Why?
If money accumulation is the basis of societal success, which by capitalist definition it more or less is, then why is the currency system we have created so unstable and not predetermined, with the rules of monetary change being well known to the public? Unfortunately, money and currency are foreign terms to most people. Yes, most if not all will understand what we can do with money, and how much we need to do certain things, or how much we need to survive... but the bigger questions regarding money and currency have been hidden from the vast majority of society. I believe understanding the basis of money creation and currency circulation is a fundamental key to understanding the destructive nature of the economic paradigm that we are living in. I will try to the best of my ability to answer certain types of questions, the ones that very few of us think about on a daily basis; or even at all. Such questions include:
- What is money really?
- Who has the legal rights to create and/or distribute money?
- Where does interest come from? and why does it go hand in hand with perpetual debt?
- Lastly, and most importantly: Can world debt ever be paid off?
So here we go...
It is very important to understand that money, as it exists today, is merely an economic tool of measurement. The human race has not always had money, therefore you must immediately release your mind from any type of presupposition that money is a fixed part of socio-economic life. That is simply wrong. Human beings have created the money system, just like we have created political parties, nations, and ideologies. Therefore, it should be fair to criticise the ways in which money is used in hopes of inspiring a change for the better if there is a disparity (and there is).
Money is not real. It is created. Currency is real in terms of its physical existence, but it is representing something false = money.
Money is your chequeing account balance, or your savings account balance. That is your legal share of money.
Currency are the Dollars, Euros, or Yen that are created to represent money. They are merely symbols. This is also known as "fiat currency".
So where does it come from? As mentioned, it is created. But not everyone is allowed to create money, that duty is reserved legally for certain institutions. In Canada, the Bank of Canada is legally allowed to print currency and create money by placing a line in a ledger. It is a crown corporation that works in unison with the Federal Government (well, it is technically owned by the government), who is largely in charge of the distribution of that money (government funding ring a bell?). Our chartered banks can also create money, examples of chartered banks include Royal Bank and TD bank. In the United States, the country with the highest rate of currency creation, it is the Federal Reserve that carries these rights. And as crazy as it sounds, the Federal Reserve is a private corporation. Yes, the currency that circulates throughout American society is distributed solely by a private entity.
Money creation is also called "fractional reserve banking". It goes something like this: You walk up to the bank to get a mortgage. The bank grants you the mortgage at a fixed or variable interest rate. Now keep in mind a bank will have Less than 1% of their asset base in currency reserves. The mortgage money is created by putting a line in a ledger, an exercise of legal money creation. So they gain your business because you are stuck in a 25+ year interest payment schedule, which means their asset base rises. This is how banks grow in terms of their assets, one of the most common measures of financial health for a financial institution. The bank themselves actually carry very little currency as compared to what their asset base is.
Have you identified this problem?
Here's an example of the craziness of this system...
As most should know now, the economy is in very rough shape. Unemployment is stagnant or rising, stock market falling month over month, and buying power being lessened . It is very likely we are going to experience a financial collapse, with a run on the banks inevitable when that happens. It is what happened during the Stock Market collapse of 1929. What this means is that people will be frantically trying to pull their funds out of the banks in an understandable move of financial protection. As companies and currencies alike lose value, it is a necessary protection. But because banks only carry a very small amount of the assets that they claim to have, it will be literally impossible for the banks to return the savings of millions of people, for that currency does not exist.
Banks make their money off of interest payments. Interest is the money that is created out of thin air when you sign a type of loan contract.Think about it, interest is not tangible. It cannot be held in your hands, it cannot be used to produce goods. It is simply a number, ones that represents value but does not physically exist. And since money is created when you oblige to go into debt because of interest payments, it is important to note what this really entails:
Money IS debt.
Money is created, and always with the interest payment attached. Us as citizens are forced to go into debt if we are to afford the luxuries that this economic paradigm calls for. When we buy a car, we owe interest. When we buy a house, we owe interest. Almost any type of payment contract we sign nowadays comes with an inevitable interest payment. It has become normalized that we must go into debt to afford such luxuries, since interest is attached to the contract. Same goes with governments to banks, there is always an interest charge attached. It is the reason every single country on this planet is saturated in debt.
And it is also the reason why debt will never be conquered, no matter how much our politicians promise to make this possible. This is because our systems of money creation are rigged for the upper class, whereby money is created out of thin air to act as a type of condition for us to have any type of measurable wealth. The middle class cannot engage in this large-scale money making scheme, because a) we don't have the asset base or the legal rights to create an asset base like our government and chartered banks do, and b) much of the middle class is too busy paying off outstanding debts anyway. As long as there is interest is attached to the creation of money, we will never solve the global debt problems and we will always struggle to slow down global inequality.
It is disheartening to see governments engage in name-calling and debate false solutions such as austerity (cut-backs in government expenditures designed to decrease fiscal deficits), when the real problem lies within the very system the government operates within. It is mathematically impossible to pay off debt with the way that we tie interest to money creation. These next figures should make you worried.
- Canadian citizens cumulatively have over $1.5 trillion in household debt. We also have an ever-growing national debt.
- The United States debt load just exceeded $15 trillion. The debt level now exceeds United States GDP.
- Greece's external debt load was 128% of it's GDP as of 2009. Greece is not alone, other countries with enormous debts include Italy, Spain, Ireland and Portugal. Europe is in a serious debt crisis.
Do these figures not speak for themselves? These types of debt levels are not sustainable. However, they are perpetual because of the way that we create money and print out fiat currency. Our financial institutions did their part in wreaking havoc on world markets which lead to the 2008 recession, by way of irresponsible lending practices and a massive housing bubble. It is true that with financial regulation and a government that actually placed human needs first, we could be living in a much more caring and plentiful world. However, debt issues will always need to be addressed down the road. No debt can grow forever, so long as different currencies are tied to the same financial system.
Money has become the centre-piece of a very broken and disconnected global community. Finance has become one of the worlds biggest businesses. The worlds biggest company is a financial institution (JP Morgan Chase). The trading of money to get more money is the cause of financial instability, financial bubbles, and eventual financial collapses. Deregulation of finance has rendered the global economy unstable; and that's putting it lightly. But the trading of money has no connection to social progress, because human needs is not in the lexicon of determining a successful company for an unsuccessful one. The money sequence of value has trumped the life sequence of value, whereby success is a term that is now culturally synonymous with money accumulation. It is a fundamental disconnection with human life, one that is so seldom realized and reflected upon.
"I am afraid the ordinary citizen will not like to be told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people." - Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924.
Written by Shelby Bouchard
Follow me on Twitter: @SBtheradical
Thank You Shelby, I am pissed with Canadian apathy...Wake the fuck up!!
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