By Thomas Greco
Like a cancer, the political, interest-based, debt-money system corrupts everything it touches. It’s time it was replaced. This is the fifth article in our series on the role of money in the transformation of society.
When I was born, the world’s population numbered something like two billion people. Today it is estimated to be well over 7 billion, more than three and a half times the level of one lifetime ago. This is but one example of exponential or geometric growth, meaning growth that proceeds at an accelerating rate.
It takes little imagination to realize that such patterns of growth cannot persist over the long run. Indeed, nature provides plenty of examples to show that exponential growth can only be a temporary phase in a larger pattern that either levels off or ends in a precipitous decline. When insect or animal populations outrun the carrying capacity of their environments, the result is a rapid die-off. Historically, there have been at least four collapses of human population that we know of, and the evidence suggests that a fifth one may be imminent.
But population growth is not the biggest problem that faces civilization. There is one thing that has been growing exponentially at an even faster rate than population or economic output, and that is debt.
Avoiding that fifth human and ecological collapse means coming to grips with debt and the role that money plays in driving unsustainable rates of resource consumption and economic growth. Meeting that challenge is both a personal and a political imperative.
I concluded long ago that this explosion of debt is the prime cause of recurrent financial and economic crises. It is also the inevitable result of the way in which money is created by banks across the world today. The recent widespread financial crises provide strong evidence that global systems and structures of money, banking and finance are deeply flawed.
It’s a simple but often unrecognized fact that money is created by banks when they make loans, including loans to governments when banks purchase their bonds. This is acknowledged by the US Federal Reserve in one of its publications, Modern Money Mechanics:
The present global monetary regime is a collusive arrangement between politics and high finance. By monetizing their budget deficits, this system enables national governments to spend far more than their income from taxes and other sources, while granting banks the privilege of creating money in the form of debt, and then charging interest for its use.
The main reason for the centralized control of credit and money has nothing to do with helping the economy to operate more efficiently. The motive is political: centralization enables the undemocratic control of everything else. It thereby concentrates wealth and power in the hands of the few. Whoever controls the ‘wellspring’ controls the ‘river.’ The same is true with money.
The current global monetary regime is ‘political’ in this sense. Based as it is on interest-bearing debt, the imperative for debt to grow continuously is inherent in the system. Since interest on bank loans accrues with the passage of time, total debt must be continually expanded in order to keep the system from collapsing.
This debt imperative leads to a growth imperative as individuals and corporations vie with each other in the market to acquire enough money to avoid defaulting on their debts. They are driven to expand their sales and profits by cutting more trees, mining more minerals, and pumping more oil. They are also driven to cut their costs by laying-off workers, reducing benefits, and fleeing to jurisdictions where environmental protection and labor laws are minimal or unenforced.
Unfortunately, there is never enough money in circulation to enable all these debts to be paid. No amount of production or expansion of business activity can bring about an automatic increase in the amount of money in the economy. Only the deliberate actions of banks to grant more loans can maintain or increase the supply of money in circulation.
It’s the compounding of interest and increasing indebtedness in both the private and the public sectors that is the primary driver of economic growth. But this growth misallocates resources and prevents the emergence of a sustainable and equitable economy. Like a cancer, the political, interest-based, debt-money system destroys the environment, corrupts democratic processes, increases disparities of power and wealth, and shreds the fabric of society.
To the vast majority of economists, bankers and politicians, this assertion is heresy. But as the crisis intensifies, the evidence mounts up. We have been warned by philosophers and prophets from time immemorial about the destructive nature of usury and interest. Now we are seeing the practical consequences that emerge when those warnings are ignored. It becomes ever more urgent that we take appropriate action to reverse this crisis. What would that entail?
When you realize that the car you are driving is headed for a cliff, what’s the first thing you need to do? You might scream, but that will be of little help. Even before you hit the brakes, you need to take your foot off the accelerator. In relation to the crisis of our economies, that means ending the growth imperative by creating money that is interest-free, and by facilitating the exchange of value without using money at all. How is that possible?
The fundamental role of money is to facilitate the exchange of value. In recent years, a variety of exchange alternatives have been developed, including private and local currencies, and trade associations that enable trading without the use of conventional money. The most effective of these alternatives provide ‘home-grown’ liquidity as a means of payment, independently of the banking system and without the imposition of interest….
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