The Fatal Trap In The Global Economy
by Michael Bond
FALSE BELIEFS ABOUT WHERE MONEY COMES FROM
Over the last 30 years, the global economy has led almost every country on Earth into escalating and irretrievable debt. The global economy has unnecessarily inflicted unthinkable amounts of damage upon the human race and our planet’s environment in the process.
In 1971 the world began a new phase when changes were made to US national currency. In 1971 President Nixon severed the link between the US dollar and gold. 1 Since then, US currency effectively became unregulated (having lost its regulation by gold), and the banks could virtually create as much money as they chose to.
This new, less regulated US dollar began destabilising other national currencies, which had gauged themselves by the US dollar. Other countries were forced to deregulate their currencies or face economic ruin. Global currencies were no longer regulated by a stable entity like gold reserves. Now their values were moved up and down by market forces, which are unstable and subject to manipulation.
After this subtle change in currencies had occurred the illusion still persisted in society that hard work and productivity still created wealth, that is, money. This illusion is created because workers receive money in exchange for their labour or productivity. Money comes into our existence through our productivity, and thus it is easy to assume that is how money is created in the first place. Nothing is further from the truth.
Hard work and productivity no longer have any direct link at all to the amount of money in circulation. They have an indirect link that becomes weaker each year. Modern money supply exists in its own cyber-realm with little relation to real world events. For example, if inflation from spiralling fuel prices begin strangling the average family budget, the economy demands that it must be fixed by increasing interest rates. It is like remedying a rape victim by raping them again.
This new global economy is still trading on society’s goodwill towards the old type of currency systems that stopped operating during the 20th century. Most people still think a dollar is a dollar, but the shift into the new economy that world governments have embraced, especially since 1971, has turned national currencies into national death rows.
HOW MONEY IS CREATED INTO CIRCULATION
Money now represents the degree of bank debt, not national wealth. All new money that comes into circulation now does so as a debt to a bank. Money no longer comes into existence as the result of labour, production of goods or by mining gold. Nor does money come into circulation by banks lending out their customer’s deposits. These are commonly believed but dangerous misconceptions. In the new global economy, money is now created through bank loans. Now labour and production merely redistribute whatever money banks create, they don't create money.
Banks create money through the fractional reserve system using the multiplier effect, which is gauged upon the lending ratio. For example, if the lending ratio is say 10:1, then banks are allowed to create money up to 10 times the value of the assets the bank holds (this is called the multiplier effect). At times the lending ratio goes as high as 25:1 allowing banks to create 25 times the value of assets they hold. Note that even mortgaged properties are counted as being ‘bank asset’.
This fractional reserve system has the appearance of being regulatory, but it mocks the term ‘regulation’. The more "asset" banks hold in mortgages, the more loans they are allowed to create according to the lending ratio. The present money supply system has no realistic regulations and banks can create boom or bust economies to suite their own agendas.
When banks grant a loan and a borrower’s account is credited with money, that amount of currency is created in the same instant. It is suddenly brought into being from nothing. The money did not exist before the moment the loan was granted. The borrower owes the bank a corresponding debt to balance the loan.
When the borrowed money is spent, it is then ‘in circulation’.
HOW MONEY IS REMOVED FROM CIRCULATION
As the debt capital is paid off in instalments, money is removed from circulation and the amount of debt is decreased. The circulating money is cancelled out by the debt and vice versa. Other loans create more money into circulation by the same process to replace it, and so on. The repaid money is not in the bank. It is no longer anywhere and it is certainly not in circulation. All debt repayments reduce the money in circulation by the same amount.
The only way to replace currency in the present global economy is to take out another loan. This is why governments sometimes ‘borrow their way out of debt’ to get the economy moving. As there is no other source of money, a country’s overall debt must always remain unpayable and must continually grow as the economy grows. This is why national debts have been escalating in the decades since 1971. In that time, debt has gone from a pittance to a crisis.
THE FATAL TRAP - DEBT IMPLIES INTEREST THAT IS UNPAYABLE
The global economy has a designer-flaw built into it. Interest is the planned spanner in the works that sabotages the global economy by ensuring there can never be enough money in circulation for everyone to have sufficient. When each loan is repaid and disappears, there remains a residual deficit of interest that accumulated from the loan.
This is the key point to understand. In order to pay that interest, more currency must be found than, by definition, can ever possibly exist at that time. Not enough money remains in circulation from a loan to pay off the interest, after the debt itself has been cancelled out. The only way to get more money to pay the interest is for someone to borrow more through another loan.
By the end of the second loan, the first loan’s interest has been paid off, but now there is not enough left to even pay off the second loan's principal, let alone pay its interest. A third loan must be made, and as this cycle is repeated, the amount of residual debt created by interest mounts up to impossible levels. It is as simple as 100 – 110 = –10. For every ten steps money supply now goes forward, it must take eleven or more steps backwards. The shortfall is usually made up in the form of increased national debt.
A single loan never creates enough currency to enable it to be paid back with interest. No loan on Earth ever creates enough currency to pay back its capital and interest. All loans on Earth have created a global economy that can never have enough currency in existence to pay out the loans and their interest. The global economy makes it inevitable that every national debt must eventually become large enough to cause national bankruptcy. The global economy is a pyramid sale, a planned time bomb, designed to reduce the world and the human race into a global catastrophe.
IN THE GLOBAL ECONOMY, ‘CREDIT’ NOW REALLY MEANS ‘DEBT’
In the new global economy the word ‘credit’ has taken on a new and deceptive meaning. Wherever you see the word ‘credit’ concerning banks or finance, it can accurately be replaced by the word ‘debt’. Most of society thinks of ‘credit’ in the old way. Consider making a purchase from a shopkeeper using two different methods of ‘credit’.
In the first way, the shopkeeper gives you $100 worth of goods on credit. A year later you pay the shopkeeper $100, plus $10 interest and you are even. In the second way you get $100 of ‘credit’ from a bank (say by using a MasterCard), which you use to buy $100 worth of goods from the shopkeeper. A year later you pay back the bank $100, plus $10 interest and you are even.
The two methods of payment seem identical at first but there is a huge difference. When you get credit from a shopkeeper and you pay off the debt, the $110 of cash is still circulating in town. However, when you get credit from a bank and you pay the bank back the debt, then $10 of cash has been removed from town. In this way, the globalized money system is like a sleight of hand card trick, because of the way money is created through bank debts. Now money keeps disappearing from circulation as it is used.
The shopkeeper method of credit is real credit, that is, an extension of goods. The bank kind of ‘credit’ only represents an extension of a debt. Most people still think modern bank ‘credit’ is like the shopkeeper credit. It is not.
The above example showing $10 of interest is only an illustration. Many loans like home loans often create more overall interest than the principal sum borrowed in the first place.
INTEREST IMPLIES COMPETITION
In the current economic system, which is based upon the principle of ‘not ever enough to go around’, the players are forced to compete by grasping at the dollars that are left. The most desperate and dishonest players get the available money while the more decent members of society are eliminated.
The surviving players who provide products and services to the marketplace are not necessarily the ‘best of the best’ sorted through competition in excellence. They are more often the players that fight hardest and dirtiest to get the insufficient dollars available. Consumer choices, prices and quality of goods are dictated by how much is left for actually making the product after the research and marketing wars are over.
The sociological effect of our money system forces members of society into conflict and competition with each other, often against their better natures and judgement. This keeps society divided and unable to unite effectively on most issues. When society is structured around the rule that there can never be enough to go around for everyone, its citizens live in an ongoing terror of not having enough personally. People living in a society like this would have no choice but to be convinced it was inevitable that human nature is viciously cruel and competitive. Most of the human conflict and environmental devastation in our modern world would disappear if the global economy ran to a money supply policy, which made financially possible that which is physically possible.
INTEREST IMPLIES CONTINUAL ‘GROWTH’
In order for the global economy to stay viable it must continually expand between 3% and 6% to keep ahead of an interest meltdown. It was a necessity to ‘develop’ third world countries so that the markets of the first world countries could survive via economic expansion. Third world ‘development’ is largely the transferral of the unrepayable interest debt from the first to the third world, to benefit the first world at the expense of the ‘developing nations’.
The third world ‘development loans’ were used to generate enough currency globally, to allow the first world to pay off its debts and interest. After the third world countries’ environments and lifestyles have been irreparably ravaged, instead of prosperity they are often left with unmanageable debts that can never be repaid.
WHO OWNS OUR MONEY?
Multinational banks actually own and control ‘national’ currency. The person or company with whom legal custody of a commodity resides can be termed its owner. All the money now brought into existence is borrowed by an individual, an industry or a nation from a bank somewhere. It was not created by being given nor earned anywhere, it was loaned and it must be given back one day. Thus, whoever holds this borrowed money, now only holds it in trust. Nobody really ‘owns’ money as they used to, and still think they do.
The bank that created the money against a debt is the ultimate owner of it, because a contract says the money must eventually be given back to that bank, which only ‘loaned’ it in the first place. You cannot lend what you do not own. Ironically, the banks only ‘own’ money while others hold it, because once the bank gets ‘their’ money back it vanishes, except for the interest, which the bank gains and owns.
PLANNED SCARCITY – GOING WITHOUT IN THE MIDST OF PLENTY
At the end of each cycle of production, our present economy guarantees that there will always be more goods produced than can ever be sold. Governments regularly make up the inevitable shortfall of income to multinational industries as grants, bribes, subsidies, tax breaks and free infrastructure.
This extra funding for multinational industries artificially gives them the appearance of being profitable because they can afford to sell their goods for less than the goods really cost to produce. Nationally owned businesses cannot compete with multinationals on such a non-level playing field. If multinational industries worked to the same rules as the national businesses that are taxed to support them, the multinationals would go bankrupt. Global fishing and forestry industries illustrate this point well.
It usually comes as a surprise to realize that prosperity causes recession. In ‘prosperous’ times when society reduces its debt by paying off its loans, the amount of money in circulation dries up as a result. Shops may be over stocked with goods and people may want to buy them but they do not have money to do so. There may be many who want to employ people or become employed but without enough currency in circulation - nothing moves. The only way out of recession is to borrow more debt-dollars to circulate, which increases national debt further.
Creating money as a debt and thus as a rare commodity for which we must compete, has spawned a society that sees money as humanity’s most essential commodity. People’s first waking thought and daily preoccupation are now largely focused upon money as the most important consideration. The Western lifestyle has become obsessed with money as though money is the single key to all opportunity and happiness in life.
Much of the world goes without the basic necessities of life because of insufficient currency in circulation. ‘Debt created’ national currency restricts a population’s ability to produce enough for themselves, even if there is a desperate social need for products or services.
EXPORTING ONLY MAKES DEBT GROW LARGER
In many people’s minds the key to reducing national debt is to increase exports over imports, thus making a net profit to pay off debt. There are two flaws in this dangerous notion.
Firstly, if virtually every country on Earth is in debt, as they are, then how can trade ever balance the global economy? In the present economy, one nation’s profit is another nation’s loss. A group of bankrupts cannot balance their books by trading amongst themselves.
Secondly, imbalance of trade did not create national debt so it cannot solve national debt. National debt is created by the planned and unnecessary shortage of currency in circulation. Trade imbalances appear to be the cause of national debt, only because the shortfall created by interest payments always ensures that nations have a negative trade balance long-term. This is why so much global trade produces so much global debt. The debt-dollar economy guts trade of the ability to ever create overall profit.
Blaming national debt on balance of trade keeps society focused upon the red herring of ‘salvation through export’, and conveniently keeps society ignorant, and looking elsewhere from, the real cause of their social poverty and environmental destruction. As export industries borrow more money to expand, they are, in reality, further strangling the very people they claim to be saving.
About 50% of global export trade is reciprocal where exactly the same goods are exchanged between countries. On a ‘level playing field’ how can a can of tomatoes really be cheaper than a locally produced one, if we unnecessarily ship it across the world before putting it on a supermarket shelf?
In the modern global economy, creating new export markets is simply a dishonest front for creating more loans. Exporting is not about making people’s lives better, nor about balancing national debt. How can exporting, a system that creates more debt, ever be expected to get us out of debt?
THE GLOBAL ECONOMY DESTROYS THE ENVIRONMENT
The present global environmental destruction is directly related to the debt-dollar financial system. For over half a century scientists and research bodies worldwide have been warning of impending environmental disaster, and we are now beginning to suffer from the disasters we were warned about. Human society and Earth’s biosphere are suffering from our monetary system. We usually dare not take into account the damage we inflict on society or the environment as we personally fight to survive in a rigged economy.
During the decade of the 1990’s, the global economy grew at 4.3% per year. At a growth rate of 4% per year, in 40 years time the global economy would be 5 times larger than today. (In 100 years; 50 times larger.) At 5% growth per year, in 40 years the global economy would be 7 times larger than today. (In 100 years; 132 times larger). (See article Why Economic Growth Is Unsustainable.) Earth’s environment is already falling apart from the demands of the present sized economy. Our planet cannot sustain an economy even twice the present size, let alone 5 times the present size, and growing exponentially.
Watchdog and protest groups from local organizations through to the international bodies such as Greenpeace continually petition Governments to impose restrictions on waste discharge from government and corporate industry. They appeal for a curb on greenhouse gas emissions into the atmosphere and the dumping of toxins into waterways. Well meaning but naïve protesters fight the endless symptoms rather than address the root cause of all the problems: the present global economy.
Human greed is sold back to the protestors as being the underlying cause of the problems, but the problems caused by economic scarcity are really the underlying cause of the human fear and greed. In reality, the global environment is being raped by a world population that is crippled financially by nothing other than the present global method of creating money.
The cost of curbing and cleaning up greenhouse gas emissions and other industrial pollutants is financially impossible in the present global economy. The ability to clean up the environment, and the desire of society to do so are evident, but the scarcity of dollars means environmental care is an economic impossibility.
NATIONAL GOVERNMENT COMPROMISED BY THE GLOBAL ECONOMY
There can never be a workable political system while the present way of creating money remains. Now Governments must find ever more stringent ways to finance their responsibilities. Governments are forced to shed control of national property and services to multinationals, and sell the idea to the public as ‘privatisation’ and ‘deregulation’. At the same time they must find new ways to raise their tax revenue from society. Governments bleat the ‘shortage of funds’ excuse regularly when it comes to social issues or the environment. This implies to society that social and environmental problems can only be solved through even higher taxation, when the real problem is the monetary system.
There is no value in making changes to a form of Government that finds itself crippled by the present money system. Changes to capitalism and politics can be made ad nauseam but there will never be any positive effect socially or environmentally until the destructive nature of our money system is changed. It is time to ask, “Whom do our governments really work for?” We can see whom they obey and give favours to. People need to begin demanding answers to questions like, “Why do needed resources stand idle just because there is insufficient money to make use of them? Why does so much human endeavour and output produce so much scarcity? Why is the problem of national debt never seriously pursued or researched by national governments?”
Politicians give banks the power to create money in this destructive manner. If society better understood the ‘debt-based’ money system our Federal politicians keep us trapped within, then society would throw many of them out of office and try several of them for treason.
WHAT THE ‘DEBT-DOLLAR’ ECONOMY IS REALLY DOING
Before the change over to a debt-based currency system, there was real wealth in existence held by private citizens. The ‘debt-dollar’ principle of creating currency has been mining this old-world wealth held by citizens and transferring it to banks. The deficit of currency in the new global economy is partly made up by feeding society’s old world wealth into the black hole of the faulty economy.
Debt-dollars are steadily sending nations towards bankruptcy. People and governments will continually be forced to ‘sell the farm’ until there are no farms left to sell. The present economy demands this. The present multinational agenda is to gain ownership of the entire Earth via the fatal trap in the new global economy. This is now taking place. The method of currency creation through bank debts is a bid by multinational banks to stealthfully take ownership of everything on Earth.
Recessions are caused when banks simply cut back on approving new loans, thus creating a scarcity of money in circulation. The 1929 Wall Street Crash and the Great Depression of the 1930’s was caused when the Bank of England encouraged a lending spree in the USA, before sharply cutting the British bank interest rate. This caused money to flow out of the USA to Britain, leaving US markets without enough money in circulation to service their loans. Wall Street collapsed as a result.
At present, banks are setting the world up in a similar way. Once national assets have become sufficiently privatised, that is, become available for sale on the open market, all the banks have to do is decline to make new loans. Then the world will fall into a super-depression, where the banks will be legally entitled to take over assets from defaulted loans, or purchase them outright, since banks will be the only ones with sufficient money left. It is currently only a matter of time before this takes place. (For example, at present rates of growth, in about 30 years Australia's annual debt will be greater than Australia's annual income. See the statistics in Why Economic Growth Is Unsustainable.)
THE WAY FORWARD
The present global economy runs counter to most of humanity’s yearning for a sustainable social and environmental world infrastructure. Ironically, a real and workable money supply system would be quite simple by comparison to the present economy. Economics has been made ultra complex through the present money supply system.
From this point on, human civilization as we know it cannot continue much longer under the present global economy. At this stage there is almost nothing to indicate that there will be any realistic changes made in time for them to be useful.
Everyone has different circumstances. At this stage the best way forward may be to consider where you would like to be located should civilisation falter, and begin getting yourself there in an orderly way. Perhaps the time for protest has passed, and the time for facing the obvious has arrived. The more you can change your lifestyle to become less dependant upon the mainstream economy, the better situated you will be should the mainstream economy fall into deep hardship.
1. In 1934
as a quick fix to an economic crisis, President Roosevelt had tied the
price of gold to the US dollar at $35 per ounce. Now the price of gold
no longer drifted around to reflect the US balance of trade or economic
state, but it was fixed. This move made the tail wag the dog. Gold
become less reliable as a buffer against inflation and the US dollar,
rather than gold, became the measure which other nations valued their
currencies against. The price of gold still defined the US dollar, but
in reality it was the US dollar that now defined the price of gold. This
enabled the gold standard system to still work, except that it was now
handicapped, and it gave the US economy a great advantage over the rest
of the world.
A copy of this document is available from www.eveoftheapoc.com.au
Michael Bond is a promoter of social and environmental reform.
His book Eve of the Apocalypse sheds light on the present global situation and its affect on individual people.