The world is deep in debt according to a report by the Institute of International Finance (IIF) released this July. They say:
“Global debt rose by over $8 trillion in Q1 2018 to over $247 trillion (318% of GDP),” suggesting global GDP currently stands at $82 trillion.
For America alone, just government debt is now 101%, making it $21 trillion. If the government completely stopped functioning while tax incomes remain the same, it would still take a year for it to be paid off.
For global debt, if we all stopped consuming while maintaining the same level of production, it would still take three years for all debt in the world to be paid off.
As it stands, however, it will never be paid off. At some point, the globe might have to default. Then, it wouldn’t be martians that come demanding our homes and governments, but bankers.
That’s because while some of this debt is owned to ordinary rich people, corporations, governments, and so on, most of it is owed to commercial banks and around 10% of it to central banks with just four commercial banks accounting for 90% of $200 trillion in derivatives in America.
That’s due to the way money is created in the financial system, whether by central banks or commercial banks. It isn’t quite out of nothing, at least part of it. Instead the majority of it comes by putting down primarily property as collateral and by borrowing against it.
Money borrowed is money created. When you borrow $200,000 in a mortgage for example, $200,000 has been created out of nothing, with the only something being that the house now belongs to the bank until you pay back the mortgage.
For governments, the collateral is taxes. Banks create money out of nothing, lend it to the government, and expect it to be paid back with interest through taxes. When governments fail, like the New York state in the 70s, banks effectively take over the running of the state.
The money creation system is reasonably smart to a point. The flexibility of lending to meet demand coupled with the fact borrowed money is extinguished once the loan is paid back, can allow for easier accommodation of a growing economy.
Even there, obvious problems can be seen. Who do they lend to, what politician is overseeing all this, how do people keep this process accountable, and so on, but such points are minor to the point of insignificant when compared to the fundamental flaw of interest.
The mortgage we just mentioned can range in interest rates from 2% to 30%. Even at the lower end, within the lifetime of the $200,000 mortgage over 25 years, you’ll pay back at least $400,000 in total. $200,000 the principal amount borrowed, and $200,000 interest.
That itself is a fairly big number, but when we look at $250 trillion in debt, that interest rate per year amounts to more than the GDP of Germany.
Some $4 trillion of new money has to be created every year if the debt is to be paid back with interest. Yet the catch 22 here is clear. That new $4 trillion has to be created by borrowing and when one borrows there is interest.
Of course, at the individual level or at a country level, you pay back the loan because you earn money from others who have taken out a loan or inheritance and so on. Moreover that interest becomes permanent money, so there is considerable complexity here with central banks failing to explain what role interest plays except to say the public might be outraged if they find out.
When you go from the micro to the macro picture, however, it is obvious the debt with interest can not be paid back. People have to default. Countries have to default like Argentina or Greece. Some countries have to print so much money they go into hyperinflation.
Take for example Britain. After nearly 10 years of cutting government spending, they still have hardly made a dent in the government debt. It has actually risen from 75% of GDP when the conservatives took over and initiated spending cuts in 2010, to now nearly 90% of GDP, although it looks like it has now finally become somewhat stable and is even beginning to slightly fall.
If all money is created through debt, and debt must be paid back with interest, then someone has to borrow for someone else to pay back the debt. Thus, there is a redistribution of wealth from the people to banks and the rich who can borrow a lot and then spend that borrowed money on empty houses or stocks, inflating assets to pay back the debt, until eventually they deep in debt so stocks crash and banks go under.
The cycle of boom and bust appears to be the creation of the nature of fiat money that can only exist through debt which must be paid back with interest, necessitating constant money printing they call inflation, which itself must be paid back with interest, leading to booms with borrowed money, then busts when no one can afford to borrow any longer.
When there is a bust, instead of looking at the cause, the favored tactic is to look at the poor or foreigners. Jews last century, immigrants this century. Anything to distract from the fact that the fiat system fundamentally must operate in cycles of debt fueled economic growth, and then assets seizure when necessarily too much is borrowed.
There is now however an alternative, a people’s money. Cryptos, with their many varieties, are produced from labour, thus earn interest with time. Instead of a wealth distribution from the many to the few, cryptos instead are an objective measure of wealth. One apple is one apple. There can be no fake apples in cryptoland.