The Money Ceiling

Column by Paul Hein.
Exclusive to STR
4th place in the "Odious Debt" essay contest
Coincident with the swearing in of the newly elected Congressmen is the impending end of the present debt ceiling. It is a topic of much discussion, with various pundits weighing in with this or that recommendation. Universally, they deplore the necessity of raising the ceiling, but it is a foregone conclusion that it will be raised, despite the hand-wringing and complaints.
Economists of impressive credentials and influence remind us of the Biblical reference to those with eyes who do not see, with ears who do not hear. They are utterly oblivious to the simplest fact: a debt “ceiling” is unthinkable, given our present system. A bright child could understand that; perhaps that is what inhibits the highly schooled minds of the best and brightest economists from seeing it.
Let’s put it simply: The debt is our money. Checks, cash, bank deposits--they are all IOUs in one form or another. They all represent a non-existent “money” that was borrowed, and so must be returned, with interest. The interest, though, wasn’t borrowed, so if repayment is to be made, it must be borrowed as well--at interest, of course. There is virtually no money--none at all--that wasn’t borrowed into existence.
Given this situation, which has obtained for decades, it is clear that only continuous borrowing can keep the game going--until, as in Germany in the 1920s, or Zimbabwe yesterday, the money supply becomes so bloated that even the most economically illiterate must realize that it’s a bad joke--on him! A trillion (Zimbabwe) dollars for a loaf of bread? It’s time to laugh--or cry.
If further borrowing is prohibited to the government by the new Congress, its loan repayments will drastically shrink the money supply, because, when “debt” is “repaid” in our present system, the borrower’s indebtedness shrinks, “money” is annihilated, which corresponds to a shrinkage of the bank’s assets; those assets supported the creation of five or ten or 20 times the amount in additional loans, which must then be called in. The house of cards will collapse even faster than it was erected. The system depends upon borrowing to pay off previous borrowing, ad infinitum. It is truly amazing that the economic intelligentsia do not perceive, or admit, this.
When the debt ceiling is raised, the collapse is postponed, but, given the nature of our monetary system (a “monetary” system without money!) it will occur inevitably, and when it does, it will be the worse the longer it is put off.
So what to do? There is no easy solution, but the Congress, which has heard the Constitution read aloud in its hallowed halls, might get a clue from that document and restore the use of money, i.e., an actual substance which can be traded for goods and services--a universal bartering agent. The Constitution mandates gold and silver for this role, not surprisingly, for they have done the job well for millennia. A gradual transition from irredeemable “notes” to the real thing, redeemable for gold or silver coin, is the solution, as well as the law, and the bright minds in Washington ought to be able to figure out a way to make the transition as painlessly as possible.
But do they want to? We shall see, but there’s little reason for encouragement. Up until the very moment of collapse, the banks will be collecting interest--hundreds of billions yearly--on the “money” they created, and using it to obtain real wealth. Why should they abandon the system that is working so well for them? And why should the rulers abandon the system that makes their ever-expanding programs and policies--especially war--possible?
For those of us who neither create the money, nor make the laws, it’s going to be rough sledding whatever happens. Get rid of any “money” you are saving, buy wealth, and say your prayers!

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