Money As Debt II: Promises Unleashed Page #4

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More than 95% of all money currently in

existence is in the form of debt to banks.

Promises to pay with interest added.

And as we have seen the principal

is created but not the interest.

Due to the time delay between

money's creation and its repayment...

and the recycling of interest

turnings as bank operating expenses,

most of us can keep our part payments

while the money supply is increasing.

However if the money supply

or total debt is decreasing,

money becomes harder to

earn due to its scarcity...

and fixed payments

become harder to meet.

For those heavilly in debt, the money

shortage can become catastrophic.

The entire world economy

rests on the consumer;

if he ever stops spending money he doesn't

have on things he doesn't need we're done for.

Bill Bonner, author, publisher and

columnist on economics and money

Unfortunately the psychological effects of falling

wages and prices rapidly accelerate the process...

as borrowers, including large businesses,

lose confidence in being able to repay loans.

So they don't sign up for any.

Without new loans to replace old loans,

the money shortage rapidly gets worse resulting

in a decrease in jobs and purchasing power...

even in the midst of the abundant

resources and productive capacity.

This disastrous spiral in math

makes mass foreclosures inevitable.

Prices plumet as noone

wants to spend their money.

Shrinking values destroy the

value of loan collateral...

causing banks to ride off huge losses.

Some even close their doors.

Consumer and business

confidences is lost.

Rampant economical and

social disfunction follows.

"With the monetary system we have now,

the careful saving of a lifetime

can be wiped out in an eyeblink."

Larry Parks, Executive Director, FAME

This disastrous spiral

cannot be turned around...

unless the goverment creates new money

itself or goes deeply in debt to private banks

in order to create enough new money to

reorganise and rejuvenate the economy.

The most familiar example of this

is the stock market crush of 1929.

The psychological follow of the stock

market collapse resulted in less borrowing...

and thus less new money.

The Federal Reserve did nothing to

correct the resulting deflation...

and by 1932 the money supply

had been reduced by a third.

Countless people were

evicted from their homes...

because the money to make their

mortgage payments simply siezed to exist.

Then in 1932, Franklin Roosevelt

became the US President.

Roosevelt's "New Deal" set out to restore

the economy by restoring the money supply.

To counter the money shortage, Roosevelt

borrowed from the private banking system.

Factories started hiring again.

But only when the war arrived,

theres suddently no shortage of jobs and funds

available to do what was necessary for the war effort.

It was the money expended on WWII

that ended the great depression.

The war also resulted in 50

million deaths worldwide...

and led to a new hostile

international balance of power...

with its intended arm's

races, mounting debts

and sweeping social and

technological transformations.

When a goverment is dependent

upon bankers for money,

they and not the leaders of the

goverment control the situation,

since the hand that gives

is above the hand that takes.

Money has no motherland;

financiers are without patriotism

and without decency;

their sole object is gain.

Napoleon Bonaparte

I wouldn't go to war again as I have done to

protect some lousy investment of the bankers.

There are only two things

we should fight for.

One is the defence of our homes

and the other is the Bill of Rights.

War for any other reason

is simply a racket.

Major General Smedley

Darlington Butler USA (1881-1940)

There is nothing left now for us

but to get ever deeper and deeper

into debt to the banking

system in order to provide

the increasing amounts of money the nation

requires for its expansion and growth.

Our money system is nothing

better than a confidence trick...

The "money power" which

has been able to overshadow

ostensibly responsible government is

not the power of the merely ultra-rich

but is nothing more or less than

a new technique to destoy money

by adding and withdrawing

figures in bank ledges,

without the slightest concern

for the interests of the community

or the real role money

ought to perform therein...

to allow it to become a source of

revenue to private issuers is to create,

first, a secret and illicit arm of government

and, last, a rival power strong enough

to ultimately overthrow all

other forms of government

...an honest money system

is the only alternative.

Dr. Frederick Soddy. Nober Prize winner (1921)

author of Wealth, Virtual Wealth and Debt

The cycle of economic boom and bust

is commonly called the business cycle.

As if were a natural occurence like

the hydrological or carbon cycle.

These natural cycles are

ultimately driven by the sun.

But what is it that

drives the business cycle?

One answer is the supply of money...

and as we've seen, the supply

of money is dependent on loans.

So let's look at what happens during

the lifetime of an individual loan.

We've seen how bank credit is nothing

more than the bank's promise to pay,

which the bank is created on its books to

balance the borrower's promise to pay...

...that it has received.

The bank's promise to pay is usually

spent on some real good or service...

and allowed to circulate,

making the efficient exchange of goods

and services easier to accomplish.

As a medium of exchange

today's promise to pay money...

is unsurpassed in its

usefullness and flexibility.

However, because no money is

created to pay the interest...

a seemingly impossible

situation is created.

On the face of it, if borrowers had to

pay the interest they owe all at once,

they would have to fight it out for

a limited sum of existing money...

that was very much less

than the total owned.

The percentage that would be unable to pay

off their loans would be simple to calculate.

However, interest is usually

paid over time not all at once.

If this interest incomes recycled

into the general economy as spending,

it can be available to

be earned repeatedly.

Once we understand this, the question of whether

interest is actually unpayble becomes more perplexing.

Is there such a thing as a

sustainable system of lending...

that does not produce

mathematically inevitable defaults?

In the middle ages, usury

meaning charging interest...

or any form of making gain solely from

having money was condemned as a sin.

While the justification was

moral, the reason was practical.

In a fixed money supply like gold,

anyone systematically rolling over

all of their loan money at interest...

would soon end up with all the money.

This problem was a big

factor in the ruining of Rome.

Private accumulations of gold

forced the government to make coins,

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