Paul Grignon’s video production, Money as Debt, is the best presentation I’ve yet seen that explains in simple and straight forward language (with supporting animated visuals) the true nature of money and the dysfunctional and undemocratic nature of the global banking system. It is available on Google video and runs about 45 min.
The main website is: http://www.moneyasdebt.net/
Here is a brief description from the web:
“Paul Grignon’s 47-minute animated presentation of “Money as Debt” tells in very simple and effective graphic terms what money is and how it is being created. It is an entertaining way to get the message out. The Cowichan Citizens Coalition and its “Duncan Initiative” received high praise from those who previewed it. I recommend it as a painless but hard-hitting educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system in Canada and the United States.”
While I have some difference of opinion about what needs to be done to remedy the situation, I give this video the highest marks for its accurate reporting and clear presentation of its essential message.
Please give it your close attention.
Check out the Zeitgeist Movies. I think you’ll find the movement very interesting.
Watch them here:
My fellow on Orkut shared this link with me and I’m not dissapointed that I came to your blog.
Arkadeas’ argument is correct only if the interest is created and spent. If the “lender spends 100% of the interest taken in so that the borrowers can earn it again” that would make it a zero sum game not a negative sum game.
That is the way it works with the discounting of real bills; all the money is created up front and split between the borrower and the bank. The bank then uses its share to cover operating expenses including profit to the shareholders.
But that is NOT what happens under the present system. In the present system, the bank creates only the principal. Accrued interest is counted as revenue to the bank and added as an asset. On the liabilities side, it becomes an addition to owner’s equity or capital and used as the basis for further expansion of credit (loans). The interest is not created and spent.
“…the video’s claims about interest are totally inaccurate. A payment for interest is a payment for a service. And the economic effect of a payment for servicing a loan (interest) is no different than payment for any other kind of service, such as for a haircut or a taxi ride.”
Except that the interest paid to banks is completely out of proportion to the service provided. People who make their living giving haircuts and taxi rides aren’t getting filthy rich on the backs of those to whom they provide their services.
I came across your blog and had to encourage you: please continue to inform people by all means. Congrats!
The Money As Debt theory is fallacious.
According to the Money As Debt theory, commercial banks create money whenever they loan out money. But this is very misleading, because this so-called created money does not increase the amount of money buyers are able and willing to spend! Here is why.
Let’s say Ms. A has a job that provides her with a net income of $2,500 a month, all of which she is able and willing to spend on goods and services. This means that over the next year she will have $30,000 to spend on purchases. She decides to buy a car for $12,000 for which she is willing to pay $1,000 a month for 12 months. So she goes into a bank to borrow $12,000 to buy a car from Co. B. The bank approves the loan and makes out a check for $12,000 payable to Co. B.
Let’s stop here for a moment and ask where does the bank get the $12,000 to enable it to write the check. The answer is that it doesn’t! The bank has the legal authority to just write the check with little or nothing to back it. Thus the “illusion” of creating money. To see why this is only an illusion of money creation, let’s go back to the story.
Ms. A takes the check and gives it to Co. B in exchange for the car. Co. B deposits the check into its checking account. This increases Co. B’s ability to purchase goods and services. HOWEVER, Ms. A’s ability to purchase goods and services has just gone down!!! She is no longer able to spend $2,500 a month because she must now give the bank $1,000 a month to repay the principle on her loan, which leaves her with just $1,500 a month (or $18,000 over the next year) to buy additional goods and services.
The net results are the same whether Ms. A takes out a loan for the car or pays cash for the car. In both scenarios, Ms. A ends up with the car and has only $18,000 left to buy additional goods and services, and Co. B has the $12,000 to spend on goods and services. Therefore, the amount of money society in total (Ms. A + Co. B) is able and willing to spend on goods and services is exactly the same whether Ms. A borrows the money or pays cash for the car!
In other words, when a bank makes a loan, it is only creating money according to the Fed’s definition of the money supply (M1, M2, or M3). It is not creating money in the sense of increasing the amount of money society is able and willing to spend on goods and services.
This means that the money “created” by banks writing loans is non-inflationary, because it doesn’t increase society’s ability and willingness to spend.
If the bank had just given Ms. A the $12,000 to buy the car without any obligation to repay the loan, then that would be true inflationary money creation. Now we can see why governments choose to borrow money instead of just printing it. Borrowing is non-inflationary, but printing is inflationary.
But let’s not forget about the interest. The video makes a big deal about the interest. It says that banks don’t create the money to pay the interest, it only creates the money to pay the principle. It says the money to pay the interest doesn’t exist. Therefore the only way to get the money to pay the interest (on a society basis, not an individual basis) is to take out more loans, which in turn will require more interest to be paid, which requires more loans, etc., etc. To sustain this, the video claims, requires exponential growth in trade.
But the video’s claims about interest are totally inaccurate. A payment for interest is a payment for a service. And the economic effect of a payment for servicing a loan (interest) is no different than payment for any other kind of service, such as for a haircut or a taxi ride.
When a bank receives an interest payment it is no different than income by any other company or individual. Bank people are just like other people, they too need to buy homes, cars, TV sets, groceries, etc. Therefore, the money just gets circulated back through the economy over and over again. No exponential growth is required to pay the interest.
The video also claims that with a stable money supply, the banks, because they are charging interest, will end up with all of the money. But this is only true if the banks never spend the interest (income) payments they receive. But the same can be said for any service industry. If they never spend their income, but could keep selling their services, they too would, eventually, end up with all the money.
We now have enough to conclude that the Money As Debt theory is false.
Steven, if you believe the ‘Money as Debt’ video not to make a clear representation of the fractional reserve system, can you explain why.
Or has wikipedia and several other web sites got their definitions wrong too!
seems to define ‘fractional reserve banking’ in the same way as the video.
Meh. The person who made this video clearly does not understand the fractional reserve system.
Great video. Follow-up with Stephen Zarlenga’s “The Lost Science of Money.” See the website of the American Monetary Institute: http://www.monetary.org
See also the remarkable work by Prof. Michael Hudson, “Superimperialism,” which explains how the American currency as debt system is the motor of the current world financial economy.
Well done for moving to WordPress 🙂
Just wanted to say that I’ve also made a post about the Money as Debt video and have included lots of very useful links (i.e. all my favourites on money – although I’m not done yet…).
Check it out at http://uniteddiversity.com/money-as-debt/