Monday, March 10, 2008
The greatest shortcoming of the human race is our inability to understand the exponential function.
~ Dr. Albert Bartlett
While it was operating well, our monetary system was a great system, one that fostered incredible technological innovation and advances in standards of living. But every system has its pros and its cons, and our monetary system has a doozy of a flaw.
It is run by humans.
Oh, wait, that’s a valid complaint, but not the one I was looking for. Here it is:
Our monetary system must continually expand, forever.
What’s going on here? Could it be that the US economy is so robust that it requires monetary and credit growth to double every 6 to 7 years? Are US households expecting a huge surge in wages, to be able to pay off all that debt? Are wealthy people really that much more productive than the rest of us? If not, then what’s going on?
The key to understanding this situation was snuck in a few paragraphs ago: Every single dollar in circulation is loaned into existence by a bank, with interest.
That little statement contains the entire mystery. If all money in circulation is loaned into existence, it means that if every loan were paid back, all our money would disappear. As improbable as that may sound to you, it is precisely correct, although some of you are going to consider this proof that I could have saved a lot in tuition costs if I had simply drunk all that beer at home. But with a little investigation, you would readily discover that literally every single dollar in every single bank account can be traced back to a bank loan somewhere. For one person to have money in a bank account requires someone else to owe a similar-sized debt to a bank somewhere else.
by scaredshirtless