More Realistic look at Money as Debt

Comment by Guido Heumer on March 4, 2010 at 10:35pm

Very important video! I wish everybody would watch this.

Comment by Greg Stevenson on March 4, 2010 at 11:54pm

A little less in your face than the Zeitgeist Addendum. If you are interested in this subject I suggest you watch it.


Because this all sounds like conspiracy theory you should then do google searches on counter arguments to "zeitgeist addendum".

Comment by Daniel LaLiberte on April 11, 2010 at 6:36am

The Money as Debt video is very good, though I almost gave up on it because it was focusing so much on the debt by itself as the source of the problem. Even the interest on debt is not necessarily the source of the problem, though it adds to the problem, and the growing debt is where we are really in trouble. The real problem is that the debt is ever increasing, and a big part of the reason for that is that the interest due on the total of all loans which requires more money than is currently available. So where does the money come from to pay the interest? It must come from the future growth of the total money supply, which is always incrementally increasing. But even that growth would not be a problem if, in fact, we ran all of our physical processes sustainably, which we are not. Sustainable growth is not an oxymoron, though it requires a thorough accounting for all our inputs and outputs, and total responsibility for all our actions.

We also have a related problem of extreme inequity between the richest and the poorest, which is growing ever more extreme. This is mostly due to this abuse of power that allows the rich to get richer and thus more powerful as fast as they can.

I don't agree with the zeitgeist video regarding the profit motive as an inherit and evil component of the monetary system. We can still have the profit motive without all the rest of the corruption. Mostly, we need to maintain much more public control over larger institutions, otherwise they will actually succeed in eliminating competition, which is the free market check on excessive profits.

Yes, the banking industry is the main source of the world's problems. I wonder if they are aware of this and trying to do something constructive before they lose it all. It is the hugest ponzi scheme there ever was, compounding Madoff's scheme by at least 1000 times, 11 trillion accounted for by the US debt alone, according to http://www.onlinemoneytip.com/make-money-news/11-trillion-dollar-po...

Comment by Greg Stevenson on April 12, 2010 at 5:31am

@ Daniel The element of interest is what turns it into an exponential growth of debt curve. I am interested in a clearly laid out counter argument by an economist as to how the current system can do anything but ensure exploitation of natural resources. There must be an argument that all interest is 100% recycled in the system but I just can't see it.

I find it worthy of note that at one time all monotheistic religions outlawed the notion of interest. (usury)

Comment by Daniel LaLiberte on April 12, 2010 at 11:21am

Greg, it is interest combined with the lack of enough current money in the system that turns it into an exponential growth of debt. Now if there was a requirement that for every loan, the total amount of money owed, including interest, was already available in the system, then there would be no requirement to increase the money supply later. I just made that up, but it makes sense to me.

But in any case, the increasing debt by itself does not require increasing exploitation of natural resources. It is merely that we allow the unsustainable exploitation and together with the increasing debt, we are highly motivated to take advantage of anything we are allowed to do. Think of it this way: even if we had no increasing debt, we could still exploit resources unsustainably, but we wouldn't need to do so quite as much.

So they are independent. They are only correlated accidentally, not causally.

Comment by Greg Stevenson on April 12, 2010 at 6:55pm

@Daniel What you say is the same as gold backed currency, which had it own set of problems. Unless you have more "Something or other" you can't issue more money. There are many who want to go back to that form of monetary system. Social order would collapse if we tried to do it quickly. The fractional reserve system backed by the trust that a Nation is "Good for the Money" is inherently in turn backed by the resources of a nation. Whilst E=Mc2 we haven't as yet been able to produce things (of any size) from sunshine. (ironically enough that being where all stuff was produced in the first place) That creates the need to take the stuff we already have and turn it into other stuff that people are willing to pay for in order to pay back debt. Cutting down trees, mining iron, burning hydrocarbons. Interest running at 7% per annum means that requirement to do so doubles every 10 years.

You are right. The increasing debt in itself doesn't actually cut down the trees, but if you are about to go bankrupt and your children are starving your motivation to take actions for your own individual good over actions for the global good are overwhelming. Who can blame those in that situation, you have to survive until tomorrow to stay in the game.

People are not bad, the system is bad. It incentives individuals to take bad actions.

Comment by Daniel LaLiberte on April 13, 2010 at 2:26am

Backing money with gold might serve to limit the amount of currency, but it is easy enough to subvert that restriction merely by devaluing the currency and thus increasing the value of the gold. So backing with gold is not enough to avoid unlimited, indefinite devaluing of currency. The only thing that really stops the devaluing is stopping the devaluing, so we just have to agree to stop doing that. We have to have enough control over our monetary system to make it so.

Now I expect they (the powers that be) are devaluing currency, by gradually increasing the money supply, at a rate that they believe is not too much of a shock, and they can thus get away with it without people noticing too much. This inflationary devaluing policy has the effect of requiring everyone to either keep up at the same rate or fall behind and drop into the foreclosure bucket. I would argue that even this type of system is not necessarily bad, because it effectively models the evolution of life, in which coevolving species gradually improve over time, because if they don't, they will fall behind and become extinct. This is called the Red Queen Hypothesis. It's cruel, but life can be cruel. Not a justification for us being intentionally cruel, if we can avoid it, however.

(Another point to consider: Even without devaluing currency, we can have a red queen race of ever-improving efficiency within a bounded money supply.)

But the reason this "red queen race" turns into a "rat race" is because it is combined with two other problems: the concentration of wealth is ever increasing, and the unsustainable exploitation of resources is ever increasing. This combination is not necessary, and it is not that either is caused by the other, and neither is caused by the rat race. But together, they make the system catastrophically dangerous, as well as just plain evil.

I think it is important to understand how these are separate concepts, independent mechanisms, so that we know how they work by themselves. Controlling one problem will not automatically fix the other problems. Stopping the rat race doesn't mean the concentration of wealth will be reversed, or that we will stop exploiting resources unsustainably. And doing everything 100% sustainably doesn't mean the "owners" won't increase their power and wealth, and in fact, it might be easier for us to become 100% sustainable if everything were managed in a very dictatorial fashion with complete control over our lives to make sure no one steps out of line. I am certainly not in favor of going that direction, but we are probably headed that way unless we can figure out how to become sustainable on our own, to take back that much control over our lives. If we stop working for the machine, the machine will stop working.

But even though they are separate problems, we can certainly determine if one is more critical to solve before the others, or if one is more of a motivation or driving force for the others. I might agree with you that the increasing debt, the concentration of wealth, is probably more the driving force for the unsustainable exploitation. But the unsustainable exploitation is really mostly due to our lax controls over being sustainable at all levels. If we simply require that the true cost of all our mining and dumping activities be paid (rather than being hidden or avoided), such that it would be enough to pay for 100% cleanup and restoration, and eventually 100% renewable energy, and 100% recycling of all materials, that would at least account for what we are doing, and that could be factored into how the economy works, to help it automatically correct this problem.

But if we *only* did that, we would be 100% sustainable though we could end up with a much higher concentration of wealth. I doubt that would be a happy situation.

With this comment, I have almost written my "sustainable g

Comment by Daniel LaLiberte on April 13, 2010 at 2:40am

...Hmm, I accidentally deleted the end. I have in mind a blog to be called "sustainable growth is not an oxymoron" which a lot of this comment will end up in. Thanks for keeping me honest.

The closest I have so far is "Sustainability = Renewable Energy + Time".

Comment by Iron Helix on April 13, 2010 at 4:13am

Quote: "This inflationary devaluing policy has the effect of requiring everyone to either keep up at the same rate or fall behind and drop into the foreclosure bucket."

That's a fallacy. If you have inflation within the monetary system, debt owed is proportionally less as inflation progresses, making it easier to pay off. Foreclosures are far more common in deflationary environments, such as the one the US has been experiencing for the past year. The only thing that really needs to keep up, and sometimes doesn't in inflation is a person's wage. But then again wages are constantly being pushed up because of inflation (more accurately, price inflation, rather than monetary inflation).


Quote: "Backing money with gold might serve to limit the amount of currency, but it is easy enough to subvert that restriction merely by devaluing the currency and thus increasing the value of the gold. So backing with gold is not enough to avoid unlimited, indefinite devaluing of currency. The only thing that really stops the devaluing is stopping the devaluing, so we just have to agree to stop doing that. We have to have enough control over our monetary system to make it so."

Just because the money supply increases does not mean the currency is devalued. The value of money is relative to the supply of goods/services it can purchase. The monetary system must fluctuate in accordance with the changes of the larger economy. One of the problems we face with a debt based currency is that a debt based monetary system is largely inflexible during times of economic contraction, prolonged durations of which are sure to be ahead for the globe as societies attempt to grow, but lack sufficient energy/resources to do so.

Comment by Daniel LaLiberte on April 14, 2010 at 5:20am

Iron Helix, my language is probably vague, so thanks for pointing out problems.

By saying "a debt owed is proportionally less as inflation progresses" you must be assuming that pretty much everyone does, in fact, keep up with inflation in their wages, so that they will be earning more, and thus the fixed debt is easier to pay off. But I don't think it is safe to assume that wages are constantly pushed up for everyone, and if you don't get that annual raise, that is essentially a cut in salary. Also, if you are retired, just trying to live on savings, you better be sure you are earning enough interest to keep up with inflation as well. So we are all locked into keeping up with the average, or we fall behind.

However, I can see why the situation is much worse during a deflationary period, since that generally means some bubble has burst and the economy is bad all around, and people will more often lose jobs all together rather than merely decrease their salary, and so there is much more risk of foreclosure and bankruptcy.

I agree with your point about the relationship between the money supply and the value of money. It makes sense that the total money supply should approximate the total supply of goods and services, which can change over time.

The main point about sustainable growth is that the total supply of goods and services can increase even as the consumption of non-renewable resources and the production of pollution and waste are reduced to zero. This seems impossible to people, so they assume growth must be eliminated, and if so, then fixing the total money supply makes perfect sense.

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