Money as Debt

Money As Debt, is not only a must-see for any American who wants to be politically and economically literate, but is particularly crucial for high school and college students to see in order for them to understand how the money works in the United States.

If it doesn't leave your blood boiling your not alive.

Beginning with the most fundamental question of all, Grignon asks: Where does money come from? The answer to this question will almost never be found in grammar school-or even college. What we aren't told in formal education is that money is created by central banks.

Banks create money, not from their own earnings or from the funds deposited by customers, but from the borrowers' promises to repay loans. Most importantly, borrowers not only promise to repay, but to repay with interest, and the bank writes the amount of money of both into the borrower's account.

Grignon opens with a story from antiquity. In the days before paper money, goldsmiths produced gold coins and kept them safe for the purchaser in the same way that banks hold deposits today. These goldsmiths soon noticed, however, that purchasers rarely came in for their actual gold and almost never all at the same time. So the gold merchants began issuing claim checks for the gold which made the exchange of gold in the marketplace easier and less cumbersome. Thus, paper money was born which made doing business much more convenient.

Eventually, goldsmiths began loaning money to customers and charging interest on the loans, and borrowers began asking for their loans in the form of claim checks. The goldsmith shared interest earnings with depositors, but since no one actually knew how much gold he was holding, he got the idea that he could lend out claim checks on gold that wasn't actually there and soon started becoming enormously wealthy from the interest paid on gold that didn't exist.

Thus began the power to create money out of nothing, but it wasn't long before bank runs began, and banking regulations evolved regarding how much money could be lent out. However, the regulations allowed a ratio of 9 to 1-that is, banks could lend out 9 times the amount of the deposits that were already there. This policy has come to be known as Fractional Reserve Banking. Regulation also arranged for central banks to support local banks with emergency infusions of gold, and only if there were many runs at once would the system crash.

Fast forward to 1913 when that so-called progressive president, Woodrow Wilson, signed into law the Federal Reserve Act which created the banking cartel now in charge of America's money system.

For those who have not seen Aaron Russo's DVD "Freedom To Fascism", I highly recommend a viewing, and a link is available on my site. The Federal Reserve System and the power it has over the U.S economy and over our individual lives. Very few Americans know how money is created and even fewer know how the Fed originated and what it actually does. Does anyone really believe this is an "accident"?

Whereas U.S. paper currency used to be backed by gold, that is no longer the case, and we have instead a fiat currency backed by nothing except the word of the Federal Reserve that the money is worth its stated value. Moreover, money today is created as debt, that is, money is created whenever anyone takes a loan from a bank. In fact, every deposit becomes a potential for a loan-a process which can be and is repeated many times, ultimately creating infinite amounts of money from debt.

One wonders how individuals, banks, governments, and other entities can all be in debt at the same time, owing astronomical amounts of money. This question is answered when we consider that banks don't lend actual money; they create it from debt, and since debt is potentially unlimited, so is the supply of money.

The first issue is that the people who produce the real wealth in the society are in debt to those who lend out the money in that society. Moreover, if there were no debt, there would be no money.

Most of us have been taught that paying our debts responsibly is good for ourselves and for the economy. We imagine that if all debts were paid off, the economy would improve. In terms of individual debt, that's true, but in terms of the overall economy, the exact opposite is true. We are continually dependent on bank credit for money to be in existence-bank credit which supplies loans. Loans and money supply are inextricably connected, and during the Great Depression, the supply of money plummeted as the supply of loans dried up.

Secondly, banks only create the amount of the principal of loan. So where does the money come from to pay the interest? From the general economy's money supply, most of which has been created in the same way.

A visual image is helpful. Imagine two pools of water-one full and one empty. The pool with water in it represents the amount of the principal of a loan; the empty pool represents principal plus interest. The pool of principal has only a certain amount of water in it, so that it can't possibly fill up the other pool of principal plus interest. The rest of the water needed to fill the pool doesn't actually exist and has to be acquired from somewhere.

The problem is that for long-term loans, the interest far exceeds the principal, so unless a lot of money is created to pay the interest, a lot of foreclosures will result. In order to maintain a functional society, the foreclosure rate must be low, so more and more debt must be created which means that more and more interest is created, resulting in a vicious and escalating spiral of indebtedness.

Furthermore, it is only the lag time between the time money is created to the time debt is repaid that keeps the overall shortage of money from catching up and bankrupting the entire system. It takes only a few second of reading the headlines of the financial pages during this month, August, 2007, to notice that foreclosure rates and lag time are threatening to meltdown the entire U.S. economy. The preferred method of the Federal Reserve and central banks addressing this calamity is, yes, you guessed it: to create more debt. The lowering of interest rates in recent years, the bombardment of credit card applications we find regularly in our mailboxes, the red ink in which the United States government is drowning are all an attempt to stave off the collapse of the entire system.

Grignon suggests that in order to begin addressing and resolving the nightmare of money as debt, we must ask four pivotal questions:

1) Why do governments choose to borrow money from private banks at interest when governments could create all the interest-free money they need themselves?

2) Why create money as debt at all? Why not create money that circulates permanently and doesn't have to be perpetually re-borrowed in interest?

3) How can a money system, dependent on perpetual growth, be used to build a sustainable economy? Perpetual growth and sustainability are fundamentally incompatible.

4) What is it about our current system that makes it totally dependent on perpetual growth? What needs to be changed to allow the creation of a sustainable economy?

One solution might be the replacement of paper dollars with precious metals, which of course, could once again become cumbersome and inconvenient, unless the economic system had experienced collapse and digital and paper transactions were no longer possible.

Perhaps the best solution offered by "Money As Debt" is the creation of locally-based barter money systems in which debt is repaid by hours of work valued at a dollar figure. Additionally, government spending on infrastructure, not using borrowed money, would also create value locally and nationally.

My opinion is that we must have a total collapse of our monetary system, whether this be sudden, which I believe will happen... so that the transformation and relocalization of the nation's economic system will be possible.

All of the perplexities, confusion, and distress in America arises, not from the defects of the constitution or confederation, not from want of honor or viture, so much as from down right ignorance of the nature of coin, credit and circulation. -John Adams. Founding Father of the American Constitution

"I am a most unhappy man, I have unwittingly ruined my country A great industrial nation is controlled by a system of credit. Our system of credit is concentrated. The growth of the nation therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world, no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men. -Woodrow Wilson, President of the United States 1913-1921

"Whoever controls the volume of money in our country is absolute master of all industry an commerce and when you realized that the entire system is very easily controlled, one way or another by a few powerful men at the top you will not have to be told how periods of inflation and depression originate."- James A. Garfield, assassinated President of the United States

"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. The privilege of creating and issuing money is not the supreme prerogative of government, but it is the government's greatest creative opportunity." -Abraham Lincoln, assassinated President of the United States

"Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of sovereignty of Parliament and the democracy is idle and futile...once a nation parts with control of it's credit, it matters not who makes the nation's laws. Usury once in control will wreck any nation."-William Lyon Mackenzie King, former Prime Minister of Canada (who nationalized the Bank of Canada)

"We are grateful to the Washington Post, the New York Times, Time Magazine and other great publicatons who directors have attended our meetings and respeted the promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world-government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the National auto-determination practiced in past centuries". -David Rockefeller, in an address to Trilateral Commission meeting, 1991

"Only the small secrets need to be protected. The big ones are kept secret by public incredulity."

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