The Monetary System
Now, so far we have focused on the market system. But this system is actually only half of the global economic paradigm. The other half is the “Monetary System”. While the Market System deals with the interaction of people gaming for profit across the spectrum of labour, production and distribution, the Monetary System is an underlying set of policies set by financial institutions which create conditions for the market system, among other things. It includes terms we often hear such as interest rates, loans, debt, the money supply, inflation, etc. And while you might want to pull your hair out listening to the gibberish coming from the monetary economists, the nature and effect of this system is actually quite simple:
Our economy, or the global economy, has three basic things that govern it.
1. Fractional reserve banking: the banks printing money out of nothing.
2. Compound interest: when you borrow money, you have to pay back more than you borrowed which means that you, in effect, create money out of thin air, which has to be serviced by creating still more money.
3. The belief that we live in an infinite growth paradigm. Of course the economic paradigm we live in now is a Ponzi scheme - a fraud. Nothing grows forever. It's not possible.
As the psychologist James Hillman wrote: “The only thing that grows in the human body after a certain age is cancer.” It's not just the amount of money that has to keep growing - it's the amount of consumers. Consumers to borrow money at interest to generate more money and, obviously, that's not possible on a finite planet. People are basically vehicles to just create money, which must create more money to keep the whole thing from falling apart, which is what's happening right now.
There are really only two things anyone needs to know about the monetary system:
1. All money is created out of debt. Money is monetized debt whether it materialized from treasury bonds, home loan contracts or credit cards. In other words, if all outstanding debt was to be repaid right now there would not be a penny in circulation.
2. Interest is charged on virtually all loans made, and the money needed to pay back this interest does not exist in the money supply outright.
Only the principal is created by the loans and the principal is the money supply. So, if all this debt was to be repaid right now, not only would there not be no money left to circulate, there would be a gigantic amount of money owed that is literally impossible to pay back, for it does not exist. The consequence of all of this is that two things are inevitable: inflation and bankruptcy.
As far as inflation goes, this can be seen as a historical trend in virtually every country today, and easily tied to its cause which is the perpetual increase of the money supply which is required to cover the interest charges and keep the system going. As far as bankruptcy goes, it comes in the form of debt collapse. This collapse will inevitably occur with a person, a business or a country, and typically happens when the interest payments are no longer possible to make.
But there is a bright side to all of this, well, at least in terms of the market system. Because debt creates pressure. Debt creates wage slaves. A person in debt is much more likely to take a low wage than a person who isn't, hence becoming a cheap commodity. So it's great for corporations to have a pool of people that have no financial mobility. But hey - that same idea also goes for entire countries. The World Bank and the International Monetary Fund, which mostly serve as proxies for transnational corporate interests, give gigantic loans to troubled countries at very high interest rates. And then, once the countries are deeply in the hole and can't pay, austerity measures are applied, the corporations swoop in, set up sweatshops and take their natural resources. Now that's market efficiency.
But wait – there's more: there's this unique hybrid of the monetary and market system called the stock market. Which rather than, you know, actually produce anything real, they just buy and sell money itself. And when it comes to debt, you know what they do? That's right - they trade it! They actually buy and sell debt for profit. From credit default swaps and collateralized debt obligations for consumer debt, to complex derivative schemes used to mask the debt of entire countries, such as the collusion of investment bank Goldman Sachs and Greece, which nearly collapsed the entire European economy. So when it comes to the stock market and Wall Street, we have an entirely new level of insanity born out of the Money Sequence of Value.
All you need to know about markets was written in an editorial in the Wall Street Journal a couple years ago. It was called 'Lessons of the Brain-Damaged Investor’. This article explained why people with slight brain damage do better as investors than people with normal brain functionality. Why? Because the slightly brain-damaged person has no empathy. That's the key. If you don't have any empathy you do well as an investor. And so Wall Street breeds people who have no empathy; to go in there and to make decisions and to make trades they have no compunction about and no thought whatsoever as to how what they are doing might affect their fellow human being. So they breed these robots. These people who have no souls.
Furthermore, they are processing, generating and re-securitizing nothing. If you write £10 billion on a cocktail napkin and you sell it to J.P. Morgan, and J.P. Morgan writes £10 billion on a cocktail napkin and you swap those two cocktail napkins at a bar, you each pay yourselves a quarter of 1% in a fee, and make a lot of money for your Christmas bonus. You each have on your books a £10 billion cocktail napkin which has no real value, until such time as the system is no longer able to absorb bogus cocktail napkins, in which case we go to the government to get bailed out.
And because of Wall Street, the City of London and the global stock market there are now, at a conservative estimate, about 700 trillion dollars of outstanding fraudulent claims known as ‘derivatives’ still waiting to collapse. This value amounts to over 10 times the gross domestic product of the entire planet. And while we have seen the bailouts of corporations and banks by governments, which, of course, comically borrow their money from banks to begin with, we are now seeing attempts to bail out whole countries by conglomerates of other countries through the international banks.
But how do you bail out a planet? There is no country out there that isn't now saturated in debt. The cascade of sovereign debt defaults we have witnessed can only be the beginning when the maths is taken into account. It has been estimated in the United States alone that income tax would need to be raised to 65% per person just to cover the interest in the near future. Economists are now foreshadowing that within a few decades 60% of the countries on the planet will be bankrupt.
In other words, the world is going bankrupt, whatever the hell that means, because of this idea called "debt" which doesn't even exist in the physical reality. It's only part of a game we've invented... and yet the well-being of billions of people is now being compromised. Huge layoffs, tent cities, accelerating poverty, austerity measures imposed, schools shutting down, child hunger and other levels of familial deprivation. All because of this elaborate fiction.