(Week 20 - Friday, Dec. 26)
The lead-up to the winter solstice, the darkest time of the year, has come to be illuminated by a fantastic profusion of bright lights heralding holiday festivities. This is ostensibly to celebrate the advent of the brightest spiritual light ever to incarnate in the earth over two millennia ago. What follows for many is a season of "Holy Nights" (Christmas to Epiphany) that is marked by a turning inward to meditate upon the outer events and inner experiences of the preceding year, and a prayerful contemplation of the new year to come.
There is understandably a tendency to shy away from devoting further attention to the subject of money in this soul-searching, especially given the fit of holiday shopping and material consumption that has come to precede Christmas, but, I would suggest, this is precisely the time when it would be well to meditate upon money in its deepest and most spiritual sense.
To seed the process, I have offered below a fresh perspective on the Garden of Eden story common to Christianity, Judaism and Islam. The late Joseph Campbell, renowned American mythologist, observed that in creation myths from all around the world mankind began his earthly sojourn in a Garden-like setting from which by virtue of his own rebellion he became estranged. My feeling is that there is a foundational universality to this story that speaks to people whether they are of the Christian, Judaic or Islamic faiths, or not. I leave it to the reader to judge whether this is so. In any case I would offer, to be taken howsoever one would, the following thought:
* * * * * * * * * * * * * ** * * * * * * * * *
In the primordial Garden Man was charged with the responsibility to "Be fruitful, and multiply, and replenish the earth, and subdue it." The state of Man was destined to unfold from a purity of innocence, into a full consciousness of knowledge of the dark and the light, under the harmonious guidance of an all–wise, all–knowing spirit. His purity, however, was fatally sullied as he failed to wait upon God, but willfully reached for powers he was not yet fit to receive. As the wages of this rebellion he was ejected from the Garden, and henceforth obliged to labor by the sweat of his brow to earn his comfort and keep.
The travail of subsequent effort took on a coordinated form which replicated roughly the divinely symbiotic material and energy flows of the Garden. The evolving matrix of relationships thereby established became an aspect of the social body known as the "Economic Life," while the vitalizing spirit of that body took on the guise of "Money." Money, then, is a proxy for the spirit that imparted a burgeoning harmonic order to the Garden, while the Economic Life became the vehicle in the material world by which Man would seek, upon requisite redemption of personal goodness and completion of social evolution, to return home to the unspoiled state of the Garden; this time in the full consciousness of the dark and the light, but also with a purity of spirit that partakes of the innocence of Man's original state.
In the interim, though, the spirit of Money, and in turn the Economic Life, has been hijacked by forces that would seek to derail human evolution. Humankind has descended into abject materiality; estranged from one another and seduced by the shadow forces of false dominion; all orchestrated by the spirit of opposition that has co–opted Money. The woes thereby unleashed are legion. Brother has been pitted against brother in a false competition for livelihood. Mankind's Mother, the earth, is counted as a body to be ravaged and consumed. Tyrannies of number haunt Man's sleep. Clearly the redemption of Economic Life in the material world is called for.
The path to economic rectification is threefold:
(1) – To strive for redemption in oneself and others from the spiritual dissonance that was the cause of Man's alienation from a harmonious relationship with God in the earth,
(2) – From which it becomes possible to transform Money and rectify the Economic Order to a condition which reflects truly the state of providence in human evolution at present,
(3) – Which would, finally, redeem the Economic Life as a fit vehicle for the reassertion of Man's fruitful, replenishing and faithful dominion over the creation.
Thus would the Kingdom of God materially in the earth be at last established.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, December 26, 2008
Thursday, December 25, 2008
Column #98 NOW IT'S TOYOTA
(Week 20 - Wednesday, Dec. 24)
A headline on the front page of the Monday, December 22 edition of the New York Times proclaimed, "Car Slump Jolts Toyota, Halting 70 Years of Gain," elaborated in the subtitle with "Huge Decline In Sales." Does not this announcement have the effect of casting the troubles of the American automakers in a new light? What does it say about the conditions under which the auto industry is laboring if even Toyota, widely regarded as its most successful venture, is expecting to report "…that it will lose money this fiscal year on its vehicle business for the first time in seven decades"?
Much has been written about how the "big three" American carmakers have declined supposedly due to astronomical executive compensation, bloated union contracts and inferior or out-of-tune-with-the-times products. Such criticisms do indeed have merit (and to be fair there are many positive things that could be said about the American auto industry), but the fact that Toyota is being sucked into the red-ink vortex also is telling evidence that on some level the problems of the automotive industry are universal. This is not to say that issues of executive compensation, labor costs and product quality don't matter. On the contrary, they do matter, vitally, and Detroit could indeed be criticized for undermining its own position in many ways.
That said, the crux of the problem the industry is faced with now is not primarily business in nature, but monetary. In fact, this is a factor that undermines the prospects for all sectors of the economy to endure in the long run. Stated simply, the productive part of the economy in the aggregate cannot attract enough money to pay its cost of production due to the buying power that is lost to "interest" charges attached to the bank loans by which money is created and issued into circulation. The result is that a portion of its product must go unsold, unless, that is, people are able and willing to go to the bank and take on more "debt" in large numbers. The effect of this is hitting the auto industry especially hard right now because people are reluctant to borrow large sums of money under current financial conditions, and the banks are reluctant to lend in any case.
This can only be remedied when the buying power of the consumer sector lost to "interest" charges is restored, and when the confidence of the car-buying public can be restored because people can see how this is so. Government borrowing of ever greater sums of "debt-money" into circulation willy-nilly via the "bailout" packages currently being enacted may, or more likely may not, get the economy moving again in the short run, but at best it will only put off to a more terrible reckoning the day when this simply does not work anymore.
The measure that will be effective, in my view, is to restore the money-creation franchise to the public sector; that is to have the US Treasury issue the nation's money supply for the public good, and not a private banking system for private profit. This is common cause for all segments of the economy, including the banking system itself (are not banks presently going bankrupt without government intervention at a fearful rate?).
The issue of money has long been used to divide the different segments of society, one from the other. We can readily see in the media how the interests of management, labor and the consumer have been pitted against each other over who will get the cash. This is happening because we are trying to carve up an economic pie that inevitably does not have sufficient funds to satisfy the need to make the financial ends meet for all three sectors without someone having to take on more "debt." If, on the other hand, the discussion were to turn to the idea of returning society's own money-creation power to the public sector, the availability of enough aggregate buying power to fully purchase the fruits of production would be assured. Business factors aside, this is the basis for the auto industry's (and all industry's) salvation.
Under such a condition, it is possible that the monetary issue could be transformed from one that is divisive with respect to any social fissure that could be exploited, to one in which everyone, from the highest banker to the most destitute street-person, could engage in a unifying transcendent dialogue. I have spent two-plus decades pursuing such a dialogue, and have seen much on this path to give me reason to think that it is perfectly possible, and indeed natural, to be able to speak to matters of money with an assortment of folks of whatever mix or stripe, in such a way that the conversation resonates positively with all parties. To be sure, this is not automatic, and it remains an elusive goal in some cases, but in my experience the potential and/or reality is palpably there.
This is a conversation that we as a society urgently need to have, or our civilization is going to continue to degrade and fly apart over the very issue of money. The key to transcending matters of money is to break free of our habitual "debt-money" acculturation long enough to let new ideas enter in. There is no leap of faith involved, only a moving forward with an open mind, spirit of brotherhood and genuine communication. The alternative is to keep floundering in our present ineffectual way until the economy deteriorates to the point where even the most innovative, savvy and successful enterprises in the business world (i.e. the Toyotas) cannot make it.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
A headline on the front page of the Monday, December 22 edition of the New York Times proclaimed, "Car Slump Jolts Toyota, Halting 70 Years of Gain," elaborated in the subtitle with "Huge Decline In Sales." Does not this announcement have the effect of casting the troubles of the American automakers in a new light? What does it say about the conditions under which the auto industry is laboring if even Toyota, widely regarded as its most successful venture, is expecting to report "…that it will lose money this fiscal year on its vehicle business for the first time in seven decades"?
Much has been written about how the "big three" American carmakers have declined supposedly due to astronomical executive compensation, bloated union contracts and inferior or out-of-tune-with-the-times products. Such criticisms do indeed have merit (and to be fair there are many positive things that could be said about the American auto industry), but the fact that Toyota is being sucked into the red-ink vortex also is telling evidence that on some level the problems of the automotive industry are universal. This is not to say that issues of executive compensation, labor costs and product quality don't matter. On the contrary, they do matter, vitally, and Detroit could indeed be criticized for undermining its own position in many ways.
That said, the crux of the problem the industry is faced with now is not primarily business in nature, but monetary. In fact, this is a factor that undermines the prospects for all sectors of the economy to endure in the long run. Stated simply, the productive part of the economy in the aggregate cannot attract enough money to pay its cost of production due to the buying power that is lost to "interest" charges attached to the bank loans by which money is created and issued into circulation. The result is that a portion of its product must go unsold, unless, that is, people are able and willing to go to the bank and take on more "debt" in large numbers. The effect of this is hitting the auto industry especially hard right now because people are reluctant to borrow large sums of money under current financial conditions, and the banks are reluctant to lend in any case.
This can only be remedied when the buying power of the consumer sector lost to "interest" charges is restored, and when the confidence of the car-buying public can be restored because people can see how this is so. Government borrowing of ever greater sums of "debt-money" into circulation willy-nilly via the "bailout" packages currently being enacted may, or more likely may not, get the economy moving again in the short run, but at best it will only put off to a more terrible reckoning the day when this simply does not work anymore.
The measure that will be effective, in my view, is to restore the money-creation franchise to the public sector; that is to have the US Treasury issue the nation's money supply for the public good, and not a private banking system for private profit. This is common cause for all segments of the economy, including the banking system itself (are not banks presently going bankrupt without government intervention at a fearful rate?).
The issue of money has long been used to divide the different segments of society, one from the other. We can readily see in the media how the interests of management, labor and the consumer have been pitted against each other over who will get the cash. This is happening because we are trying to carve up an economic pie that inevitably does not have sufficient funds to satisfy the need to make the financial ends meet for all three sectors without someone having to take on more "debt." If, on the other hand, the discussion were to turn to the idea of returning society's own money-creation power to the public sector, the availability of enough aggregate buying power to fully purchase the fruits of production would be assured. Business factors aside, this is the basis for the auto industry's (and all industry's) salvation.
Under such a condition, it is possible that the monetary issue could be transformed from one that is divisive with respect to any social fissure that could be exploited, to one in which everyone, from the highest banker to the most destitute street-person, could engage in a unifying transcendent dialogue. I have spent two-plus decades pursuing such a dialogue, and have seen much on this path to give me reason to think that it is perfectly possible, and indeed natural, to be able to speak to matters of money with an assortment of folks of whatever mix or stripe, in such a way that the conversation resonates positively with all parties. To be sure, this is not automatic, and it remains an elusive goal in some cases, but in my experience the potential and/or reality is palpably there.
This is a conversation that we as a society urgently need to have, or our civilization is going to continue to degrade and fly apart over the very issue of money. The key to transcending matters of money is to break free of our habitual "debt-money" acculturation long enough to let new ideas enter in. There is no leap of faith involved, only a moving forward with an open mind, spirit of brotherhood and genuine communication. The alternative is to keep floundering in our present ineffectual way until the economy deteriorates to the point where even the most innovative, savvy and successful enterprises in the business world (i.e. the Toyotas) cannot make it.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Monday, December 22, 2008
Column #97 A WINTER SOLSTICE POETIC INTERLUDE
(Week 20 - Monday, Dec. 22)
The people is a beast of muddy brain
That knows not its own force, and therefore stands
Loaded with wood and stone, the powerless hands
Of a mere child guide it with bit and rein.
One kick would be enough to break the chain;
But the beast fears, and what the child demands,
It does; nor its own terror understands,
Confused and stupefied by bugbears vain.
Most wonderful! with its own hands it ties
And gags itself – gives itself death and war
For pence doled out by kings from its own stores.
It own are all things between earth and heaven,
But this it knows not; and if one arise
To tell this truth, it kills him unforgiven.
Tomasso Campanella
From the Italian poem, "The People,"
Translated by John Addington Symonds
* * * * * * * * * * *
To whom it many concern, this note of hand
Is worth a thousand ducats on demand,
The pledge wereof and guarantee is found
In treasure buried in the Emperor's ground . . .
. . . the charming mob all grabbing rush,
They almost maul the donor in the crush.
The gems he flicks around as in a dream,
And snatchers fill the hall in greedy dream.
But lo, a trick quite new to me:
The thing each seizes eagerly
Rewards him with a scurvy pay,
The gift dissolves and floats away.
The rascal offers wealth untold,
But gives the glitter, not the gold.
Mephostopheles, the king's jester.
From Phillip Wayne's translation of Goethe's Faust (Part II), Penguin Books, Ltd., London, 1959
Both poems as quoted in "Unforgiven: The American Economic System SOLD for War and Debt", Charles Walters
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The people is a beast of muddy brain
That knows not its own force, and therefore stands
Loaded with wood and stone, the powerless hands
Of a mere child guide it with bit and rein.
One kick would be enough to break the chain;
But the beast fears, and what the child demands,
It does; nor its own terror understands,
Confused and stupefied by bugbears vain.
Most wonderful! with its own hands it ties
And gags itself – gives itself death and war
For pence doled out by kings from its own stores.
It own are all things between earth and heaven,
But this it knows not; and if one arise
To tell this truth, it kills him unforgiven.
Tomasso Campanella
From the Italian poem, "The People,"
Translated by John Addington Symonds
* * * * * * * * * * *
To whom it many concern, this note of hand
Is worth a thousand ducats on demand,
The pledge wereof and guarantee is found
In treasure buried in the Emperor's ground . . .
. . . the charming mob all grabbing rush,
They almost maul the donor in the crush.
The gems he flicks around as in a dream,
And snatchers fill the hall in greedy dream.
But lo, a trick quite new to me:
The thing each seizes eagerly
Rewards him with a scurvy pay,
The gift dissolves and floats away.
The rascal offers wealth untold,
But gives the glitter, not the gold.
Mephostopheles, the king's jester.
From Phillip Wayne's translation of Goethe's Faust (Part II), Penguin Books, Ltd., London, 1959
Both poems as quoted in "Unforgiven: The American Economic System SOLD for War and Debt", Charles Walters
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, December 19, 2008
Column #96 MONEY AS VIDEO GAME
(Week 19 - Friday, Dec. 19)
The operating premise of the "debt-money" system is that money is created when a banker "writes a check" against no funds (i.e. "out of thin air") to a "borrower" (i.e. private individual, corporate entity or civic body) when they bring into the bank some form of collateral (already possessed tangible property) as "security" for the "loan."
The need to continuously borrow more money into circulation creates an ongoing necessity to put up ever greater amounts of collateral. This leads to resorting to less substantive forms of collateral, until its realizable cash value becomes more uncertain. Eventually it is perceived as fictitious, at which point confidence in its value collapses. Then people stop borrowing, banks stop lending, and the economy enters a precipitous contraction (as it has at present). In the last column I describe the stages of this degradation of collateralization as follows:
Commensurate collateralization - The loan is within the bounds of a realistic valuation of the property put up as collateral.
Inflated collateralization - The loan is beyond the bounds of a realistic valuation of the property put up as collateral.
Paper collateralization - The loan is not secured by tangible wealth, but by the liens or "debt" paper written against such.
Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to justify a "debt"-based monetary regime.
To this list enumerated in the last column I would add:
"Debt"-creation collateralization – The loan is no longer secured by anything, except the ability to create more "debt-money" in the future.
In a certain sense, this has been the effective logic behind the "debt-based" system all along. There is, for all practical purposes, never enough money in circulation for people to clear their "debts." This is true whether the grade of collateralization generally offered is commensurate, inflated, paper, phantasmic or simply "debt"-creation collateralization. In fact, regardless of the quality of collateralization, the "debt" numbers compound-on in essentially the same mathematical progression. Strictly speaking, the continuation of the monetary game does not depend upon there being real goods behind it (no one ever stuffs goods into an envelope and sends them off to the bank when a payment is due), but only that there are registered somewhere (these days usually in cyberspace) in someone's name, sufficient monetary credits to satisfy the "loan" account. This process is by nature less about managing wealth than "keeping score." The reality is that the economy has come to resemble less-and-less a partnership between production and finance, and more-and-more a video game in which the enterprises are little more than names and logos.
Recently I spent a day with a stock market "day trader" (freelancer). He works in a room surrounded by an impressive wrap-around array of computer screens that alerts him to fast-moving trends amongst thousands of stocks being traded, and displays virtually every parameter of interest in real time. What the software is looking for is movement in the market (up or down), because that is where a trader makes his money. I can only describe what I witnessed as lightening-fast, high-stakes video gambling.
It is hard to imagine that it is humanly impossible for anyone to know enough about any more than a tiny fraction of these firms being traded to make considered decisions based on their actual physical and human realities. Essentially, they are just names, names and more names. It is hard to tell from most of them even the nature of the enterprise they are engaged in. After what has happened with GM, Ford and Chrysler, it might be fairly asked whether it would make much difference even if one did.
For a sense of this, I would invite the reader to spend some time watching the major stock market shows on TV (I find CNBC to be the best example). The screen is filled continuously with a multitude of rapidly-moving names, numbers and graphics that I cannot imagine a viewer (even a stock broker) relating to meaningfully in a real-world way.
Nonetheless, the video game goes on, and hundreds of billions of new dollars are being rapidly pumped into it. Essentially, it has taken off on its own, and left the real economy behind. The monetary system has demonstrated an astounding ability to continue on its dizzying way literally as a game (as can a good game of Monopoly, whether Board Walk and Park Place even exist or not). This is not an absolute statement, of course, but it conveys too much truth to call it a metaphor.
This raises some fundamental questions. How long can the monetary economy persist and grow as a numbers game, while leaving real people behind to survive any way they can? What are the implications of an economic order where essential correlation between productive enterprise and finance is lost? How long can this "debt" continue to compound? What kind of new socio/political/economic order is this leading to? Will civilization continue? It would be easy to write a lengthy analysis exploring each of these and many other conundrums, but I believe that they would not arrive at any definitive answers. We live in an unprecedented time, and there are no models from the past that will tell us how this will all work out. I fear, though, that the end will not be well if we let ourselves drift without coming to a conscious mastery over money.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The operating premise of the "debt-money" system is that money is created when a banker "writes a check" against no funds (i.e. "out of thin air") to a "borrower" (i.e. private individual, corporate entity or civic body) when they bring into the bank some form of collateral (already possessed tangible property) as "security" for the "loan."
The need to continuously borrow more money into circulation creates an ongoing necessity to put up ever greater amounts of collateral. This leads to resorting to less substantive forms of collateral, until its realizable cash value becomes more uncertain. Eventually it is perceived as fictitious, at which point confidence in its value collapses. Then people stop borrowing, banks stop lending, and the economy enters a precipitous contraction (as it has at present). In the last column I describe the stages of this degradation of collateralization as follows:
Commensurate collateralization - The loan is within the bounds of a realistic valuation of the property put up as collateral.
Inflated collateralization - The loan is beyond the bounds of a realistic valuation of the property put up as collateral.
Paper collateralization - The loan is not secured by tangible wealth, but by the liens or "debt" paper written against such.
Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to justify a "debt"-based monetary regime.
To this list enumerated in the last column I would add:
"Debt"-creation collateralization – The loan is no longer secured by anything, except the ability to create more "debt-money" in the future.
In a certain sense, this has been the effective logic behind the "debt-based" system all along. There is, for all practical purposes, never enough money in circulation for people to clear their "debts." This is true whether the grade of collateralization generally offered is commensurate, inflated, paper, phantasmic or simply "debt"-creation collateralization. In fact, regardless of the quality of collateralization, the "debt" numbers compound-on in essentially the same mathematical progression. Strictly speaking, the continuation of the monetary game does not depend upon there being real goods behind it (no one ever stuffs goods into an envelope and sends them off to the bank when a payment is due), but only that there are registered somewhere (these days usually in cyberspace) in someone's name, sufficient monetary credits to satisfy the "loan" account. This process is by nature less about managing wealth than "keeping score." The reality is that the economy has come to resemble less-and-less a partnership between production and finance, and more-and-more a video game in which the enterprises are little more than names and logos.
Recently I spent a day with a stock market "day trader" (freelancer). He works in a room surrounded by an impressive wrap-around array of computer screens that alerts him to fast-moving trends amongst thousands of stocks being traded, and displays virtually every parameter of interest in real time. What the software is looking for is movement in the market (up or down), because that is where a trader makes his money. I can only describe what I witnessed as lightening-fast, high-stakes video gambling.
It is hard to imagine that it is humanly impossible for anyone to know enough about any more than a tiny fraction of these firms being traded to make considered decisions based on their actual physical and human realities. Essentially, they are just names, names and more names. It is hard to tell from most of them even the nature of the enterprise they are engaged in. After what has happened with GM, Ford and Chrysler, it might be fairly asked whether it would make much difference even if one did.
For a sense of this, I would invite the reader to spend some time watching the major stock market shows on TV (I find CNBC to be the best example). The screen is filled continuously with a multitude of rapidly-moving names, numbers and graphics that I cannot imagine a viewer (even a stock broker) relating to meaningfully in a real-world way.
Nonetheless, the video game goes on, and hundreds of billions of new dollars are being rapidly pumped into it. Essentially, it has taken off on its own, and left the real economy behind. The monetary system has demonstrated an astounding ability to continue on its dizzying way literally as a game (as can a good game of Monopoly, whether Board Walk and Park Place even exist or not). This is not an absolute statement, of course, but it conveys too much truth to call it a metaphor.
This raises some fundamental questions. How long can the monetary economy persist and grow as a numbers game, while leaving real people behind to survive any way they can? What are the implications of an economic order where essential correlation between productive enterprise and finance is lost? How long can this "debt" continue to compound? What kind of new socio/political/economic order is this leading to? Will civilization continue? It would be easy to write a lengthy analysis exploring each of these and many other conundrums, but I believe that they would not arrive at any definitive answers. We live in an unprecedented time, and there are no models from the past that will tell us how this will all work out. I fear, though, that the end will not be well if we let ourselves drift without coming to a conscious mastery over money.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Wednesday, December 17, 2008
Column #95 THE DEGRADING OF COLLATERALIZATION
(Week 19 - Wednesday, Dec. 17)
With the current "debt" crisis we are witnessing the economy move beyond the partnership of wealth creation and money creation (i.e. beyond "capitalism"). Let us trace out how this has come about.
The premise of the "debt-money" system is that if participants in the economy need money, they can borrow it by putting up some form of "collateral" (already acquired tangible wealth) that the banker can hold as "security" (saleable item from which he can recover the monetary value) in case the borrower fails to pay back the loan. The banker obtains the funds to "lend" out of his privilege to create money "out of thin air" granted by the Federal government to the Federal Reserve System via a legislated corporate charter.
This has resulted in a peculiar situation in that the money to repay the principal proceeds of a loan is thereby issued, but the money required to "pay back" the "interest" is not. The proponents of the system do not deem this to be a problem because they assume that the "economic growth" financed by new loans will be the basis out of which interest payments can be made. Supposedly, the necessity of having to cover interest payments of itself spurs the economy on to greater heights of activity, and also serves as a needed discipline to insure that such money is borrowed only for enterprise that is truly productive.
This method has worked for the almost-a-century since the passage of the Federal Reserve Act, but, according to critics, not without terrible human and environmental cost. Whatever the merits of the current system, it is clear that a physical economy cannot forever keep up with the demands of exponentially expanding "debt" paper. A limit will eventually be reached, and it appears that that may be what is happening now.
To be sure, it has not been experienced as the crossing of a bright white line, but rather as a stretching out of the substantive quality of collateral. This has manifest in many ways, including the increasing issuance of money based on revolving consumer "debt" taken on to obtain the necessities of life (e.g. groceries, gas, etc.), the proliferation of loans against inflated housing values, and the effective reliance on war (hot and cold, overt and covert) as engines of "debt-money" creation. Currency issued for such purposes becomes less of a seed for further enterprise out of which "interest" payments can be made, and more of a net drain on the already existent productive capacity of the economy.
The relentless imperative for new money creation within a "debt-money" system makes it inevitable that a resort to ever-less-substantive forms of "collateral" will take place. This unfolds in a natural progression that could be described as follows:
Commensurate collateralization - The principal amount of a loan is within the bounds of a realistic valuation of the property put up as collateral considering the cost to create or replace it. An example is a home mortgage for which the amount of money borrowed is reasonably affordable within the parameters of prevailing wages.
Inflated collateralization - The principal amount of a loan is beyond the bounds of a realistic valuation of the property put up as collateral considering the cost to create or replace it. An example is a "sub-prime" home mortgage for which the amount of money borrowed is not affordable within the parameters of prevailing wages.
Paper collateralization - The loan is not secured by already acquired tangible wealth, but by the liens or "debt" paper written against such. An example is money issued to finance the widespread practice of bundling home mortgages as "investment packages" or "structured investment vehicles" in the international financial markets. Borrowing "on margin" to finance stock market speculation is a similar sort of activity.
Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to obscure the speculative nature and stubborn anomalies of a "debt"-based monetary system. Examples of this are supported by mindsets that can see as justified monies raised or issued to finance hostile corporate takeovers, default credit swaps, commodity speculation, currency manipulation, all manner of derivatives, social contracts that can't be met (e.g. unrealistically structured pensions), and the promises of politicians (albeit well-meaning) who assure us that they will make certain that the $700 billion in "bailout" money will be paid back.
As an illustration of how disconnected from substantive wealth the monetary system has become, Bernard Lietaer (former Belgian central banker, and widely regarded authority on money) reports in his book "The Future of Money" that the world trading order has become a "…global casino where 98% of the transactions are based on speculation." This means that of the money that crosses international boundaries, only 2% of it can be accounted for as financing trade in goods and services (food, pharmaceuticals, cars, electronics, media, tourism, oil, weapons, and anything else tangible). The rest is essentially non-productive gambling in speculative financial instruments.
As extreme as the situation has gotten, the degrading of collateralization has gone a critical step further. I will describe that in the next column.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
With the current "debt" crisis we are witnessing the economy move beyond the partnership of wealth creation and money creation (i.e. beyond "capitalism"). Let us trace out how this has come about.
The premise of the "debt-money" system is that if participants in the economy need money, they can borrow it by putting up some form of "collateral" (already acquired tangible wealth) that the banker can hold as "security" (saleable item from which he can recover the monetary value) in case the borrower fails to pay back the loan. The banker obtains the funds to "lend" out of his privilege to create money "out of thin air" granted by the Federal government to the Federal Reserve System via a legislated corporate charter.
This has resulted in a peculiar situation in that the money to repay the principal proceeds of a loan is thereby issued, but the money required to "pay back" the "interest" is not. The proponents of the system do not deem this to be a problem because they assume that the "economic growth" financed by new loans will be the basis out of which interest payments can be made. Supposedly, the necessity of having to cover interest payments of itself spurs the economy on to greater heights of activity, and also serves as a needed discipline to insure that such money is borrowed only for enterprise that is truly productive.
This method has worked for the almost-a-century since the passage of the Federal Reserve Act, but, according to critics, not without terrible human and environmental cost. Whatever the merits of the current system, it is clear that a physical economy cannot forever keep up with the demands of exponentially expanding "debt" paper. A limit will eventually be reached, and it appears that that may be what is happening now.
To be sure, it has not been experienced as the crossing of a bright white line, but rather as a stretching out of the substantive quality of collateral. This has manifest in many ways, including the increasing issuance of money based on revolving consumer "debt" taken on to obtain the necessities of life (e.g. groceries, gas, etc.), the proliferation of loans against inflated housing values, and the effective reliance on war (hot and cold, overt and covert) as engines of "debt-money" creation. Currency issued for such purposes becomes less of a seed for further enterprise out of which "interest" payments can be made, and more of a net drain on the already existent productive capacity of the economy.
The relentless imperative for new money creation within a "debt-money" system makes it inevitable that a resort to ever-less-substantive forms of "collateral" will take place. This unfolds in a natural progression that could be described as follows:
Commensurate collateralization - The principal amount of a loan is within the bounds of a realistic valuation of the property put up as collateral considering the cost to create or replace it. An example is a home mortgage for which the amount of money borrowed is reasonably affordable within the parameters of prevailing wages.
Inflated collateralization - The principal amount of a loan is beyond the bounds of a realistic valuation of the property put up as collateral considering the cost to create or replace it. An example is a "sub-prime" home mortgage for which the amount of money borrowed is not affordable within the parameters of prevailing wages.
Paper collateralization - The loan is not secured by already acquired tangible wealth, but by the liens or "debt" paper written against such. An example is money issued to finance the widespread practice of bundling home mortgages as "investment packages" or "structured investment vehicles" in the international financial markets. Borrowing "on margin" to finance stock market speculation is a similar sort of activity.
Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to obscure the speculative nature and stubborn anomalies of a "debt"-based monetary system. Examples of this are supported by mindsets that can see as justified monies raised or issued to finance hostile corporate takeovers, default credit swaps, commodity speculation, currency manipulation, all manner of derivatives, social contracts that can't be met (e.g. unrealistically structured pensions), and the promises of politicians (albeit well-meaning) who assure us that they will make certain that the $700 billion in "bailout" money will be paid back.
As an illustration of how disconnected from substantive wealth the monetary system has become, Bernard Lietaer (former Belgian central banker, and widely regarded authority on money) reports in his book "The Future of Money" that the world trading order has become a "…global casino where 98% of the transactions are based on speculation." This means that of the money that crosses international boundaries, only 2% of it can be accounted for as financing trade in goods and services (food, pharmaceuticals, cars, electronics, media, tourism, oil, weapons, and anything else tangible). The rest is essentially non-productive gambling in speculative financial instruments.
As extreme as the situation has gotten, the degrading of collateralization has gone a critical step further. I will describe that in the next column.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Monday, December 15, 2008
Column #94 BEYOND CAPITALISM
(Week 19 - Monday, Dec. 15)
With the current "debt" crisis, the economy is turning towards a new mode of operation. If we define whatever form it has taken on heretofore as "capitalism," then we can say that it is moving beyond capitalism. "Capitalism" has become a term that is used in myriad ways by different people, depending on their point of view. For many it is an emotionally and/or ideologically charged expression. I don't wish to take any part in those arguments. For purposes of this discussion I will define capitalism as the economic practice of linking physical capital with monetary capital in a symbiotic relationship that allows trade to be conducted and the enterprise pursued without undue resort to barter. The choice between the public or private creation and issuance of money, therefore, is essentially about which mode more truly serves this relationship.
In the last few columns I have described how, within the present system, money is created and issued when a borrower brings something of value into a bank and puts it up as security (collateral) for a loan. The only practical way this can be made to work over time is for people to bring ever greater amounts of collateral into the banking system against which new money can be issued, thereby expanding the monetary pool so that "interest" payments on old "debt" can be made and an adequate money supply maintained in circulation.
Proponents of the current system will say that there is no problem with this arrangement because an expansion of economic enterprise financed by new loans will create more wealth out of which interest payments can be made. They picture the loan proceeds as seed money, which will in due time beget more seed, much like the plantings of a farmer. Furthermore, supposedly, the necessity of having to cover the interest payments spurs the economy on to greater heights of economic activity, while also serving as a needed discipline to insure that such money is borrowed only for enterprise that is truly productive. They point to the fact with the private-bank-money system in place, the nation has lived through almost a century of what has been on the whole a period of explosive economic growth in real terms.
Critics of the system may say that while the contribution of modern banking practice has indeed made money available in unprecedented amounts, and has therefore played an important role in modern economic development, a high cost in human and financial trauma has been extracted because of the "debt"-based nature of the process. Furthermore, they say, there is no practical mechanism built into the system for limiting the compounding of "debt" paper (save a partial deflation of the "debt" bubble attached to the currency occasioned by bankruptcies), and the real physical and human economy cannot be expected to keep pace with the need to service compounding "debt" forever.
What this current financial crisis is telling us, evidently, is that the "debt"-expansion process has reached its limits. In fact, it may have reached its natural limits some years ago, as indicated by the expansion of borrowing to finance the daily necessities of living (e.g. groceries and gas) via revolving consumer "debt" (particularly credit cards), and the proliferation sub-prime lending schemes. Investment in new production is in precipitous decline, and so monetary increase based on a symbiotic expansion of real enterprise (the defining characteristic of capitalism as given above) is no longer possible.
This leaves it up to the government to be the borrower of last resort to keep the economy from collapsing, a role which it has evidently taken on. I suggested in the previous column that the effective collateral for this huge "debt" expansion is the very land, lives and progeny of the People, and that this raises troubling questions as to what a future government might feel compelled to do to keep the monetary system from collapsing.
As the "debt" bubble against the economy continues to compound, however, even this concept of "collateral" becomes more than a bit abstract. The numbers have become so huge that correlation with any physical and human reality is becoming difficult to picture. It is at this juncture that what is commonly called "capitalism" is moving beyond itself into a new form. I will call it "debt-ism." By this I mean the "debt"-based monetary system has effectively left the real economy behind. It has embarked on a new course where any pretense of seeding productive economic enterprise has been all but forgotten.
As a case in point, how much of the $700 billion "rescue plan" is contemplated as seed money for new productive activity? As far as I can see, virtually none. President Bush has indicated that perhaps a small portion of these funds should be dedicated to rescuing the auto industry, but even in that case it is questionable as to whether the money would be used to create any new product, or merely to shore up the industry's tottering financial structure. Similarly, I find it difficult to identify much new productive capacity that was seeded by the "tax rebate" program earlier in the year, or the proposed "stimulus package" that seems to be gathering political support.
This raises the question, if this immense amount of new borrowing is not secured by economic collateral that is substantive, how can it be supported? The answer is that it no longer needs to be. The "debt"-based financial infrastructure itself has taken on a life of its own to such an extent that it has effectively broken away from the real physical and human economy, and in a certain sense no longer needs it. Money, in effect, has come to do business of its own account. The "debt"-based workings of the money-creation machine have become so complex and inexorable that they have effectively escaped human control. "The system" is leaving behind, not only the laborer, but also the banker. This is why both ""Main Street" and "Wall Street" are being decimated, with no one coming forward that seems to know quite what to do about it.
To be sure, this is a relative, not an absolute, statement, but the extent to which it is true is sobering to contemplate. It is in the vital interests of both the worker and the financier to open up a conversation on this matter. What we are witnessing in the economy is a movement beyond the partnership of wealth creation and money creation (i.e. capitalism) from whatever perspective one might be inclined to think about it. I will begin to describe what I see as the basis and workings of this transformation in the next column.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
With the current "debt" crisis, the economy is turning towards a new mode of operation. If we define whatever form it has taken on heretofore as "capitalism," then we can say that it is moving beyond capitalism. "Capitalism" has become a term that is used in myriad ways by different people, depending on their point of view. For many it is an emotionally and/or ideologically charged expression. I don't wish to take any part in those arguments. For purposes of this discussion I will define capitalism as the economic practice of linking physical capital with monetary capital in a symbiotic relationship that allows trade to be conducted and the enterprise pursued without undue resort to barter. The choice between the public or private creation and issuance of money, therefore, is essentially about which mode more truly serves this relationship.
In the last few columns I have described how, within the present system, money is created and issued when a borrower brings something of value into a bank and puts it up as security (collateral) for a loan. The only practical way this can be made to work over time is for people to bring ever greater amounts of collateral into the banking system against which new money can be issued, thereby expanding the monetary pool so that "interest" payments on old "debt" can be made and an adequate money supply maintained in circulation.
Proponents of the current system will say that there is no problem with this arrangement because an expansion of economic enterprise financed by new loans will create more wealth out of which interest payments can be made. They picture the loan proceeds as seed money, which will in due time beget more seed, much like the plantings of a farmer. Furthermore, supposedly, the necessity of having to cover the interest payments spurs the economy on to greater heights of economic activity, while also serving as a needed discipline to insure that such money is borrowed only for enterprise that is truly productive. They point to the fact with the private-bank-money system in place, the nation has lived through almost a century of what has been on the whole a period of explosive economic growth in real terms.
Critics of the system may say that while the contribution of modern banking practice has indeed made money available in unprecedented amounts, and has therefore played an important role in modern economic development, a high cost in human and financial trauma has been extracted because of the "debt"-based nature of the process. Furthermore, they say, there is no practical mechanism built into the system for limiting the compounding of "debt" paper (save a partial deflation of the "debt" bubble attached to the currency occasioned by bankruptcies), and the real physical and human economy cannot be expected to keep pace with the need to service compounding "debt" forever.
What this current financial crisis is telling us, evidently, is that the "debt"-expansion process has reached its limits. In fact, it may have reached its natural limits some years ago, as indicated by the expansion of borrowing to finance the daily necessities of living (e.g. groceries and gas) via revolving consumer "debt" (particularly credit cards), and the proliferation sub-prime lending schemes. Investment in new production is in precipitous decline, and so monetary increase based on a symbiotic expansion of real enterprise (the defining characteristic of capitalism as given above) is no longer possible.
This leaves it up to the government to be the borrower of last resort to keep the economy from collapsing, a role which it has evidently taken on. I suggested in the previous column that the effective collateral for this huge "debt" expansion is the very land, lives and progeny of the People, and that this raises troubling questions as to what a future government might feel compelled to do to keep the monetary system from collapsing.
As the "debt" bubble against the economy continues to compound, however, even this concept of "collateral" becomes more than a bit abstract. The numbers have become so huge that correlation with any physical and human reality is becoming difficult to picture. It is at this juncture that what is commonly called "capitalism" is moving beyond itself into a new form. I will call it "debt-ism." By this I mean the "debt"-based monetary system has effectively left the real economy behind. It has embarked on a new course where any pretense of seeding productive economic enterprise has been all but forgotten.
As a case in point, how much of the $700 billion "rescue plan" is contemplated as seed money for new productive activity? As far as I can see, virtually none. President Bush has indicated that perhaps a small portion of these funds should be dedicated to rescuing the auto industry, but even in that case it is questionable as to whether the money would be used to create any new product, or merely to shore up the industry's tottering financial structure. Similarly, I find it difficult to identify much new productive capacity that was seeded by the "tax rebate" program earlier in the year, or the proposed "stimulus package" that seems to be gathering political support.
This raises the question, if this immense amount of new borrowing is not secured by economic collateral that is substantive, how can it be supported? The answer is that it no longer needs to be. The "debt"-based financial infrastructure itself has taken on a life of its own to such an extent that it has effectively broken away from the real physical and human economy, and in a certain sense no longer needs it. Money, in effect, has come to do business of its own account. The "debt"-based workings of the money-creation machine have become so complex and inexorable that they have effectively escaped human control. "The system" is leaving behind, not only the laborer, but also the banker. This is why both ""Main Street" and "Wall Street" are being decimated, with no one coming forward that seems to know quite what to do about it.
To be sure, this is a relative, not an absolute, statement, but the extent to which it is true is sobering to contemplate. It is in the vital interests of both the worker and the financier to open up a conversation on this matter. What we are witnessing in the economy is a movement beyond the partnership of wealth creation and money creation (i.e. capitalism) from whatever perspective one might be inclined to think about it. I will begin to describe what I see as the basis and workings of this transformation in the next column.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
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