Why the financial system must and will collapse

ILW

If a modern Alchemist did find a way to turn base metal into gold, it would become virtually worthless overnight.

chucky

Harry_Powell wrote: »

RBD, why do you use two usernames (RDB & MR.English)?

What's the point?

and don't forget Yoshua and CrazyJain..............

ninky_2

PrivatisetheNHSnow wrote: »

1. our economy runs on credit (debt). all money is interest bearing debt.

2. when banks create credit, they only create the principle, not the interest payments.

3. the interest payments for the existing debt can only be made by expanding the money supply/creating more debt

4. if debt is not used for expanding production (producing future income), rather for consumption or simply to service existing debt, we eventually we reach a point where the volume of outstanding debt is so high that the interest payments are mathematically unpayable

5. if businesses/individuals/governments cannot service debt on a systematic level, they will go bankrupt, the economy/production will collapse in a deflationary spiral.

think of compound interest. if the money supply never expanded, with the right to earn compound interest you would eventually end up owning all the money.

therefore the system must expand to survive. when it doesn't expand (because banks aren't lending/companies borrowing or governments aren't borrowing), there is not enough new money to pay interest payments on all that outstanding debt, and the system collapses.

what they'll end up doing is writing down the debt though. so you basically create assets out of bankrupts (nations and individuals). same with writing off third world debt. a clean slate creates newly available customers to acquire fresh debt and therefore create more 'growth'. it's a ridiculous pyramid scheme.

Masomnia

nearlynew wrote: »

And paper is real money I suppose?

In the sense that I can exchange it for goods and services, yes. With gold and silver I can't. So I suppose it depends on your definition of money, if it's to be a medium of exchange, then paper money is just as good. If you want it to be a store of value maybe gold is more appropriate.

Oh, and you can create gold using platinum (I seem to remember) and a particle accelerator. But obviously it's prohibitively expensive

PrivatisetheNHSnow

ninky wrote: »

what they'll end up doing is writing down the debt though. so you basically create assets out of bankrupts (nations and individuals). same with writing off third world debt. a clean slate creates newly available customers to acquire fresh debt and therefore create more 'growth'. it's a ridiculous pyramid scheme.

yes, pyramid scheme is exactly what it is. if you have a system where all money is created as debt using compound interest, that's the definition of pyramid scheme, because since only the principal of new debt is created, not the interest , the only way interest can be paid on everyone's debt is for society to take on more debt. when the music stops, that's when the repossessions/bankruptcies/recession happens. compound interest ensures that the people with money always get richer, and the people that have to borrow always get poorer because their debts become exponentially larger - that's why compound interest is banned in almost every religion.

the problem with writing down debt and taking losses is that the banks themselves become bankrupt if too much debt goes bad. then of course they asked to be bailed out. in the uk we could do with having our creditors write down our debt (i.e. defaulting) but that would be politically impossible. instead, we take on more debt and put government employees out of work to save money.

if the government just created money itself, rather than borrowing it at interest, we wouldn't be having this cuts debate. that's what the american govt did in the civil war - they didn't have enough money to pay for the war, so they just printed it. no harm done - they won the war.

ninky_2

PrivatisetheNHSnow wrote: »

yes, pyramid scheme is exactly what it is. if you have a system where all money is created as debt using compound interest, that's the definition of pyramid scheme, because since only the principal of new debt is created, not the interest , the only way interest can be paid on everyone's debt is for society to take on more debt. when the music stops, that's when the repossessions/bankruptcies/recession happens. compound interest ensures that the people with money always get richer, and the people that have to borrow always get poorer because their debts become exponentially larger - that's why compound interest is banned in almost every religion.

the problem with writing down debt and taking losses is that the banks themselves become bankrupt if too much debt goes bad. then of course they asked to be bailed out. in the uk we could do with having our creditors write down our debt (i.e. defaulting) but that would be politically impossible. instead, we take on more debt and put government employees out of work to save money.

if the government just created money itself, rather than borrowing it at interest, we wouldn't be having this cuts debate. that's what the american govt did in the civil war - they didn't have enough money to pay for the war, so they just printed it. no harm done - they won the war.

there's an even bigger problem if the population doesn't grow since this is likely to create inherited wealth increases per generation and therefore less need for debt (mortgages). the only way to get around this is through heavy taxation or by encouraging people to have more children. or possibly war where you dispossess people of their land etc.

kennyboy66_2

Pennywise wrote: »

So economic growth is impossible unless it is matched by economic contraction somewhere else.

No, no and thrice no. Economic growth is not a zero sum game.

Productivity, technological innovation, specialisation, free trade etc, will all improve all living standards.

If this was not the case, we would spend all our time hunting and gathering.

Norfolk_Jim

nearlynew wrote: »

And paper is real money I suppose?

No, money is whatever we agree is money. In history many things have been in use as money, shells, feathers, cows, goats, salt.
The only thing needed is a common agreement to attribute value to something and it can be money.
From year dot, Gold and silver have appealed to people and by common agreement we attribute value to it. But it is still just metal and metal with limited practical use at that. Ultimately, Gold is only valuable because we have collectively decided that it has value. Its the same with paper - unless we collectively agree that it has a value - its just paper and ink.
Those who retreat to Gold and silver in times of trouble are gambling on it retaining its historical position in our affections.