Citizen Action Monitor

The explosion of debt is the prime cause of recurrent financial and economic crises

Moneyless private currencies and credit clearing exchanges provide ways to bypass the banking system’s control of money and interest-bearing debt.

No 1922 Posted by fw, March 29, 2017

Thomas Greco

“I concluded long ago that this explosion of debt is the prime cause of recurrent financial and economic crises. It is also the inevitable result of the way in which money is created by banks across the world today. The recent widespread financial crises provide strong evidence that global systems and structures of money, banking and finance are deeply flawed…. The fundamental role of money is to facilitate the exchange of value. In recent years, a variety of exchange alternatives have been developed, including private and local currencies, and trade associations that enable trading without the use of conventional money. The most effective of these alternatives provide ‘home-grown’ liquidity as a means of payment, independently of the banking system and without the imposition of interest.”Thomas Greco

In yesterday’s repost of a short 2013 video presentation, The trouble with money, Thomas Greco briefly explained the fundamental flaw in the current monetary system – i.e., money is created as interest-bearing debt. In today’s repost of a March 2017 article, Greco begins by enhancing his brief explanation of the flaw, and then outlines ways to bypass the banking system’s control of money and interest-bearing debt by means of  moneyless private currencies and credit clearing exchanges.

Greco offers evidence that private currencies and credit clearing exchanges have proved their value: they can provide a viable means through which the ongoing financial crisis can be addressed. However, “they must be improved and scaled up in ways that are inclusive and transparent, and operated, not for private profit”, but to promote the common good. Moreover, if they are to succeed, we need citizens to spread the word and join these moneyless alternatives.

Thomas H. Greco, Jr., is an independent scholar, community economist, educator, and author. His latest book, The End of Money and the Future of Civilization, provides detailed explanations and prescriptions for communities, businesses, and governments. His websites offer a wealth of information on the interplay of money, finance, politics, and economics.

Below is a repost of his article with my added subheadings and text highlighting. Don’t miss the SEE ALSO reference at the end of this post for links to the copious resources on Greco’s website. His piece is also available on the publisher’s website by clicking on the following linked title.

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Money, debt and the end of the growth imperative by Thomas H. Greco, Open Democracy/Transformation, March 3, 2017

Like a cancer, the political, interest-based, debt-money system corrupts everything it touches. It’s time it was replaced. This is the fifth article in our series on the role of money in the transformation of society.

Why you should care about understanding growth that proceeds at an accelerating rate, a.k.a. exponential growth

When I was born, the world’s population numbered something like two billion people. Today it is estimated to be well over 7 billion, more than three and a half times the level of one lifetime ago. This is but one example of exponential or geometric growth, meaning growth that proceeds at an accelerating rate.

Exponential growth patterns can’t last forever; they either level off or end in a crash

It takes little imagination to realize that such patterns of growth cannot persist over the long run. Indeed, nature provides plenty of examples to show that exponential growth can only be a temporary phase in a larger pattern that either levels off or ends in a precipitous decline.

There have been four collapses of human population, and a fifth one may be imminent

When insect or animal populations outrun the carrying capacity of their environments, the result is a rapid die-off. Historically, there have been at least four collapses of human population that we know of, and the evidence suggests that a fifth one may be imminent.

Debt has been growing exponentially, at a rate faster than economic output

But population growth is not the biggest problem that faces civilization. There is one thing that has been growing exponentially at an even faster rate than population or economic output, and that is debt.

Understanding the role that money plays in driving unsustainable rates of resource consumption and economic growth

Avoiding that fifth human and ecological collapse means coming to grips with debt and the role that money plays in driving unsustainable rates of resource consumption and economic growth. Meeting that challenge is both a personal and a political imperative.

This explosion of debt is the prime cause of recurrent financial and economic crises

I concluded long ago that this explosion of debt is the prime cause of recurrent financial and economic crises. It is also the inevitable result of the way in which money is created by banks across the world today. The recent widespread financial crises provide strong evidence that global systems and structures of money, banking and finance are deeply flawed.

It’s an often-unrecognized fact that money is created by banks when they make loans, including loans to governments

It’s a simple but often-unrecognized fact that money is created by banks when they make loans, including loans to governments when banks purchase their bonds. This is acknowledged by the US Federal Reserve in one of its publications, Modern Money Mechanics:

“The actual process of money creation takes place primarily in banks…checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks, and when the proceeds of loans made by the banks are credited to borrowers’ accounts.”

When governments sell bonds, they use the money to spend far more than their income revenues

The present global monetary regime is a collusive arrangement between politics and high finance. By monetizing* their budget deficits, this system enables national governments to spend far more than their income from taxes and other sources, while granting banks the privilege of creating money in the form of debt, and then charging interest for its use. [*monetize – to express or render in terms of money]

The undemocratic centralized control of credit and money effectively concentrates wealth and power in the hands of the few

The main reason for the centralized control of credit and money has nothing to do with helping the economy to operate more efficiently. The motive is political: centralization enables the undemocratic control of everything else. It thereby concentrates wealth and power in the hands of the few. Whoever controls the ‘wellspring’ controls the ‘river.’ The same is true with money.

Since interest on bank loans increases over time, debt must also be expanded to keep the system from collapsing

The current global monetary regime is ‘political’ in this sense. Based as it is on interest-bearing debt, the imperative for debt to grow continuously is inherent in the system. Since interest on bank loans accrues with the passage of time, total debt must be continually expanded in order to keep the system from collapsing.

To avoid defaulting on their debts, businesses must find ways to either increase sales or cut costs

This debt imperative leads to a growth imperative as individuals and corporations vie with each other in the market to acquire enough money to avoid defaulting on their debts. They are driven to expand their sales and profits by cutting more trees, mining more minerals, and pumping more oil. They are also driven to cut their costs by laying-off workers, reducing benefits, and fleeing to jurisdictions where environmental protection and labor laws are minimal or unenforced.

But businesses cannot increase the amount of money in the economy, only banks can do that by granting more loans

Unfortunately, there is never enough money in circulation to enable all these debts to be paid. No amount of production or expansion of business activity can bring about an automatic increase in the amount of money in the economy. Only the deliberate actions of banks to grant more loans can maintain or increase the supply of money in circulation.

Thus, it’s the political, interest-based, debt-money system that leads to disparity and collapse

It’s the compounding of interest and increasing indebtedness in both the private and the public sectors that is the primary driver of economic growth. But this growth misallocates resources and prevents the emergence of a sustainable and equitable economy. Like a cancer, the political, interest-based, debt-money system destroys the environment, corrupts democratic processes, increases disparities of power and wealth, and shreds the fabric of society.

We are now seeing the consequences of the destructive nature of usury and interest

To the vast majority of economists, bankers and politicians, this assertion is heresy. But as the crisis intensifies, the evidence mounts up. We have been warned by philosophers and prophets from time immemorial about the destructive nature of usury and interest. Now we are seeing the practical consequences that emerge when those warnings are ignored. It becomes ever more urgent that we take appropriate action to reverse this crisis. What would that entail?

How can this growing crisis of a runaway interest-based, debt-money system be reversed?

We must end the growth imperative by creating money that is interest-free, by facilitating the exchange of value without using money

When you realize that the car you are driving is headed for a cliff, what’s the first thing you need to do? You might scream, but that will be of little help. Even before you hit the brakes, you need to take your foot off the accelerator. In relation to the crisis of our economies, that means ending the growth imperative by creating money that is interest-free, and by facilitating the exchange of value without using money at all. How is that possible?

A variety of moneyless private currencies and credit clearing exchanges are already available

The fundamental role of money is to facilitate the exchange of value. In recent years, a variety of exchange alternatives have been developed, including private and local currencies, and trade associations that enable trading without the use of conventional money. The most effective of these alternatives provide ‘home-grown’ liquidity as a means of payment, independently of the banking system and without the imposition of interest.

Thousands of businesses have joined moneyless trade exchanges that facilitate reciprocal trade among members

This can be achieved by using private currencies or vouchers that are spent into circulation by trusted producers of goods and services, and by allocating internal credits to members of trade exchanges that enable them to trade with one another using a process called “credit clearing.” Credit clearing is not new. It’s a proven process that’s already being used by thousands of businesses who are members of “commercial trade exchanges” (sometimes called “barter exchanges”).

Members of trade exchanges “use what they have to get what they need”

These exchanges provide the necessary accounting and other services for moneyless trading. In this process, the things you sell pay for the things you buy, without using money as a medium of exchange. Instead of chasing Dollars, Euros, or Pounds, you use what you have to get what you need.

As well, a Swiss cooperative credit clearing exchange has operated successfully since the Great Crash

In addition to commercial trade exchanges, there is a cooperative credit clearing exchange that has operated successfully over a long period of time. Originally called the WIR Economic Circle Cooperative (WIR), it was founded in Switzerland as a self-help organization in the midst of the Great Depression of the 1930s. WIR provided a means for its member businesses to buy and sell to one another despite the shortage of Swiss francs in circulation at the time.

Over the past 75 years, in good times and in bad, WIR (now known as the “WIR Bank”) has continued to thrive. It has more than 65,000 members in Switzerland, who exchange around $2 billion of goods and services each year. They pay each other, not in official money, but in their own accounting units called “WIR credits.”

Private currencies and credit clearing exchanges provide a viable means through which the ongoing financial crisis can be addressed

Private currencies and credit clearing exchanges provide a viable means through which the ongoing financial crisis can be addressed. These alternatives enable us to transcend the global debt-money system, and to gradually eliminate the growth imperative.

It’s time to improve and scale up these moneyless systems for the common good

Now, they must be improved and scaled up in ways that are inclusive and transparent, and operated, not for private profit, but to promote the common good.

If they are to succeed, we need you to spread the word and join these moneyless alternatives

The good news is that business people, community activists, academics, and social entrepreneurs around the world are working together to achieve these goals and to make exchange alternatives more widely available. Ultimately, however, it is our own willingness to join these efforts and do things differently that will change the course of civilization.

SEE ALSO

For more presentations by and interviews with Thomas Greco, visit his website, Beyond Money, where you will find these links:

Greco’s Videos and Sites

A World Without Money and Interest: A pathway toward social justice and economic equity. Video of presentation to the Institute of Advanced Islamic Studies, Kuala Lumpur, Malaysia, October 10, 2016. Links to the audio file and Power Point slide show.

My Videos at Vimeo — Several of my presentations are available in video format. Over time I will be converting several more of my Power Point  presentations and adding them to my Vimeo site.

My YouTube Playlist — My Presentations and Interviews on YouTube.

ReinventingMoney.com — My archival site for resource materials on the theory, history, and practice of money, exchange, and finance.

Community Information Resource Center — My non-profit organization.

Tom’s News and Views — My news and comments on a broad range of topics.

FAIR USE NOTICE – For details click here

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