed to the world banking establishment.


And this is the crisis point the world has now reached.  The reason the EU cannot concoct

a way to re-finance the banks and the governments is they do not have enough people creating

value through work to keep the illusion of wealth going - the illusion that is at the basis of

the world's financial/monetary system : fiat money.


Our money is a fiction.  Debt cannot be value, but we have a system that says it can. 

Therefore, the "growth" we long for is only more illusion.  It creates more debt than any

real production of value can ever justify or sustain.


This is the castle of cards that must fall completely to provide the motivation for creation of

a monetary system based on value and not in the hands of the banking cartel which

\cares only for the creation of its unlimited wealth via the creation and control of debt -

in which they are the only ones enjoying interest and therefore are determined not to

allow debts to be repaid.


DRC's picture
You are confusing substance

You are confusing substance and symbol.  Money is the latter to wealth, and to confuse the two is to go astray.  The problem with financialism is that it believes that money makes money; and it only makes money as investment capital if it invests in the production of real wealth.  Unless the game is rigged to give the Phoney Money legitimacy it does not earn, that is.

Money is the electricity that runs the economy, the current that has to flow instead of being shorted out.  If the grid is not working as a system, power generation in one sector is not effective for the system.  This is why excess capital has to be returned to healthy investment and not just what the rich want to do to make more money.  It is why authoritarian and autocratic rule distorts what the economy needs to the point of stagnation or overheated flame-out.  

Of course, when it is possible and moral, debt should be repaid.  Within a fairly narrow range of human interaction where Commerce is the thing, money is exchanged for things without much longevity to the relationship.  But, in the familial or communitarian web, debt is commonly forgiven, as relationships are more important to preserve.  In small towns of our past, store owners let neighbors run tabs and often wiped out the debt instead of the neighbor.  

Michael Graeber's DEBT, a Five Thousand Year History, is where you will get a different view of money based on the way it really has worked in human socieites as opposed to the way the economic theories tell us it is supposed to work, if we are rational.  Ay, there's the rub!

Anyway, it is an interesting shift in thinking and the theology of money.  Not even "the economy" is God, but certainly not Money.  It has to be used rather than "kept."  The system requires that it be used productively rather than wastefully, and getting back to balance matters far more than anyone's personal pique about having anything "taken" from their wealth.  It is those who have their humanity taken by the coercion of necessity for the profit of others who have a case here.

Human history is filled with forgiven debt because it is necessary.  When a new king took the throne, he often forgave all debts and restored all lands.  It made him very popular with more people than it pissed off, and it put the economy back into good systemic balance.  It is the way it works.  Just is.

Dr. Econ
Dr. Econ's picture
That's crazy. There has

That's crazy. There has always been a huge stock of treasuries in private hands in order for the FED to increase the money supply as much as it thought it needed to. If there was actually a time when all the Treasuries were bought, the government could simply cut taxes and run a deficit.

DRC's picture
Yes sir, you do understand

Yes sir, you do understand that money is not the "thing."

When the financial system was

When the financial system was privatized, governments had to borrow money into existence rather than simply spending it into existence to increase the money supply when required as they used to.

If government wants to print a new dollar bill to add to the money has to borrow it first  from a bankster or financier..

Probably George Washington's picture on the dollar bill should be replaced with a photo of the Pres. of Goldman Sachs.

 All money is brought into existence through public or private debt.  No circulation.. Debt reaches a ceiling where new debt can't be repaid. The debt/credit system goes into meltdown. As loans are repaid, the money supply shrinks.unless new loans are issued to compensate for the paybacks.

"Faced by a failure of credit, they have proposed only the lending of more money". - FDR

It's just another fatal flaw in our privatized monetary system. We have periodic collapses in the money supply. Government has to borrow from the privatized monetary system in order to increase the money supply when it shrinks or disappears..

Constitutionally, however, the U.S. Government can simply issue money and spend it into existence when required. We don't do it that way. We don't by-pass the privatized monetary system...though we can Constitutionally do that. The Founding Fathers weren't twits.

The most important part of the commons, the monetary system, was privatized a long time ago.

Supposedly, a billion bucks borrowed into existence when required  rather than being spent into existence when required  is more sound...even though it has a crushing debt attached to it.

The monetary system. How it developed, how it functions, the  consequences. Animated video:

Retired Monk - "Ideology is a disease"


Dr. Econ
Dr. Econ's picture
  I am trying to figure out


I am trying to figure out why the video is wrong. Clearly, the facts - as I stated elsewhere - cannot explain our current crisis while at the same time explaining our past success.  The world has had fractional reserve systems since the invention of the bank.  And, because fractional reserve systems increase the money supply by lending other people's gold, the increase in money is also 'debt', while the interest amount is never created.

An economy  as a whole cannot save - thus for every person saving there is another lending.  The way this lending is 'paid for' is with growth - some amount of the increase in growth from the lending will pay the interest. Because long run growth rates are stable, the economy is stable. The money supply, debt, prices, gdp all rise together in the long run.

DRC's picture
Go to Graeber to get the

Go to Graeber to get the answer.  Money is not the commercial abstraction often presumed.  It is the blood debt, the bond price and other priced crimes.  It is commodified humanity.  It is also the energy supply for human economic interaction.  But, it is always the symbol instead of the substance of a social economy.  To the extent that economic forces advantage and disadvantage citizens and humans, money participates in the crimes.  The economic theology pretends that barter in the market will sort it all out.  The bottom line is social reality and how well the economy respects it.

Dr. Econ
Dr. Econ's picture
I think I understand the

I think I understand the points raised.  But the case is sort of too well made - it doesn't explain the facts.

Surely anyone could predict doom an gloom - and when in you are in a period of doom and gloom that person sounds like a genius. But it could also be just a coincidence. After all, a broken clock is correct twice a day too.


tomas.savage's picture
debt as money has been one of

debt as money has been one of the worst evils inflicted on humanity.

we need to switch to a resource based economy and end the practice of usury.

Dr. Econ
Dr. Econ's picture
Well,  no one is forcing you

Well,  no one is forcing you to use money.

tomas.savage's picture
Dr. Econ wrote: Well,  no one

Dr. Econ wrote:

Well,  no one is forcing you to use money.

yes, they are.

MEJ's picture
and how do we switch to a

and how do we switch to a resource based economy?

Maybe the difference between then and now is a matter of scale, Dr Econ. Fractional reserve lending was only institutionally established about 40 years ago.

Dr. Econ
Dr. Econ's picture
MEJ wrote:  Fractional

MEJ wrote:  Fractional reserve lending was only institutionally established about 40 years ago.

Dr. Econ replies: I would say that is definitely not correct. For example,  This book says:

        The Federal Reserve System [passed in 1913] was based on the principle of fractional reserve banking,


tomas.savage's picture
MEJ wrote: and how do we

MEJ wrote:

and how do we switch to a resource based economy?

by sharpening our guillotines.