A debt based monetary system & forced debt slavery
As a direct consequence of a debt based money supply our entire economy is plagued by intense competition for money to pay interest in an economy that suffers from an impossible lack of purchasing power. The chart below that plots the growth of money stock (M4) and domestic debt over a 33 year period in the UK clearly highlights that the total debts carried by consumers and industry is greater than the money that exists in the entire economy.
As a result the entire economy is completely dependent upon borrowing to supply money and debt is doomed to continually grow forever as it is strapped to a financial system in which both debt and the money supply are logically bound to escalate as there is not enough money to pay off all the debt. The only way to survive is to accumulate more debt. Those who are unable to continually re-finance are rendered bankrupt. Those unfortunate who cannot keep up with the inflation that occurs as a result of this unsustainable system get their homes repossessed and their businesses ruined as millions are thrown out of work as the economy sinks into recession when people cannot sustain the growth of the money supply by taking on ever more debt.
The situation of a debt based money supply where there is more debt than money means that sufficient people must be driven to borrow in order to maintain the circulation of money. The best that most people can hope for is to hang onto their jobs to pay their mortgage. The best that most businesses can hope for is to be able to offset their debts against their assets, and stay solvent on paper.
The consequence of a lack of purchasing power must be explored further. One of the first things I was taught in Economics is that industry serves two purposes: Produce goods and services and to distribute wages and salaries to enable these goods and services to be purchased. A lack of purchasing power means that consumers end up with insufficient money to buy the goods and services being produced in the economy.
Any business that has borrowed must repay its debts, and the only way it can do this is through selling its goods and services. This requires that the firm sets a price on its goods which includes the gradual repayment of this loan, or interest on the loan. But this is economic disaster. It means that prices are being set which are higher, in total, than the wages and salaries being distributed for the purchase of these goods. In an effort to obtain sufficient money to fund its debt repayments, or pay interest charges on standing debts, a company is forced to set prices that are higher than the income it is distributing. In economic terms, this is absolutely catastrophic, because it means the goods and services cannot be bought with the money being distributed for their purchase! In summary, industrial debt elevates the prices of goods and services above distributed incomes. At the same time interest repayments on mortgages and credit cards and other consumer debt reduces their disposable income as they take on ever more debt to survive.
The combined result of debt on businesses and on consumers is to raise prices and reduce disposable income. This is a lack of purchasing power where consumers do not have anywhere near enough money to meet the total price tags of goods on sale in the economy. Just as debt grows, so does the gap between prices and income – the lack of purchasing power.
As the inevitable happens and some are rendered bankrupt and laid off in the guaranteed recession under a debt based system with a lack of purchasing power, some are forced to seek government support. However, the government has enormous difficulty in raising revenue to support the needy in an economy riddled with debt. Taxes levied on industry simply results in higher prices, taxes on earnings hit consumer spending, depressing demand, leading to business closures and more unemployed. The government is forced to take on debt in order to supply an essential lifeline to a debt based economy.
This is why average household debt has rose from less than 30% in 1963 to 135% of total annual income today. In other words, the household debt throughout the entire country, embracing rich and poor alike, represents more than the entire gross annual income of our country. Consumers have borrowed, and made purchases against their future earnings, equivalent to more than the entirety of our national income!
When governments step in to inject a lifeline to an unsustainable economy with a lack of purchasing power they have no choice but to increase the national debt. A country’s national debt is the total sum outstanding on all past years borrowing requirements. It consists of thousands of outstanding pieces of IOU paper called in the UK gilts or treasury bills in the US. You might hear them commonly referred to as bonds or government stock.
The method of issuing these IOUs and administering the national debt is quite simple. In order to obtain money to cover its annual spending shortfall, an appropriate number of government stocks and bills are drawn up by the Treasury. These are then sold – in fact they are auctioned off in the money markets to the highest bidder. These stocks and bills are bought because they promise to repay a larger sum of money at some future date. As the government promises to repay this higher amount of money the government obtains the money to meet the payments due on mounting national debt by selling more stock promising even more money in the future! The government draws up enough new stock to cover the repayments due on the old stock, sells this, and uses the money to pay off the old stock.
Now this might seem a quite sufficiently barmy arrangement. But it should be remembered that the money held by pension funds and insurance companies, or whoever buys the government stock, is money that had to be borrowed into existence in the first place.
In other words, by this bizarre process, governments borrow money which has already been borrowed into existence, and they thus create a second massive institutional debt in respect to money which already has a debt behind it! This is why the addition of the national debt to the total of private debt places a country and its people in an absurd position of overall negative equity owing far more on paper than the amount of money that exists in the economy.
No nation in history has ever succeeded in reducing its national debt by more than the nearest fraction, whilst efforts to even restrict the growth rate of these debts has regularly plunged countries into recessions so savage as to take them to the brink of total economic collapse, frequently ushering in starvation and war.
There is abundant historical and contemporary evidence that, under the debt money system, countries are completely dependent upon their national debts. When the effort of constricting the national debt is considered, our reliance upon these debts becomes clearer. The consistent evidence of the last three hundred years is that, under a debt-based financial system, a national debt is unavoidable, indeed essential to prevent the economy from depression, recession and collapse. A country’s national debt is, in fact, a vital part of the money supply of the economy.
To summarise, the national debt supplies money to the economy either by drawing on our savings, and mortgaging the economy to its own pension and insurance funds (As pension and insurance funds purchase most government stock), or by allowing banks to create additional money as a debt (As banks buy government stock). In both cases, the debt is registered against the public assets of the nation and payment is dependent upon the future income of the economy. Thus the purchasing power distributed via the budget deficit compensates for, and covers up to some extent, the lack of purchasing power throughout the entire economy as a whole.
So here it is – to obtain the additional revenue our economy needs to make up for its lack of purchasing power, and upon which the economy is completely reliant, the government sells IOUs which increase in value with time. And when the time comes for them to be cashed, the government sells even more IOUs and uses this money to pay off the old ones. The government operates in an absurd system of debt-stocks which constitute a meaningless and utterly un-repayable debt to the future. This provides the government with a small amount of money now on the condition that they repay a much larger sum in ten or twenty year’s time. The government then proceeds to flood the market with these meaningless promises to pay, which can only be redeemed by the issue of yet more promises. The government draws on money already created as a debt, and relied upon for future payments on insurance claims and the pensions of the elderly, and allows banks and other lending institutions to purchase their bonds, conceding to these private institutions the right and power to create additional money, which is then loaned to the government at interest. Meanwhile, we must all work harder and harder, and the economy must become ever more productive and efficient to try to compete with other nations operating under the same lunatic structures, whilst the national debt inflates like a balloon.
I ask, every day, the following questions – why don’t we just nationalise our money supply, not our banks, and the government can create money debt-free? And, if we were to engineer this system from scratch, would we really operate under the same system, or would we choose a sustainable system? Is it possible that we have just fallen into this system because we don’t want to break the status quo? Are we really going to wait till the whole system self-destructs till we think about changing it? Do we really need more bailouts, more debts, more bubbles, more regulations and complete nationalisation of our banks just because we refuse to address the real issue that our money supply is created through debt? Where will this all end?
