.
Bank Credit and Economic “Crises”
.
There are a host of reasons why this credit-money system is bad, even when it is working at its best, which is when it is very small compared with the permanent money supply. Consider what is happening today, when the credit-money supply is huge with respect to the permanent money: a full blown financial crisis, a money-supply crisis. I say money-supply crisis and not dollar crisis, because money-supply is more fundamental than dollar value. The dollar’s value depends on the money-supply. Money, real permanent money, is in short supply.
Back up. Remember what happened to that $10 of bank credit created by the bank and lent out. When it was paid back, it disappeared. It disappeared because it was never real to begin with. It’s only tangible reality was that the bank created it and the borrower promised to repay it. It was temporary money. Once repaid, the cycle was complete and it vanished out of existence into nothingness the same way it came into existence from nothingness. The permanent money supply never changed, and just $1 of permanent money changed hands.
Imagine what would happen if $73.5 trillion would vanish back into nothingness, the same way it came into existence and only the $1.5 trillion of permanent money were to remain. Obviously, such a collapse in the money supply would wreak havoc on the real economy. Loans, contracts, prices, payments, etc, everything of a financial nature would be in chaos.
So, if that is happening, why is it happening? Let’s go back to the fact that this system requires an ever-increasing supply of bank credit (all bank credit is somebody’s debt) relative to the permanent money supply.
.
Shark Poop
.
Interest payments to the banking system are like a big Great White (GW) shark (no relation to GWB) that feeds on small, fast, agile fish (the permanent money supply). The shark takes a bite out of the fish population, but there is only one shark to begin with. The shark is small, and the fish population is relatively large. The shark feeds well and spawns baby sharks.
.
Soon the growing population of sharks is putting pressure on its food supply, and some sharks are getting big and having trouble catching the small, fast, agile fish. Luckily, the sharks have been producing something of their own. Call it fertilizer (credit), which causes other little fish (borrowers) to grow. These little fish that eat shark poop are slow and clumsy, and even seals have been feeding on them and growing fat. The biggest sharks can then feed on the fat seals, and the baby sharks can feed off the slow clumsy fish that all the sharks have caused to grow with their fertilizer. These fertilizer-fed fish are not very smart either. The sharks and seals are able to train them to swim right into their mouths, so they do not even have to chase them. That is why the seals are so fat, and the sharks are even fatter. They really love fertilizer-fed fish, and fat seals are even better.
The problem with this ecological analogy is not that the shark, seal, and fish population cannot keep increasing forever. Obviously, it cannot. Natural populations can theoretically stabilize when the carrying capacity of the environment is reached. The banking system cannot do that. Mathematically, the banks cannot maintain a stable money supply. The money supply must increase or there will not be enough money to repay loans with interest. Sooner or later in the real economy, there will be a point when the people encounter an obstacle to economic growth, people decide it might be better to wait, and not to borrow so much money.
For the sharks, that is like saying sooner or later there will be a point where the little fish encounter an obstacle to growth and decide not to eat so much fertilizer. Well, the sharks just keep growing and eating and putting out fertilizer, the more the merrier because that is just what sharks do. It’s their nature. They don’t realize what is going on. The little fish are not eating all the fertilizer, but the sharks just keep pumping it out. All this uneaten fertilizer must go somewhere and the little fish are not eating as much of it, so most of it goes to the bottom where crabs make little toxic sludge sand castles out of it (derivatives) or is eaten by sculpin, stonefish, sea slugs, and a host of other exotic but inedible bottom feeders (any number of pointless mal-investments), that cannot or will not give anything back to the sharks when they come looking for seals or fish to eat.
Meanwhile, the sharks are not too worried about the little fish population, especially the big sharks; they hardly notice the fish population is in trouble. They are too busy eating all the seals first (the industrial base). But eventually, after nearly all the seals are eaten, the sharks become so alarmed at the falling fish population, they get scared poop-less and stop producing hardly any fertilizer all, which causes the fish population to plummet even more.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
1
