(Week 18 - Friday, Dec. 12)
It has been a full seven generations (at about a third of a century per generation) since the American Colonies declared their independence from the mother country, inspired in large part by the determination to exercise the sovereign power of their society to create their own money supply, and thereby take responsibility for the development of their own potential; as opposed to submitting to having their money lent to them by a private banking system, backed by the British state, on such terms that they would remain forever indebted and subject to "the moneylender." Understood fully, this was not so much a contest of state vs. rebellious colony, as it was between two great ideas about how money should be created, issued and controlled, that had fought for centuries for dominion over the minds of men. The battle had been intensifying for many decades within Britain itself, but came to a head in the North American Colonial experience.
The Colonies having prevailed in the military conflict, the new nation failed to maintain vigilance on the monetary front, with the result that its subsequent history has been a protracted struggle between the proponents of public vs. private money, with the private-bank-money partisans having emerged (for now) victorious. The "seven generations" period since the Revolution has provided a historical baseline from which the result of having turned away from our commitment to public money in favor of a gradual acquiescence to private bank money can be judged. Today's headlines would seem to indicate that such an assessment is urgently needed.
I stated in Monday's column that the need for the participants in the economy to take on in the aggregate ever greater amounts of "debt" to make "interest" payments on old "debt," while maintaining an adequate money supply, has created a situation whereby virtually all significant physical wealth in the society is eventually brought into the banking system to serve as collateral for the borrowing of more money into circulation. This has progressed to a point where virtually the entire combined worth of all physical assets in the country is matched approximately by the amount of "debt" written against it.
What is more, the need for compounding amounts of money to be borrowed into circulation has not only consumed the worth of the country, but has of itself become a major driver for economic activity. The participants in the economy are obliged to seek out ever greater fields of economic exploitation to be able to make the ends meet in their financial cash flows. While it is true that much human need has been met in the course of such activity, and our society has in many ways achieved a measure of economic prosperity, the financial need for "economic growth" ("debt-money expansion) has come to supercede genuine human need, and now dominates the imperatives and forms of economic enterprise, whether such are in the true interest of human welfare, or not. Increasingly, they are not.
The endless "debt"-driven urgency for expansion makes the "growth" of such questionable areas of human benefit as wasteful consumption, sub-prime lending schemes, borrowing for war and many others, virtually inevitable. As the game gets stretched out, the true worth of the "collateral" generated by such enterprise becomes of dubious worth. It does, in a sense, induce economic activity that can be borrowed against, but consumer trash in the landfill, deflated real estate bubbles, expended military ordinance, and the like, leave behind little, if any, cumulative capital base for further "debt-money" expansion. Eventually the bubbles of imagined wealth begin to pop, and the monetary system is left without a source of new tangible wealth with which to "secure" its "debt" contracts.
This is the point that American capitalism has reached, and it is this inability of the human and physical economy, even in its most wasteful, illusive and speculative terms, to keep up with the mounting "debt" paper that is behind the collapse of the monetary system. Nor is the situation likely to improve any time soon, especially with such economic bulwarks as the auto industry beginning to implode. The question then becomes, what do we do now?
In my view, we as a society have already answered the question. That is, we have decided to keep borrowing more money into circulation anyway. This is not at this point a conscious decision, but rather the reflex of a culture that has almost completely lost touch with any basic understanding about money. This may sound like a strange statement to make in an era of extreme financial sophistication, but I would make the case that it is a presumed "financial sophistication" and a losing touch with common sense that has landed us in our present straights. This is something to contemplate for everyone, not only people of finance.
The productive participants in the economy have lost the ability and confidence in the system that would allow them to them to continue to take on new "debt" at a pace sufficient to keep the financial (fractional reserve) formula that governs the banking system from collapsing. This has become true even for public borrowing within the context of normal "emergency" imperatives. The collapse of the credit structure is now so precipitous that we have little choice, it seems, except to throw all but a thin pretence of deliberation to the wind, and let those who have "guided" the macro-economic ship into this predicament, open the floodgates of yet more "debt-money" in the wistful hope that they can float it again.
I would raise the question, what is the collateral for all this new "debt"? The spokespersons for the rescue "assure" us that it is the "troubled assets" (i.e. already unsupportable "debt" contracts and failed enterprises) that the government is taking over. I find that explanation to be untenable. When the Federal government takes on new "debt," its collateral is the "full faith and credit of the United States." Supposedly, this is another way of saying "future tax proceeds." The problem is that the Federal "debt" is a monetary phenomenon, not a fiscal one, and there is no way that future tax proceeds can close the gap.
This brings us back to the question, what in reality is the collateral for such loans? It is the very assets, enterprise and life's blood of the whole nation. It is our land, our lives and our children; nobody in the end excepted. Our future is being signed away for a "debt" that is not payable. I find it peculiar that the same Secretary of the Treasury that we as a body-politic cannot seem to find the good-will to trust to use his signature to endorse the People's own money is allowed to sign our future away to this gargantuan "debt."
It has become a hallmark of personal success in the current financial culture to be able to get into an investment, make one's money, and then get out, debt free. We should be mindful, however, that when the Treasury Secretary puts his name to a "debt" contract on behalf of the government, he is actually signing it on behalf of all the People, both those nominally in "debt," and those who imagine themselves to be out of "debt." He has obligated the government to make good on that contract, even if (many fear) it influences its leaders to feel compelled to insure the continuing value of our currency by sending an army of our sons and daughters (of those in "debt," and those not) half-a-world away to enforce the "rule" that the trade for oil in the world remain exclusively in the domain of dollars. The questions raised by this matter of "national debt" can become very heavy.
All this said, the monetary game has now evolved a critical step further. I will describe that in the next installment.
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The complete set of columns from this series is posted at the following websites.