The economic conundrum

While I have been interested in economics for a while, the book 'How to screw your bank' downloadable from many places help in understanding the finer technical going on. Now I fully understand the question 'Where does money come from?' - from the process of book entry credit creation in the balance sheet. It has been this economic principle that forms the debt based economy we have today. From this all the money in the economy today is based on debt, be that a government bond, house loan or one of the many types of debts available today. One advantage of having money based on debt it that the money demand can be easily meet, but at a cost.

So while people look at the US or another nations debt and go wow, that is a big number, it also means that there is a lot of money circulating throughout the economy. Unfortunately associated to these big numbers is a big interest payment and sucking public resources away from the government to the private sector.

The debt based economy is also self regulating as once the debt is paid, the volume on the balance sheet reduced and so is the overall money supply. So if every debt in the world was paid off, there would be no money left and this is one of the big problems when looking for a better way. The banks do need to keep some cash supplies to handle changes in daily trading, but any significant events like bank runs do shut them down as they use many different assets on their balance sheets, some which take a very long time to turn into cash. There are also things like money multipliers and leveraging tricks that banks and financial traders can do to make new money, but at a risk.

So due to the balance sheet dictating economic supply, half of the worlds money will be in the red, half in the black. The more cash rich millionaires and billionaires we support, the more debt ridden individuals, businesses and nations we will have. This is the reality of a debt based economy. Reducing or eliminating interest payments will create a fairer playing field as the compounding effect of interest can be quite extraordinary and out of proportion over time.

As banks claim they make money like refineries make steel or other resources, this does place an immense amount of political power in their hands as the banks have the final say on which loans are approved and which endeavors society undertakes. While I like this site with all of its calls to end the FED, without a solid plan to improve the situation things will end up worst.

A gold and/or other metal back economy is touted as a common replacement and has worked in the past. With the price fluctuation in today's marketplace I have strong doubts in its stability, sustainability and ability to meet consumer monetary demand. Combine this with the foreign exchange, futures and stock markets and the currency is very open to attack.

Then the NWO plans of accounting for everything, land, air, water and other stuff as they are all resources, tradable and an asset. This has a lot of accounting overheads and different perceptions of value making it quite a complex and error prone activity, also with a lot of blood and displacement along the way. The gradual corporate takeover of these natural and other resources may very well lead the economy into its next evolution.

Bitcoin is one option still growing as it is a currency backed by nothing except its own security and public demand. Maybe currency deregulation is also an option, let anyone start they own. Most will fail for one reason or another but if someone can find the right recipe for a strong, solid, fair currency that does promote productivity would all the fallout be worth it?

Globally debt based economies have taken over the world, with a few little tweaks in different parts. Thanks to the balance sheet money is a zero sum game. Not much is coming out of congress at the moment so I am just throwing in my two cents as the fiscal cliff looms and what it all means. Any questions, comments or ideas are welcomed.

It seems that a new Global Reserve Currency is on the horizon.

I hope it is something that is fair to all.

The world economy has become absurd with nations manipulating their currencies to keep them low against the USD to help their exporters. This is insane.

Something needs to be done to remove exchange rates. Something needs to be done about speculation on things like food. Something needs to be done about finance capital/loan capital. I think the biggest problem is that the unchecked financial sector has so many ways of creating wealth out of nothing. At some point this will not add up. Somebody has to pay. There needs to be value at some stage.

Cool post btw. I worry about how absurd the world economy is. How stupid is a world where affluent nations manipulate their currencies to be lower to help exporters?

edit- when do we get to declare 'upward mobilty' to be dead? Its dead.

reply to post by HenryNorris

It seems that a new Global Reserve Currency is on the horizon.

I have been keeping an eye on this one for the past few years and when IMF policy control shifted from the CFR to the G20 it was a very positive step in this direction. Since then the main apparent division has been between the US/Euro and the BRIC nations. If the economic policy differences can be sorted out at this level then it will put the planet in a some what better direction. With the current war, trade, cultural and other conflicts going on it does make progress difficult. Considering that we either work out how to live together or die together it does help provide some motivation towards resolution.

As for when and how a global reserve currency is unilaterally accepted is not the kind of thing to hold your breath on. The Special Drawing Right is the closest contender I have seen so far, it started after WW2 and helped with foreign exchanges at that time. In more recent times it has been associated to setting a standard based on a collection of currencies, but last I checked it was more aligned with the USD.

Currently this global standard is pretty much left in the hands of the markets with all the complex rules and games going on that are beyond my current knowledge.

I think the biggest problem is that the unchecked financial sector has so many ways of creating wealth out of nothing. At some point this will not add up. Somebody has to pay. There needs to be value at some stage.

This is very much a problem. Technically the money is not fully created out of nothing, but the house deposit you save is generally enough for the bank to cover their security requirement. The rest does arise from nothing except the balance between a banks assets and liabilities. This works because we assign value to many things, not just cash. How we relate, compare and value different types of assets is part of the problem.

The power and control that is also available by being able to create money is also part of the problem, Iraq, Libya, Syria, Iran, North Korea and a few other recent hot spots all have or had central bank issues. When the Libya revolution started a new bank with the debt backed policy was established along with the first hostilities. When things finally settled down, a big government debt remained. There is a lot more that just finance going on with these situations, but they are a part of the puzzle.

when do we get to declare 'upward mobilty' to be dead? Its dead.

Maybe we just need to clarify it a little, 'upward mobility for all', not just half of the economy.

reply to post by kwakakev


I think speculation on food is taking something that has real value and manipulating that value and you get speculative bubbles. It has a real effect on the world because food prices rise and poor nations have food shortages.

Libya was a rich nation. The reason they were invaded was because Gadaffi was going to introduce a gold backed African Dinar. This would have destroyed an already shakey USD and in turn destroy massive amounts of western 'wealth'.

edit- I also think exchange rates are used to rip nations off. And the fact that day traders can make money from betting on exchange rates is absurd and in my opinion, money from nothing.

consider this fact....

The world's gross domestic product (GDP) is only about $65 trillion, or roughly 10.83% of the worldwide value of the global derivatives market, according to The Economist. So there is literally not enough money on the planet to backstop the banks trading these things if they run into trouble.

see: moneymorning.com...





the global system of money-wealth is a TWO tier system

one is the the $65 Trillion of goods/services/trade on a global scale

the other is the $650 Trillion world of abstract money-wealth-debt which constitutes the derivitives


Our problem would be to segregate the $65 Tn 'real life' economy from the $650 Tn casino market

there will never be enough wealth/real assets to cover both systems of financial & fiscal exchange


there is absolutely no way to blend these two money/wealth/debt markets together

reply to post by HenryNorris

I think speculation on food is taking something that has real value and manipulating that value and you get speculative bubbles. It has a real effect on the world because food prices rise and poor nations have food shortages.

The futures market is a tough one, business do need a lot of time to plan, invest and prepare their production lines to get their goods out the door in time and on budget. All this speculation and pre buying does assist with this process. But being such a powerful force in the distribution of goods it can also do a lot of harm, with famines pre determined and acknowledged within this market months before they hit the ground.

If the UN is to take the issue of starvation seriously then this is one area that it needs to hit hard.

Libya was a rich nation. The reason they were invaded was because Gadaffi was going to introduce a gold backed African Dinar. This would have destroyed an already shakey USD and in turn destroy massive amounts of western 'wealth'.

If Gadaffi could have united Africa and the Middle East under the Dinar it would have redistributed a lot of power and sovereignty back into African / Middle Eastern hands. There was still a lot of internal conflict and tension for that to happen, with external forces helping close the matter. Also, while Russia and China have stopped the petro dollar it would have been sending the wrong message for the US if Libya and many other smaller nations where to follow.

I also think exchange rates are used to rip nations off.

While I am not up to speed on all involved with exchange rates, it does appear to be an unproductive area to profit from. Sure people will and do bet and gamble on anything and everything. As for how much financial assault goes on against nations I am not sure, but considering the current state of the world would be pleasantly surprised to hear that it is a fairly clean game.

reply to post by St Udio


The derivatives market is a big messy monster as leveraging, on selling and a host of other instruments are constantly getting developed. The thing almost fell apart with the GFC as all the shady collateralized debt got pushed around and off shore. From my understanding of it it sounds like the worlds biggest casino that is run by a few of the top US banks. If the US government is to default on its debt then it will trigger another collapse, but this time there is no one left to bail them out. Could be why the military currently has an open check book while the rest of the nation struggles?

With the GFC there where a lot of annoyed people and there has been some cleaning up of how operations are done. I do see there is a lot of valid concern with such high valuations compared to real world trade and like a bank run, if too many try too pull out into real world cash too fast some thing will have to give. Trading halts are built in in case of market panic to let everyone breath and cool off before getting back into it, but wither the system is strong enough to handle some major catastrophe only time will tell.

As for the trade and derivative markets blending together, they do all the time as people continue to trade and exchange many different assets in many different ways.

There are a few things that blow my mind when I think about this:

1) ALL the silver and gold ever produced since the beginning of time could not pay our national debt.

since that is the case, then why does our gold holdings (if we really even have any) bring peace of mind to people?

2) That our current currency and credit derivatives are $630 trillion.

3) That in 1964 $10 worth of quarters is worth $220 in todays currency.

4) They can inflate until currency is piled to the moon (they already have), and can lie about it, and no one will ever know the difference.



How can anyone with enough since to balance a check book, look at our national debt to income and see there is no way we aren't facing an economic collapse?

reply to post by xstealth

1) ALL the silver and gold ever produced since the beginning of time could not pay our national debt. since that is the case, then why does our gold holdings (if we really even have any) bring peace of mind to people?

In a debt based economy the money supply in no longer fixed to a specific asset like gold, but can contract and expand based on the monetary demand. This is why gold can no longer cover all the debts as other assets have also been included to base money on. Why gold is popular is because it has a long and tested history in maintaining value through all kinds of messes like wars, revolutions and economic collapses as the authority and trading rules change from time to time.

2) That our current currency and credit derivatives are $630 trillion.

This money multiplier effect that is present in the derivatives market works on a similar process as the banks and insurance companies use. Due to general average daily trading patterns only a small percentage of this wealth needs to be liquid, easily transferable to cash or similar quick trade asset. The bulk of this wealth is locked up in long term investments or hard to transfer assets like property or property repayments. Also another consequence of the debt based economy and balance book is how one mans asset is another mans liability. This allows for each individual balance book to quickly fill up as trades take place and provide the perception that there is a lot of money, when it is more accurate to say there is a lot of trading.

3) That in 1964 $10 worth of quarters is worth $220 in todays currency.

Inflation is a big problem. Until the foundations of a stable economy are set, inflation is very much like a tax the banks use to fund their ability to make money. All of society pays as new money is created from nothing and as the cash supply grows. As supply and demand remains constant, more cash in the system means higher prices.

As debts are repaid and finalized, their value is taken of the balance books and the new money is now destroyed to help balance the system. Unfortunately with the compounding effects of interest and so many toxic assets floating around, as the debt does continue to grow and bankruptcy finally declared it can leave many struggling to rebalance their books.

4) They can inflate until currency is piled to the moon (they already have), and can lie about it, and no one will ever know the difference.

The banks are private corporations and as such are entitled to the protections and responsibilities that come. Personally I do believe that the power to create money is a public one, but with the current state and grid lock in parliament some division is needed between the election cycles. This is where the Bitcoin currency does excel as it is maintained and operated by the community.

Fraud and misrepresentation are parts of human nature and exist in all areas, not just finance. This was a big part of the GFC.

How can anyone with enough sense to balance a check book, look at our national debt to income and see there is no way we aren't facing an economic collapse?

This is the reason for this thread, to try and understand the problem. With a clear picture of what exactly is wrong it will help in deciding what to do next.