The Debt-Based Economy
In the article Where Does Money Come From? we looked at how money is created by debt in today’s economy and how the system requires that lots of people be in debt all the time. That’s the most basic issue, and you could stop right there and figure out that this might not be the best way to create money for an economy, but there are additional problems.
Savings and Investment
In order for all the debt that’s used to create the money supply to be payable—even theoretically payable—all of the debt-created money has to be spent into the economy so it will be available for paying off debt. If that doesn’t happen then there will be a scarcity of money even if enough new loans are made to keep recreating the money that disappears when debt is paid off.
Enter the guys in the white hats (or white coats maybe), the wise principles of sound money management—namely savings and investment. Most people believe that these things are good and right and wise. In a sensible monetary system, maybe they are. In the fractional-reserve, debt-based system, they can be deadly.
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Grow or Die
Debt isn’t the only thing forced to grow in this economic model. To feed the expanding debt, the whole economy has to grow. It has to expand whether the people in it need it to or not. Manufacturing must increase, sales must increase, and consumption must increase. Businesses have to expand to stay afloat. Their marketing departments are furiously dreaming up more and cleverer ways to convince more and more people that they need to buy more and more stuff—stuff that uses valuable resources to produce and then often gets sent to landfills a few years later. But we have to do this to keep the economy going.
Further, since the money scarcity and debt pressure keeps increasing, economic growth becomes more and more of a squeeze play. Businesses in the working economy must grow, but overall they have less and less money to do it with, so they’re continually trying to get more from less. The trend is to cut the work force, cut wages, cut benefits, cut the quality of the product or service, and of course, outsource the labor to foreign countries with low wages and poor labor protection—anything that can be done to get more out of less.
In the context of the debt based economy, it makes sense to travel 10,000 miles to the other side of the planet and set up operations to produce something that could have been produced at home so you can ship it 10,000 miles back to where it’s going to be used.
Now here’s another issue. In the process of creating more debt we are also creating more money, yet the scarcity of money gets worse and worse. Where is the money going?
In the context of the debt based economy, it makes sense to travel 10,000 miles to the other side of the planet and set up operations to produce something that could have been produced at home so you can ship it 10,000 miles back to where it’s going to be used.
It's amazing how little this reality gets mentioned. As it turns out, it is axiomatic.
Right!?
...and we think we can carry this on into infinite...
Our economic system is deeply flawed and, is doomed.