"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." ~ H.L. Mencken
Debt Madness
Column by Mark Davis.
Exclusive to STR
Finalist #1 in the "Odious Debt" essay contest
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. ~ Henry Ford
Are you mad yet? Tired of all the odious bulldebt being dumped on your head out of the holy orifice in the seat of power? Get up and go to work every day to pay your taxes and make payments on borrowed funny money? Pissed off seeing Wall Street swindlers get bonuses while you struggle to make ends meet? My fellow Americans, why do we the many let ourselves be exploited by so few with so little protest? Are we lazy or crazy? Getting mad or going mad isn’t much of a choice, but the only choice we’re left with by a rigged system. Now revolution is in the air.
Whoever controls the volume of money in any country is absolute master of all industry and commerce. ~ James A. Garfield
The financial-political-corporate matrix that we are stuck in has us encapsulated in a medium of debt. Literally, if there were no debt in the United States of America, we would have no legal tender. The Federal Reserve Notes that we must by law, by fiat, use for money is totally backed by debt. That’s right; our economy runs on money from loans. If nobody borrowed any money, then there would be no legal money. If every loan was paid off or defaulted on, then there would no money. The financial system is based on forever creating more debt. As decreed by law, by design. This is madness.
When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it. ~ Frederic Bastiat
An economy that runs on debt requires more debt to grow. When there is less debt, the economy shrinks. Seriously, that’s the plan. Guess who made the plan? Follow the money. Where do loans come from? Who benefits the most from being able to create money from debt? Now who has their name written across the top of the money created from loans? That would be the Federal Reserve Bank with the blessing and backing of the United States Treasury. Robert P. Murphy offers an excellent account of how this works here. The Central Bank and the Federal Government: a marriage made in Hell spawned the modern economy that imprisons us all with debt.
The one aim of these financiers is world control by the creation of inextinguishable debts. ~ Henry Ford
Of course the planners expected that we would borrow more money forever. That’s how much respect they have for the intelligence of the common man. They also truly believe that the more money there is that the better the economy is doing. It certainly is for them. Consider how court economists for the central planners “measure” the economy (hint: they call it the Gross Domestic Product or GDP)? They just add up all the money that is spent on products in a year. It has product in the name, but that is part of the ruse. Frank Shostak explains here. This measure doesn’t really measure what is produced or even consider what is saved, but only what is spent on consumer items. This number includes what is spent with credit money created by government debt, mortgages and credit cards. So spending and borrowing is promoted as the “engine” of economic growth by people who profit off of debt. Increased spending and perpetual debt is sold as perpetual economic growth.
The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple that the mind is repelled. ~ John Kenneth Galbraith
Let me be clear on this. I’m not disparaging loans and interest due on real money. If you want to borrow my lawn mower, my car or my gold, things that are real property, then the honorable thing to do is to return my property after you have used them. If I rent these items to you for your personal use and you pay me a rental fee for that privilege, then that is good business. Renting my gold (real or commodity money) is no different than renting my tools or car, except that you can use my gold to purchase any number of items. That’s why it is money, also known as a medium of exchange. This rental fee for money is called interest. I will want back the original amount that I loaned to you (principal) and a rental fee (interest) on top of that. Okay so far.
Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back. ~ Sir Josiah Stamp, former President, Bank of England
So where does it go wrong? Let’s say that I start a business where I loan out my gold under the above described arrangements that we will call, oh, a bank. Because not only am I going to loan out my gold, but also the gold of other people who trust me enough to store or “bank” it in my care. First, where does this gold (or other commodity monies such as silver, copper or oil) come from? It is savings generated from surplus production, also known as profits, converted into a commodity that everyone will accept in trade. This is how real economic growth occurs: we produce a surplus that is invested in capital goods and services that make people more productive. Then there are larger surpluses or profits and growth occurs. Notice that is doesn’t matter how much money there is or even how much spending there is, what matters is how much production, profit and investment there is. This makes real growth difficult if people don’t want to work hard and save. Ah, there’s the rub.
Well, my bank is going along making decent profits renting out money and we begin providing an additional service to our customers by letting people write checks on their gold deposits. People learn that they can now trade these checks or certificates representing real gold just like real gold. Then this trust is transferred into certificates that I have printed up which can be redeemed by anybody at my bank for real gold (or silver, copper, etc.). These gold certificates are now circulating as a medium of exchange, so they become money too. Still, so far so good. But after a while I begin to notice that since people actually prefer using the lighter paper notes because they are more easily divided into various amounts than metals, then people just let the gold sit in the bank and use the paper substitutes.
After I’ve loaned out all the money I have and that of my banking customers that agreed to loan out there savings of which I get a small service fee to facilitate, there are still people who want to borrow money. Lots more it seems. So I look at all that gold sitting in my vault and write a check on my bank that extends a loan to a borrower that he can go spend just as if I had loaned him my gold. Nobody will notice but my bookkeeper and, well, he works for me. Nobody will even notice, so what’s the harm? We will keep a fraction of what is supposed to be in the bank for safe keeping, just in case some of the people may need it. Thus is born fractional reserve banking.
In a fractional reserve banking system, like a game of musical chairs, there are no losers as long as the music is playing. ~ Andrew Gause
Wow, brilliant! I can now loan money “out of thin air.” I didn’t have to produce anything, profit from anything or save anything, I just had to write a check or print the certificates to create credit money. Credit money is indistinguishable from real or commodity money after it is spent and begins circulating. After doing this for a few clients, it becomes noticeable that the local economy begins to pick up. Things are so good that people don’t notice that I have loaned them money out of thin air and they work their tails off to pay me back with real money produced from their labor, with interest.
This is how people start to believe that more loans equal a growing economy. Look around at all the money being spent and how business is booming. Interest rates stay lower than they would have been if it were based on real savings, so more projects look economically feasible than really are. This is how we get bubbles. According to the Austrian Business Cycle, this leads to bad investments, called malinvestments, in projects that are unsustainable. That means stupid to begin with. Here is a good explanation of the ABC.
You can fool some of the people all of the time, and all of the people some of the time, and that's good enough. ~ Dr. Edwin Vieira
Like all pyramid schemes, this house of cards begins to fall apart when people get tapped out and just can’t borrow any more. When the average Joe just can’t make enough money to cover the debt service on his mortgage and credit cards with enough left over to buy food: he has to default. Seeing their neighbors in trouble, some people will do the smart thing and start to pay down their debt before they lose their homes, cars and other items purchased on debt. But you will be told by the experts that that is wrong! Remember what happens when people default or pay down their debts? Yep, the money supply shrinks (deflation) and the economy shrinks (recession). Businesses and persons alike go bust because they were set up like bowling pins by fraudulent fractional reserve bankers just to be knocked down again. The only alternative is hyperinflation at the end of the Mother of All Bubbles. Hmmm…
Paper money eventually returns to its intrinsic value--zero. ~ Voltaire
Back in the day when people would go down to the bank to take out their savings and the banker stammered on about how events beyond his control ruined everyone including him, and they would be really pissed off, string him up at the nearest tree and divide what personal assets he had left and rebuild. But bankers came up with enough excuses over the years to get politicians and knaves to make it all legal. They even created a Federal Reserve Bank (an oligarchy of the richest bankers own it), Federal Deposit Insurance (smoke and mirrors) along with a whole bunch of regulations and bailout schemes to “make it safe.” We ended up with a system of lies built upon myths and held together with audacious scheming. And who gets “bailed out” these days? Is it the victims of this scheming system? No, of course not, it is the lying schemers themselves who get bailed out. The worst part is that they end up with real property taken from working people who were loaned money out of thin air while those people are thrown out into the street in shame.
Oh, and the plan to “get the economy going again” is for the government to spend more and borrow more, in your name, because you just aren’t borrowing and spending enough to do the job. Of course you will get the bill in your taxes. Eventually after more property has been consolidated into fewer hands, they have printed enough money to bail out the “banksters,” and the books have been fixed with more smoke and mirrors to fool the dupes, they will begin to make loans again in order to do it all over again.
Money is the most important subject intellectual persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it is widely understood and its defects remedied very soon. ~ Robert H. Hemphill, former credit manager, Federal Reserve Bank of Atlanta
Life isn’t fair, you know. Seeking peace is dealing with this fact of life. But sometimes you have to get mad to keep from going mad. Right now it’s pretty hard not to be mad as hell if you don’t live under a rock. The express lane to the anger management loony bin pretty much begins with the bastards on Wall Street, runs through the whores in Washington, D.C. and encircles the globe. Do you feel it?! Let’s do it, baby!
I can’t tell you what to feel because that is in your heart; you must look within yourself. I can tell you that trying to understand events beyond the control of the common man, at least what, how and why they occurred, goes a long way towards finding peace with the world we inherit. There will never be peace in this financial-political-corporate matrix that puts us on a treadmill running to spend more and borrow more created and run by a very few elite bankers. It will certainly help us to pick up the pieces when it comes crashing down. Ignorance is purposely engineered into our financial system, which, whether by design or by chance, leads to fear, paranoia, hyper anxiety and eventually violence. Thanks to the Internet, people are starting to catch on to how the game is rigged, and like Henry Ford said, that will lead to a revolution. Maybe in the morning.
When people lose everything, they lose it. ~ Gerald Celente
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Comments
This is a good essay, Mark. It covers well the economic interrelationship between production and consumption. You give good links to further enhance the reader's understanding, and you expose "fractional reserve" for what it is.
You quote Claude Frédéric Bastiat and his vision of plunder -- all debt is plunder except (as you point out) that which individuals incur with the full intent and capability to repay as agreed. All government debt is plunder pure and simple.
Sam