Money As Debt II: Promises Unleashed Page #5

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made of base metals

instead of the real thing.

Debased currency led to failing

confidence and ultimately decline.

The lesson was well learned.

For the next 1.000 years, the Roman catholic church

declared collecting interest on a loan to be a sin,

punishable by excommunication.

In some countries, the penalty

for practising usury was death.

Is charging interest really a sin?

Well today it seems very reasonable

to charge for the use of money.

There is a simple and

unavoidable problem with doing so.

Unless money lenders spend every

penny of interest they receive...

in such a way that the borrowers can earn it

again, the borrowers are going to come up short...

regardless of their hard

work and personal virtues.

Someone will default simply

as a result of the arithmetic.

This is easy to picture where there

is a fixed money supply like gold coin.

As long as all of the coins taking in as interest

are spent so that the borrowers can earn them

the same coins can be used to

pay the interest over and over.

The lender can profit by buying

real things with this coin

but the coin itself must be spent,

not lend or removed from circulation.

Leaving aside any moral considerations,

this arrangement would be sustainable.

However if the interest coins

are relend at interest...

or removed from circulation by hoarding,

there would be an inherit shortage of coins

with which to pay off the aggregate debt.

The situation is escentially no different

in our current debt based system.

As we have seen, nowadays virtually every

dollar comes into existence as debt...

with a scheduled appointment to be extinqushed

as a principal payment on a loan that created it.

Thus, for all borrowers to be able to make

their payments of principal plus interest...

...two things must be true.

The dollar created as the principal of the loan

must be available to be earned by the borrower...

in order to make the principal

payment that extinqushes that dollar.

And every dollar the borrower

pays to the bank as interest...

must also be available to be

repeatedly earned by the borrower,

so that it can be paid as

interest again and again.

There is a common theory

undoubtebly popular with lenders...

that because the bank spend the

interest turnings as operating expenses,

interest to depositors

and shareholders dividends,

There is in fact enough money released

back to the community to make all payments.

However like the idea of absolute

shortage this is an over simplification.

Picture what happens if someone else such as

you or I or an institutional non bank lender...

obtains this dollar and then

lends it out at interest.

Well, now that same dollar is

simultaneously owed to two lenders...

and theres two simultaneous

interest charges attached to it.

In addition, if this dollar is loaned,

repaid and reloaned by the secondary lender...

it is not available to pay off the

principal of the loan that created it,

except as an other loan.

So, can we borrow from Peter to pay

Paul and borrow from Paul to pay Peter?

This gets interesting.

We can, however each time money is borrowed there is

an interest charge added it, that also must be paid.

If all added interest charges can

be earned, all payments can be made.

On this basis many economists and

defenders of the current system...

claim there can never be a shortage

of money and all payments can be made.

But this seems to be a false assurance.

For instance, if secondary lenders

capture some of the money...

needed to retire the loan that created that

money the original loan can never be retired.

The deficiency will have to be borrowed over

and over for ever, each time at interest.

Each deficiency would be cumulative, adding to an

ever building total of debt that can never be paid off.

And it stands to reason that for each added

interest charge in the system as a whole,

something extra is demanded of

the system as whole to pay for it.

This affects everyone: producers,

governments and consumers.

For producers that something extra must be

raised through higher prices or more sales.

However, competition for more sales usually requires

lowering prices necessitating even more sales...

and leads to over production

and saturation of the market.

The end result can be job losses,

plant closures and bankrupcies.

For governments that something

extra is raised by increasing taxes.

But increasing taxes drains

money for the productive economy,

resulting in reduction in the

collective ability to pay taxes...

which then necessiates increase government

borrowing and additional interest charges.

For consumers, something extra can

mean getting an additional job...

or borrowing to pay past debts or paying

off debt over longer periods of time.

However, competition for jobs tends to lower

wages and paying over the longer periods of time...

adds enormously to the

amount of interest owned.

And of course borrowing to pay off past debts

is like trying to fill a hole with more hole.

And that is the situation,

we find ourselves in today.

Producers can't sell more because

consumers can't afford to buy.

Governments are cutting taxes not raising

them, hoping to stimulate consumer demand...

and consumers real incomes are limited and even

falling due to competition for a limited number of jobs.

Therefore any increase in the total amount of interest

charges within the monetary system as a whole...

will result in a genuine

shortage of money.

This is because the real productive economy is

limited by the availability of nature's resources.

The productive economy

exists to serve actuall needs

It simply cannot keep pace with the demands

of the artificial financial economy...

which is an unlimited

appetite for profit...

and which operates with no regard for

the natural limitations of the real world.

Endless growth will take care of it...

The theory that there is always enough money to

pay the interest has a certain elegant simplicity.

However by the very nature

of the assertion to be true,

it has to be a 100%

true. This is impossible.

For one thing secondary

lenders who are not banks

do comprise a significant

proportion of lenders.

And they add their interest charges to

money that already bears an interest burden.

Beyond that, we have a cultural expectation:

everyone with money expects it to generate more.

Money that needs to be spent to made available

to be earned by its original borrower...

is instead lended at

interest or invested for gain.

Therefore, we can conclude that the

two conditions that must be true...

for all borrowers to be able to make their

payments of principal plus interest...

and thus permenately discharged their debt, those

conditions are not met by the current system.

Nowhere in the current system is there any restriction

or relending money that was created as a loan.

Nor is there any obligation upon banks to

make their profits from interest available

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