For some time on this website there has been a raging debate about the banking system, the protests, occupy movements, and whoâ€™s to blame for it all. In the discussion thereâ€™s basically two sides.
Side one points out that the captains of industry got where they are by hard labour and a degree of talent. The proles, meaning the lower classes, generally lack direction in life. Therefore they sign stupid contracts and readily allow themselves to be fooled. The proles try to live the MTV lifestyle and donâ€™t consider longer-term financial considerations. If they wouldnâ€™t be so insipid then the financial situation wouldnâ€™t be so messed up to begin with.
Side two explicates that our current captains of industry are pretty much the entrepreneurs that got into power ever since the French and Industrial revolutions. After the ancient aristocratic order was dethroned it was replaced by a more neurotic system where the impulse to buy nowÂ forms the fundament of the economy. The bankers are just as greedy as the proles they are fooling â€“ they want money out of everyoneâ€™s pocket and they donâ€™t care if family values, honesty and common sense have to be sacrificed in the process.Â Â
Itâ€™s time I took a personal hand in this debate, and of course I wouldnâ€™t dare to do so without having personally attended the protest to make up my mind. Iâ€™m going to tell you all of the economic and philosophic consequences of this event, which amounts to quite a lot â€“ therefore Iâ€™ve decided to cut the review up in parts.
At the very start of the debate, my interest was caught by the analogy of the crack dealer and the party-goer. Both know that the substance is ultimately harmful but the dealer doesnâ€™t care because heâ€™s out to make money, at the expense of others. It is in his interest if the party-goer becomes addicted, even if it means he goes broke, ruins his family by borrowing money, etc. The user knows the substance is slowly killing him but he finds himself somehow powerless to resist it.
Obviously, both are to blame here. Because they could have known that the substance was very harmful. We might say that the dealer is simply being smart. But he does help create another junkie who will roam the streets at night and might eventually slit a girlâ€™s throat during a psychosis that could turn out to be the dealerâ€™s own daughter. The dealerâ€™s just reasoning from the mindset: â€œIâ€™m gonna make a quick buck and when the shit hits the fan Iâ€™m outta here with my money.â€
Which is exactly what the bankers think â€“ they have made our nations dependent on their credit. From Greece to France to the U.S.A. â€“ and although everyone knows governments have to cut costs they find themselves powerless to do so. But contrary to the crack scenario, where both know theyâ€™re playing a dangerous game, in the credit scenario nobody understands theyâ€™re in a game. Itâ€™s because: [A] The credit-takers donâ€™t understand the monetary system. [B] The bankers donâ€™t understand the monetary system. [C] The politicians donâ€™t understand the monetary system. [D] Schools donâ€™t teach the monetary system.
Some facts about the monetary system that school doesnâ€™t teach you:
A bank is allowed to rent out one bar of gold it possesses, ten and often fourteen-fold. Imagine ten guys all putting one coin in a jar. They can take it out whenever they want to, they only have to ask the jar-keeper for permission. And he always says: â€œSure, itâ€™s your coin, after all.â€
A new person comes in and says to the jar-keeper: â€œHello, can I please have two coins? Donâ€™t worry Iâ€™ll give you back three next week.â€
The jar-keeper thinks: â€œHmm, since it never happens that all of these ten people come to collect their coins simultaneously, I suppose itâ€™s okay.â€
So the guy comes back and he pays his three coins next week. The jar-keeper is happy. He takes out the one extra coin and keeps it to himself.
The week after that four new people come. They all say: â€œHello, can I please have two coins? Donâ€™t worry, Iâ€™ll pay three back next week.â€
Thereâ€™s still two coins left. So in case someone of the original ten wants a coin back, well . . . Letâ€™s just hope that not more than two request their coin. (This is what a banker calls â€œriskâ€. Because he takes risks like any other entrepreneur, he considers himself allowed to make money by producing no actual good or service. This is what the religions call â€œusuryâ€.)Â Â
Next week, one of the guys doesnâ€™t show up. It means a loss to the bank of two coins. That means the keeper officially only has eight coins left in the jar. However the three others each bring back three coins. That means thereâ€™s now eleven coins in the jar.
So he made a profit. This is why banks sometimes allow outrageous debts, because in general most people pay their debts. Itâ€™s calculated that the bank will take a loss from some clients from time to time. But most will play the role of predictableÂ bourgeoisÂ andÂ pay up;Â theyâ€™re too afraid that their families get thrown out on the streets. However, consider this:
Bankers are always covered. If they invest money and make a fortune, they win. The profit is theirs. If they invest money and lose, the government bails them out because the stakes at large are too great. Too big to fail.
You can say: â€œHello bank, can I please get $40,000 to buy a car?â€ Bank will say: â€œSure, but what if you canâ€™t pay us back? Oh, then weâ€™ll take the car.â€ This is a promise to pay.
A bank can count a promise to pay as its own capital. Capital they donâ€™t even have yet. They may rent that out fourteenfold.
Now in most cases people will work real hard and pay the debt back. However when they donâ€™t manage then the bank confiscates the car. Turns out the car was only worth $20,000 when confiscated and not $40,000. That means a loss of $20,000 right there. Money that never existed in physical form. Money that was never printed or made as coins. However if you consider that 20,000 x 14, it turns out that this amount never existed. It vaporised. This explains why during a housing crisis billions of dollars can vanish over night; because the properties were counted as capital for higher amounts than the bank could actually receive for them.
This is why the monetary system is a bubble that must burst. But it gets worse.
You can say: â€œOkay Iâ€™ll take this loan of 40,000 dollars.â€ But you can give this money to me. And I can put it on my bank account. Then the bank says: â€œAh, 40,000 dollars of new capital.â€ And it can rent that amount out fourteen times again. Even though there was already money rented out over this same money. But the banks can do it simply because of my promise to pay. Money is not created as value, but money is created as debt.
If you borrow 1000 dollars from the bank, you have to pay back 1200 (interest). It means that you can spend the 1000 dollars in the name of the bank. But where do you get the extra 200 from? By working or selling products so that someone will pay you those 200 extra. How do those people get the money to pay you? They borrowed money from the bank at some point. So they too have to pay back interest over that amount. In the end, that amount of money is not to be found in the money pool. It means that even if everyone works their asses of, someone must eventually be bankrupted. Itâ€™s a game of vanishing chairs. When that moment draws closer, governments issue new money from banks. Thus creating more debts over which interest must be paid. Itâ€™s an ever-increasing cycle.
Economic growth cannot out-grow this. I spoke about this with some elderly professor on my way to the protests. He was talking about Keynesians versus non-Keynesians. He spoke of how people defending the contemporaryÂ form of finance-Capitalism selectively shop from the works of Keynes and Adam Smith to justify something that has absolutely nothing to do with what Capitalism really means: It means adding aÂ product or service to the world, delivering good quality worthy of good pay, developing yourself in the process. Finance-Capitalism adds nothing to the world at all, except debt.
However I told him itâ€™s irrelevant because the monetary system itself is Keynesian. Every single dollar or euro is multiplied many times. And with every percentage of economic growth we make, the debt on our shoulders grows exponentially along.
People will probably refuse to accept this, since they think itâ€™s too unlikely that the foundation theyâ€™ve built their very lives upon is revealed to beÂ a form of utter parasitismÂ by some unknown guy on an obscure part of the internet. But still it is true â€“ because the mainstream media wonâ€™t tell you this. Because they donâ€™t want you to know.
Because society isnâ€™t held together by money â€“ which as I pointed out doesnâ€™t represent value but debt â€“ itâ€™s held together by the alarm going off at 06.00 and you getting ready to teach kids the alphabet, bake bread in a bakery,Â or chop dead trees into firewood. Because these are basic life necessities. Because you possess a North-European Protestant-Weberian work ethic. Our economy thrives on trust. On you thinking that everything will be alright in the end and that business will continue as usual.
But think again â€“ this is the place where you really could hear the Truth because nobody around here has any interest in deceiving you.
The U.S.A. is the cornerstone of the world economy. Because they can just print dollars and feed them to whoever wants to have them. However this money is covered by nothing, (it used to be covered by gold; see Bretton Woods but that’s abolished) and even the Feds (and Ben Bernanke) isnâ€™t a government organisation, itâ€™s a club of private entrepreneurs. The guy who gave those banks that caused the credit crisis a +++ rating had to do so, or â€“ so he was told by the owners of that bank â€“ his career would be in serious trouble.
It could very well be but a matter of time before nations like China wonâ€™t accept the United States’ currency anymore. Then everything starts to shift. Greece might fall, dragging along Spain and Portugal, then Italy and Ireland, and everything you know as economy will be flushed down the drain.
Perhaps I’ll write more about what happened once I arrived with this story on the protests. Because I think itâ€™s seriously time for Amerika.org to change course. We have to stop supporting the myth of the Open Society â€“ the notion bankers are good because some of the deluded see a reflection of the natural born aristocrat in their fraud that seems like success.
We have to acknowledge the closed society, and consequently attack it. The only people who have an interest in defending the closed society by painting it as an Open, meritocratic-based society, are the baby boomers.
People are ready to embrace a serious criticism of the finance situation, the credit crisis, the economy and the monetary system. The typical socialist-anarchists are pot-smoking nutjobs that ramble incoherently. We have to jump into that hole.
We have to hijack the protests, so to say, and replace them with better-argued, more clear criticism towards the current economic system. When something is found rotten, voices will be raised to amend and replace it. That gives a window of opportunities for new visionaries to climbÂ upÂ the ladders.
Ladders that are withheld from us now.