Sunday, November 11, 2007

Why "Money=Debt" part 2

Today I'd like to wrap up my post on Money is Debt.

Again, I'm basing this post off the video I came across a week ago: Money as Debt. This video up brings up some common truths about money that I feel are quite interesting.

The key issue is a very simple one - that money that is in a bank or money that is being loaned is constantly creating more and more debt be it to the bank or in the example of our country to other countries we owe money to. This has created a world of never-ending debt.

As people and countries, work and work to get out of debt, in general they are on a never-ending treadmill of debt because the amount they pay back is always more than what they originally owed. When this goes on for years and years more and more energy has to be put in to pay back a debt. In the case of the U.S. though - this leads to a crippling amount of debt(+$9 trillion), the kind of debt that makes the world begin to say "your money's not good here" or at least "your money is not AS good here as it used to be". That's basically what the world is beginning to say in not so subtle ways as the American dollar loses more and more of it's value compared to the Euro and other currencies such as the Loonie.

Einstein once said:

The most powerful force in the universe is compound interest

The true question is -'Can our country's addiction to easy credit and unrestrained consumption be sustained?' or 'Can we keep buying all the crap we want without any drawbacks?'. In my opinion the short answer is 'no' we cannot.

The video Money as Debt offers a few solutions to the perceived problem with today's money system:

  • Taxing bank profits - if our government began to more effectively tax bank profits we could definitely begin to see a reduction in our nation's overall debt. However, the taxation of banks would most likely lead to either higher loan prices for consumers or lower overall return on individuals investments or most likely both.
  • Banking as non-profit service - I think this would be a wonderful idea. The only problem with this is that so many in powerful positions are linked to the banking industry that a law or a non-profit such as this would likely ever come to fruition because bankers enjoy their income and most experienced bankers would not settle for a lower income.
  • Return to gold-based money - money that is backed by gold in the bank (like the U.S. Dollar used to be) would be a fairly durable type of money and might hedge inflation a tad, However, gold is obviously very hard these days to value and even if the process suddenly became easier, those that are fairly wealthy may try and corner the market on gold and deplete the world's gold supplies by holding it for themselves.
  • Return to silver-based money - since silver is more plentiful it might work a little bit better to make a durable currency however, again the issue becomes how you can value silver on a regular basis without speculating.
  • No-interest money - The idea here is that if money was based equally for everyone - possibly based on hours worked - rather than dollars per hour. There would be less inequality for money and dollars would retain there value longer. However, who's to say that the work that a retail cashier does should be reimbursed at the same rate that say a judge or a doctor? ( I have a feeling this idea wouldn't go well at all here in the U.S.)
  • Local barter system - This idea would be to have a barter system for local goods in your local area. As Dobson (my relative) mentioned, this would most likely be a step backward for progress in my opinion.
  • Inflation instead of taxes. - one last unique idea would be to have a steady amount of inflation instead of taxes on income. I think this would be confusing at first, but may work. It would possibly put a strain on the Fed - as for example : One Month you may earn $50,000 and a few months later - due to inflation, you may Earn $60,000 so the value of certain items would continually be fluxed.
After a long discussion about this article/video with Dobson (my relative who is extremely interested in economics, just not in making any posts here) it seems that - in his opinion the fact that Money is debt is a basic economic principal. The fact that money is simply created without any pre-existing money to show for it is a part of this process.

I think it is somewhat depressing though, that Money - this this thing that we can eat, we can't stack to create shelter, we can't use as clothing - but we are so dependant on - is made simply by signing our signature on loan documents - again and again. Hopefully, my signature will only be needed for one house...and I'll be paying cash (or Euro's - *sigh*) for everything else.


Moneymonk said...

Welcome to Middle Class living!

Reggie said...


I guess I'm too much of an idealist for my own good. I keep hold of this faint ideal that someday, people will be able to live relatively free of problems.

To be honest, though that day is today for our ancestors - or at least most of my ancestors:

1) I am no longer a slave
2) I can own property
3) I have a car that goes faster than any horse and keeps the bugs out to boot.
4) I have Air conditioning for the summer
5) I have heat for winter.
6) I can pick who I marry
7) i can also get a message to someone on the other side of the world in seconds - not days or weeks
8) I have endless options of entertainment not just an open fire
9) I don't have to walk barefoot
10) I can buy pretty much anything I want to buy