Category Archives: The Debt Imperative

Fossil Fuels, Debt-money, and the Growth Economy

Posted on June 11, 2012 | Leave a comment

The video below (300 Years of FOSSIL FUELS in 300 Seconds), from the Post Carbon Institute, is very well done. It tells the story about the development of industrial civilization based on fossil fuel energy, and the mega-crisis that now confronts us. While it is inaccurate in pointing to fossil fuels as the main driver of economic growth, it is well worth the five minutes it takes to watch it.

As I’ve been saying for a long time, the availability of cheap fossil fuel energy has been the enabler of continuous economic growth, but it is not the driver. The driver of the growth imperative which has been operating for about the past 300 years is the political interest-based debt-money system. It is a system that creates money based on interest bearing “loans.” It is the compound interest that is built into the global money system that requires the continual expansion of debt, which in turn forces the physical expansion of economic output. Now nature is putting on the brakes, telling us it’s time to STOP.

We can make the transition to a regenerative economy consciously and deliberately, or we can try to deal with the developing problems on an ad hoc basis in the midst of inevitable chaos. The end of the industrial era should not be mourned, nor does it need to be painful. We have before us the opportunity to create a happier, more peaceful world, one in which we all have enough to live a dignified and fulfilling life with enough time and energy to restore our communities and our environment. For more about that, see my presentation on The Butterfly Society.—t.h.g.

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Posted in Economics, The Debt Imperative, The Political Money System

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Iceland takes a more rational approach to the finacial crisis

Posted on April 5, 2012 | 5 comments

A Bloomberg report of February 28, 2012 describes the steps that Iceland has been taking to deal with their banking crisis. A basic feature of their policy has been debt relief  for homeowners. Here’s are some excerpts:

“Once it became clear back in October 2008 that the island’s banks were beyond saving, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed.

Legal Aftermath

Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.

Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.

That compares with the U.S., where no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.”

You can read the entire report at Icelandic Anger Brings Debt Forgiveness in Best Recovery Story

One wonders, why the same approach was not taken in the U.S.? I would venture to say that it all boils down to political power–who controls the government? Iceland is a small country, which probably accounts for the ability of the people to influence the government to an extent that seems impossible in a country like the U.S., where, instead of relieving the people, the government chose to relieve (reward) the banks that created the problem in the first place. It did that by shifting the excessive and unserviceable debts from the banks’ balance sheets to that of the government.

That, in turn, required a huge expansion in the national debt, but that will not and cannot solve the problem. It will only make matters worse because the world is losing its appetite for U.S. government bonds. When the Federal Reserve steps in as “buyer of last resort” we get a further debasement of the dollar and ultimately price inflation, which causes the savings of the middle-class to be wiped out.

The debt-money system has inherent in it a growth imperative. Banks create money on the basis of interest-bearing loans. The interest burden requires the creation of additional debts so that the interest can be paid. That cannot continue forever; debts must ultimately be forgiven.

But even that, by itself, is not sufficient to prevent a recurrence of the bubble-and-bust cycle. Money must be created interest-free. The best way to achieve that is by creating competing means of exchange like mutual credit clearing and private cooperative currencies.–t.h.g.

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Posted in Finance and Economics, Geo-politics, The Debt Imperative, The Political Money System

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Who buys US bonds when foreign countries and investors won’t?

Posted on April 3, 2012 | 4 comments

Answer: The Federal Reserve

Question: Where does the Fed get the money to buy the bonds?

Answer: It creates it.

That’s right, the Fed has no money, but the Congress long ago empowered the Federal Reserve Bank to create money by buying government (and other) securities. This is known as “monetizing the debt,” which amounts to nothing more than “legalized” counterfeiting of dollars, and it has the same results as the injection of any other form of counterfeit money—the dilution of purchasing power of all the dollars already in circulation and the erosion of the value of all dollar-denominated assets.

Currency inflation must ultimately result in price inflation as those empty dollars (based on empty promises) work their way through the economy. Further, as those Fed-created dollars get deposited in banks, the banks are able to multiply their lending on the basis of these new “reserves.”

In an opinion article that appeared in the Wall Street Journal last Wednesday, a former Treasury official says that:

“The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis.”

You might consider that to be a stealthy form of “quantitative easing.”

You can find out more about that, along with some pretty good analysis in an article that appears on the Money News website.

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Posted in Banking, Politics, The Debt Imperative, The Political Money System

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Money as Debt 3, now available on YouTube

Posted on March 18, 2012 | 2 comments

Here is Paul Grignon’s latest video animation that explains the money and banking problem and it’s fundamental  importance to the future of civilization. Please note the opening quote of E. C. Riegel,whom I have acknowledged as the most important source of my own understanding. You can find links to Riegel’s writings elsewhere on this site, or click here.

While I don’t fully agree with Grignon’s analysis of the effect of interest in the money creation process, I highly recommend this video, along with his shorter video, The Essence of Money.

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Posted in Banking, Basic Concepts, The Debt Imperative, The Political Money System

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CES, a prototype global exchange system for the 21st century

Posted on December 20, 2011 | 3 comments

In a new article titled, Reinventing Money – A Community Exchange System from South Africa Conquers the World, Tim Jenkin describes the development and operation of the Community Exchange System (CES) which he founded in 2002. Beginning as a single local credit clearing exchange, CES has evolved into a global network of more than 340 local exchanges distributed over 34 countries.

“The CES web site is just a tool for managing exchange groups, for keeping accounts and for advertising. Each group administers itself and has its own rules and conditions of use. This keeps the overall system democratic and provides the basis for a multitude of separate but interacting local economies. Some groups base their unit of value on the national currency while others use time (e.g hours or minutes)… The long-term vision of CES is to democratise the entire network.”

“The CES has been operating for nearly nine years now and, though it is still minuscule compared to the global financial system, has demonstrated that it is as versatile as the conventional money system, and indeed more efficient in many ways. It caters to fairly large volumes of trade, permits international trade, provides an extremely efficient means of tax collection through an optional transaction levy, handles multiple conversion rates seamlessly and clears accounts instantaneously.”

While the CES prototype needs some refinement, it provides an operational “proof of concept” for the creation of a locally controlled, yet globally useful system of exchange that transcends the dysfunctional interest-based, debt-money system that is driving the world to destruction. I fully agree with Tim’s conclusions that:

“In the new era of declining energy and other natural resources, the global economy is inevitably going to have to contract. The debt-based money system looks increasingly unstable in the current low-growth environment and definitely cannot operate in a steady state or degrowth environment. A new exchange system  that operates something like CES will be needed. Such an exchange system simply reflects the economic situation, it does not drive it. When  interest is removed as a factor in exchange, the growth imperative is removed along with the debt bondage that most of us live under.

Extraction mechanisms such as speculation, derivatives, securitisation, hedging and other casino-like activities that allow a parasitic class to skim off the wealth of a society are also excluded. The decentralisation of control and lack of opportunities to hijack the exchange system for private gain will return the money power to ordinary people. No longer will those who currently control the financial system be the ones who decide where society puts it efforts and how it allocates its resources.

The realisation that money is information and not real stuff is hugely liberating because it means that a local community can create its own exchange system and not be dependent on the dysfunctional global one that is driving humanity to the brink of disaster.

This has all been made possible by our ability to share information on the internet. Local communities should jump at the opportunity to be able to define and control their own destinies instead of allowing financial institutions and governments to do it.”

I encourage all to read the entirety of Tim’s article. You can read it online or download the pdf file here.–t.h.g.

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Posted in Developing Alternatives, Emerging paradigm, Exchange Design, The Debt Imperative

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My movie now available, and the further decline of the dollar

Posted on August 5, 2011 | Leave a comment

In early May, I gave a presentation to the Financial Planning Association, which I titled, Financial Planning in the Emerging Butterfly Economy. The slide show was posted here shortly thereafter. Now, thanks to Bill Jackson, we have that presentation in movie form, complete with my slides and narrative. You will find both of these listed in the sidebar to the right under, My Audio-visual presentations You can also view the movie by going directly to the Slide Show Album on my Vimeo site, http://vimeo.com/album/1660843.

You should also be aware that the United States has for the first time in its history, lost its triple-A debt rating. Standard & Poor’s announced on Friday that “it lowered its long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’. Standard & Poor’s also said that the outlook on the long-term rating is negative,” which suggests that further downgrades are likely. You can read the entire S&P statement here.

The recent budget cuts agreed upon by Congress are a mere drop in the deficit “bucket.” As I said many years ago, so long as the debt-money system based upon compounding interest prevails, the federal government budget cannot be balanced. As we have seen very clearly in the recent bailouts by government of banks and financial institutions, government is the borrower of last resort. If government does not play that role, the entire global financial system collapses, as it almost did in 2008.-t.h.g.

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Posted in Global Economy, My activities, The Debt Imperative

Has the chrysalis stage begun?

Posted on August 4, 2011 | 6 comments

Dave Gardner is director of the upcoming documentary GrowthBusters. Here is his recent article that appears on the website of the Center for the Advancement of the Steady State Economy (CASSE).

Gardner points out that there is good reason to celebrate the “bad” economic news being reported in the media. Hopefully, his upcoming film will include something about compound interest and the debt-money system that has been driving endless growth of production and consumption. Debt growth must cease if we are to make a smooth transition.-t.h.g.

Good News: Economic Recovery Stalls!

Posted By Dave Gardner On August 3, 2011

by Dave Gardner, director of the upcoming documentary GrowthBusters

Economic news last Friday was quite positive. Annualized U.S. GDP growth was less than one percent in the first half of 2011.

However, I would hazard a guess that, oh, some 99.9 percent of the world considered this bad news. It was characterized in the New York Times [1] as a “snail’s pace.” Journalists and commentators around the world are predictably typing out words like weak, anemic, malaise, gloomy, bleak, doldrums and stagnation.

So why would I celebrate? Do I get perverse, morbid pleasure at seeing my fellow humans unemployed, upside down in their mortgages, or dining at soup kitchens? I do not. The fallout of the recession is real, it’s painful, and it’s sad. But steady or declining GDP is not bad news. Nor is the drop in consumer spending [2] reported Tuesday.

While many impacts of the recession are tragic, these are the pains of adjusting to a new reality: the end of growth. They are a necessary part of a temporary phase. We might call it the cocoon phase, as we metamorphose into something more beautiful.

Consider these headlines from the past two years. Are they good news or bad?

  • Recession Puts Babies on Hold
  • Tiny House Movement Thrives Amid Real Estate Bust
  • Home Production Falls as Economy Languishes
  • Global Coal Use Stagnates Despite Growing Chinese and Indian Markets
  • Total Municipal Waste Generation Dropped
  • Home Depot Calls a Halt to Rapid Expansion
  • European Union Carbon Pollution Drops
  • GM to Close Hummer
  • Gasoline Spike Fuels Surge in U.S. Bicycle Sales
  • Bottled Water Consumption Growth Slows
  • 30-Year Growth Spurt Ends for Average American House Size
  • Ad Spending Down
  • Airlines Ground More Than 11% of Their Jets
  • Breast Implants are Deflating Along With the Economy
  • More Than 400 Meetings in Las Vegas Recently Cancelled
  • 2nd Home Market Declined 30%

Looking at these headlines through an archaic lens, last century’s worldview that growth is the Holy Grail, these stories seemed like bad news. But through a more modern, 21st century lens that values true sustainability, they herald a world slowing down toward a responsible level of human activity.

Think about it. Smaller houses mean less deforestation, less habitat converted to subdivisions, less concrete (production of which emits significant CO2), and less living space to heat or cool (again reducing CO2 emissions). Less coal use is also good news in the greenhouse gas department — as are grounded jets, no more Hummers and a switch to bicycles. Strangely we see no signs that politicians, pundits or journalists are thinking this deeply about the subjects.

I’m not the first to recognize this recession as an opportunity. Great minds like Gus Speth and David Korten are doing their best to turn this recession into a course correction. Korten’s Why This Crisis May Be Our Best Chance to Build a New Economy [3], and Speth’s Towards a New Economy and a New Politics [4] are good examples of this. Even Jay Leno got into the act, congratulating President George W. Bush in 2008 for doing more to fight climate change than Al Gore — by slowing the economy. Of course the impacts of economic growth reach far beyond the climate. Our increasing economic activity is causing habitat destruction, species extinction and pollution [5]; and it is liquidating critical resources like fertile soil.

I’m aware of no journalist who sought out Speth, Korten, Daly, Czech, Victor or Heinberg for an alternative view on Friday’s news. A story about ice melting would include comments from both real climate scientists and climate change deniers. But for this GDP story there was no discussion in the newsrooms about getting the other side — a quote about how terrific it is that gross domestic product may be settling toward a steady state. They assume GDP growth is good news and economic contraction is bad news — for everyone. It doesn’t even occur to them to question that assumption. Blind faith in the old worldview still has a tight grip on the reporters and editors. This needs to change.

I look forward to seeing the butterfly!

–

Dave Gardner is the filmmaker behind the documentary, GrowthBusters, which premieres in late October. The nonprofit film’s final fundraising campaign on Kickstarter [6] is in its last week. For more information about the film or to organize a screening, visit www.growthbusters.org [7]. Dave can be reached at dave@growthbusters.org [8].

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Posted in Economics, Finance and Economics, Global Economy, The Debt Imperative

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The Door is Closing

Posted on August 1, 2011 | 1 comment

A recent  article by Stephen Leahy titled, Data Shows All of Earth’s Systems in Rapid Decline, sounds a dire warning. As the pace of ecosystem decline and species extinctions accelerates, the prospects of human survival on planet Earth grow ever dimmer.

What has money to do with all that? Everything!

As one of my favorite economists, Kenneth Boulding, has said, “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” Unfortunately, it seems that they are the ones who are running the world. Those who control the creation of money have the power to control everything else. Thus, our political leaders are in thrall to the top level financial establishment and the orthodox economists who perpetuate the myth that the debt money system is giving us the best of all possible worlds. Of course, the rest of us, though ignorance and inattention, have also been deluded and complicit in their malfeasance.

Economists, by and large, still worship the “Growth God,” arguing that all of society’s ills can be solved by further increasing material production and consumption.

That is sheer folly.

Population, atmospheric carbon dioxide, and debt are three things that have long been growing exponentially. All of these are causes of the global mega-crisis, but the most fundamental of these, and the one most subject to human amelioration is debt.

As I’ve been describing it in my recent presentations (see, e.g., my slide show, Financial Planning in the Emerging Butterfly Economy), the global debt-money system, based as it is on lending money into circulation at compound interest, is the DRIVER of the mega-crisis. This, because it has inherent in it a debt-growth imperative. As interest on debts accrues with the passage of time, more debt must be created in order to keep the supply of money in circulation sufficient for older debts to be repaid (with interest). The always deficient supply of money in circulation puts continual pressure on companies and individuals to increase their production as they attempt to earn enough money to pay what they owe. Ultimately, it is impossible for all debts to be paid. Hence, throughout the modern era, we have seen overall debt growing much faster than GDP or any other measure of real economic output.

Total Debt for All Sectors--US Economy

Total Debt for All Sectors--US Economy

Time is running out on the “Caterpillar Economy.” Like the caterpillar, the global economy must eventually reach a maximum size, cease its destructive consumption and growth, and morph into something that is sustainable and ecologically benign–the “Butterfly Economy.”

We must either give up the practice of lending at interest (usury, riba) and embrace monetary and financial systems that enable the butterfly economy to emerge, or see the world descend into chaos as nature applies her own correctives upon the Earth and its inhabitants.

Yes, it IS possible.–t.h.g.

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Posted in Prescriptions, The Debt Imperative, The Political Money System

Usury and the Money Problem, a Message to Faith Communities

Posted on July 6, 2011 | 5 comments

The Fellowship of Reconciliation (FOR) is an international interfaith movement that has been working for peace, justice and nonviolence for almost a century. As a result of meeting Ray Foss during my tour of Oregon and Washington about a year ago, I reconnected with FOR. Ray has lately been instrumental in raising the issues of “usury” and “the money problem” amongst various faith-based communities. I think it is largely through his efforts that a recent issue of Fellowship, the magazine of FOR, had a major focus on Rethinking Money.

Starting with a fine editorial by Mark C. Johnson, FOR executive director, that section of the magazine contains articles by both Ray and myself. My article Money, Usury, and the Economics of Peace, can be read online.

The arguments against the practice of usury/interest go way beyond scriptural prohibitions. It is now obvious to anyone who cares to see, that there are solid economic and social arguments that should be sufficient to persuade any rational person that our present system of money and finance, based as it is on compound interest (usury), is not only unjust, but also destructive to the natural environment, the social fabric, and the common good.

World debt has been growing much faster than any measure of economic output, even GDP (gross domestic product), which includes not only the production of goods, but also the production of “bads.” The financial crises we are seeing in various countries and economic sectors are evidence that the debt burdens have grown far beyond what can be borne by either the private sector or by governments.

The growth of debt must stop. A new economic and financial order must soon emerge, if not consciously and deliberately, then it will happen on its own through the descent into chaos. If political and financial leaders cannot accept the end of the old order of things, then the people themselves must take the lead to develop new arrangements that build a peaceful, more equitable society, from the bottom up. How that might be done s the subject of the latter (prescriptive) chapters of my book, The End of Money and the future of Civilization.

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Posted in Emerging paradigm, Prescriptions, The Debt Imperative, The Political Money System

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Exponential growth

Posted on June 24, 2011 | 1 comment

I’ve tried to explain in my books and lectures that the world is now at a critical point. Many things have been growing exponentially and are now pushing up against the physical limits. I argue that the driver of economic growth has been the debt money system in which money is created on the basis of interest-bearing debt, which is an exponential function. Debt must be continually expended in order to put enough money into the economy to service the previously created debt. But the amount of money is never enough for all debts to be repaid, so a day of reckoning must eventually arrive. We are now very close to that day.

Someone who has done a great job of explaining these things in video format is Chris Martenson. I highly recommend that everyone watch his Crash Course. In the video below, he explains exponential growth and highlights many of the factors that are approaching their limits.

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Posted in Global Economy, The Debt Imperative

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