The Upside-Down Economy

The idea that the financial markets are the essential force that drives economic growth and progress, has dominated political thinking for too long. The financial markets and their agents have dominated politics and the Congress over recent decades more than ever before. After all, it took several decades for the financial elite to accomplish the complete abandonment of the controls instituted to prohibit the financial market excesses that caused the Great Depression. We are at greater risk today of an even bigger crash than 1929.

The U.S. and world economies are stumbling on the precipice of part II of the “Great Recession” of 2008. The global integration of financial markets and institutions put the entire world at risk and none of it has any democratic foundation. It is all happening against the will of the people and in opposition to the public interest. The massive contraction of the middle class and the swelling of the ranks of the poor are now undeniable. The so called “recovery” has been all about the financial elites and the stock market. Corporations are awash in cash. Those who lost jobs that had a livable wage can now only find minimal-wage jobs and must work at least two to pay rent. The real economy falters and the financial markets are built on quicksand.

The Disappearing Real Economy

The economy is upside down because real economic activity – the production and exchange of goods and services needed by the people in their everyday lives – no longer drives the global economic system. The most powerful economic force in the world today consists of the actions of multinational corporations attempting to continually grow consumption by reducing the costs of growing production. International “free trade” is in effect the removal of production from the nation – outsourcing.

To minimize cost and maximize output, capital is moved to poor nations with the least labor costs and environmental controls. Economic “globalization” allows U.S. corporations to import cheap goods for our increasingly poor workers to buy at Wal-Mart with credit cards. That, of course, reduces the availability of production jobs here by exploiting the destitute elsewhere. While capital is easily mobile globally, labor is relatively immobile. The globalization of capital drives wages down so that U.S. citizens can only buy cheap imported goods.

Continuing down the ruinous path of the Wall Street financial elite is supported by a lot of political rationalization. The fact that work, pay, production, and consumption are what any real human economy is actually about, is simply ignored. On the one hand, we are told that capital must be free to find its “highest and best use.” That will enable the capitalists – falsely characterized as “the job creators” – to invest in new technology and production, thereby improving employment. Well, how has that worked out? The new technologies have mostly reduced the need for skilled labor in the U.S. The free international movement of capital – they call it “free trade” – has increased demand for unskilled cheap labor abroad. Who benefits? The wealthy investors in “globalization.” Who suffers? Workers everywhere suffer the loss of control over their lives and the inability to earn a living wage.

Feed the Rich, Starve the Poor

The myth that the super rich somehow need a tax break pervades the political discourse even though wealthy corporations and individuals pay less in taxes than ever. The delusion is that such public largess economically favoring the already rich would allow them to invest in the real economy. The “news” media – owned by the same mega-corporations that feed the super-rich – go along with that fiction even in the face of several decades of decline of American work, pay, production, and consumption.

All the while, the rich continue to get richer, paying less and less taxes, by controlling politics and indebting the nation. Both the U.S. Congress and the President are elected by having access to massive political funding by so-called “political action committees” (PACs). Legislation is actually written by the biggest financial lobbyists in the Congress – the lobbyists for the financial elite that is enriched by the “globalized” economy. Worldwide corporate theft, subsidized by the U.S. government, is a scam of unparalleled proportion.

Simply put, in a real economy it is income from employment that drives economic health. Employment provides individuals and families with incomes to buy the necessities and niceties of life. It is employment that produces goods and services people need. The income from employment allows consumption to drive production. Financial speculation among the super-rich has distorted the real economy by “financializing” it and ruined all that.

That is why the economy is so upside-down today. Financial speculation drives investment in cheap overseas production, leading to domestic poverty and declining ability to buy what is produced elsewhere. It is all driven by the greed of the financial elite, not by any national economic policy. Big investment banks’ speculating in abstract financial instruments – derivatives and the like – are allowed to create phantom money by depleting the real economy in the form of consumer and government debt.

In a real economy the Big Banks would be invested in actual productive activity. But because of outsourcing, underemployment, and low wages, workers cannot afford goods produced domestically as cheap goods from abroad flood the shelves of the big-box stores. At the same time, the propaganda of marketing and advertising encourage more and more consumption of less and less meaningful products. Low wages force reliance on consumer credit, increasing indebtedness to the corporations controlled by the financial elite. It is an upside-down economy.

Growing suppression of public education and critical thinking facilitates the manipulation of consumer behavior. People keep trying to buy whatever represents the imagery of the consumer culture that dominates their experience. “Affluenza” afflicts some of the few who experience new wealth. But the pervasive desire for the trappings of affluence – driven by pervasive marketing propaganda – drives consumer behavior, leaving little room for “free will” in economic behavior. Mass media images dominate consumer as well as political thought. Cultural images of “the good life” all involve increased unthinking consumption of corporate products.

Converging Crises and Catastrophic Collapse

In the present context, certain fundamental factors are at work. The vast accumulation of “phantom wealth” by the Big Banks via the “bailout” has encouraged further speculation and facilitated more economic concentration. The easy availability of cheap loans to corporations already awash in cash has not resulted in their investing in the domestic economy. All that cash and cheap credit is used for mergers and acquisitions, which further concentrate corporate wealth. A stock market booms while the main-street economy remains stagnant with vast numbers of workers unemployed or underemployed. Stock market growth is without foundation in the real economy. It has little basis in actual economic value, its growth is speculative, and is at increasing risk of collapse.

After the greatest financial heist of the public treasury ever, we must ask why such vast accumulated wealth has no benefit to the real economy. Overextended consumers can no longer rely on home equity and credit cards to make up for those decades of stagnant to regressive wages. It becomes clear that another few hundred million more dollars in the coffers of billionaires will not be invested in domestic production for the suppressed consumer demand for necessities that results from stagnant domestic employment and over-indebtedness.

It is not as if this is all happening in the abstract. Real world allocation of capital has planetary consequences. The distortions of mass production induced by extractive capital are global in scope. With a world population of over seven billion people and the drive to emulate Western patterns of consumption, the carrying capacity of the planet’s ecologies is already exceeded. Whatever one’s interpretation of the world’s economic system and imagined alternatives, the convergence of overproduction, consumer culture, overpopulation, looming crises of food production, resource wars, and climate chaos, all foreshadow a catastrophic collapse of existing economic and social systems. Only a massive human effort to reorganize the way we live on this planet can avoid human tragedy on a scale as yet mostly unimagined.

Borrowing Nothing from Nowhere: Phantom Money and Phantom Debt

Borrowing money is a tricky thing to talk about, even trickier than talking about money itself. We all seem to have a love-hate relationship with the stuff. Well, maybe ‘stuff’ is not the right word. People disagree about what money actually is. Some, who I’ll call “money realists,” believe that the essence of money is that it is a physical thing that has intrinsic value. For the money realist, only a fixed commodity – usually gold – is “real” money. So called “fiat money,” valued because a government declares it as “legal tender,” is not seen as “real.” Some others, the “money representationalists,” believe that money is an object that has value because it represents something else that is valued, also usually gold. That is what the “gold standard” was about, but money also represents the value of anything we value. Borrowing is a major reason money is so troubling.

Money represents the value of a credit or debt, enabling the exchange of anything of measurable value (in monetary units of quantity) for that thing. Finally, for most people money is an abstract symbol of value based on some metric or quantity that measures the value of anything. That is why money can be transferred, borrowed, and lent electronically – it is a symbol, whether represented in paper or binary code, of a measurable value. Despite that abstraction, we usually treat money as a real object to be exchanged for other real objects, or for real services, or even for promises to provide such things later. Most money today is “fiat” money, because it is declared by a sovereign government to have a relatively stable measurable value for any exchange. But what is value? Is value real or do we just imagine it so?

You can read Wikipedia’s entries on money to get an overview of the conventional definitions of money, currency, credit, and debt. But something is missing. What is increasingly important today is how money is being transformed. Critics complain that the government is “printing too much money.” However, most money today is brought into being by electronically “posting” it to a computerized accounting system in a bank. An electronic bookkeeping entry creates money as a debt to a bank, not as printed currency.

Borrowing Nothing

A bank that is a member of the Federal Reserve, lends money into existence electronically when a customer borrows it. That’s right; it didn’t exist before it was lent, but it creates debt for the borrower and an “asset” (credit) for the lending bank in the form of a note or bond. The note or bond held by the bank obligates the borrower to pay back the amount borrowed plus interest. That means that more money is always owed (to the banks) than is ever borrowed, which is a peculiar problem in itself with deep implications for the entire economy. Think Greece; same basic deal.

The Federal Reserve oversees this process, called the fractional reserve banking system. “Fractional reserve” means that the bank gets to loan out a certain percentage more than it holds “in reserve” as deposits. This whole process must be carefully regulated or things can get way out of hand. Just before the financial crisis of 2008, banks were allowed to loan many more multiples of their reserves than ever. Leverage always entails risk.

Banks may lend some of the money they create to mortgage lenders and “payday” lenders, as well as to corporations and individuals. Mortgage lenders – savings and loan institutions, regional banks, etc. – will borrow from the national bank, make a home loan, and then sell the mortgage to another bank. Without vigilant regulation of the conditions of loans, things can get quite messy. If enough bad loans are written and if enough loans default, the whole system becomes unstable. This is especially true when loans are bundled into “derivatives” and sold to unsuspecting investors looking for a steady income stream.

Making Phantom Money

The gradual deregulation of banking and finance, starting with Bill Clinton, Alan Greenspan, and Larry Summers, has released the most powerful financial elites from societal controls. The 2008 financial crisis resulted from several factors, including the lowering of reserve requirements for the Big Banks. Mortgage brokers and other primary retail lenders loosened the lending requirements for borrowers. Regulators looked the other way. The resulting risky mortgages were then purchase and packaging into “derivative” financial instruments by the Big Banks on Wall Street. They were then resold to pension funds and other institutional investors, putting many people at risk. Lots of money was “made” in the form of fees and profits. In the process the entire world economy was endangered. After all, the banking system of the U.S. and other major industrial nations had already been integrated and these financial manipulations had spread world-wide.

The advent of high-speed electronic data processing and communications has allowed the creation of new forms of financial manipulation of the money system. High-speed computers can skim “value” from stock markets by engaging in electronic “trading” so fast that tiny differences in bid-ask pricing can be exploited in the interim between offers by ordinary traders. So-called “derivatives,” financial instruments comprised of abstracted fragments of mortgages or other debts, can be marketed to the point of risking collapse of markets. The largest financial institutions have transformed money from a public medium of economic exchange into a method of economic plunder and political control of society. But these financial absurdities only exist because of the greatest absurdity of all. We are all forced to borrow nothing from nowhere and it is costing (almost) everyone dearly.

Phantom Federal Debt: Who Needs It?

It has been generally taken for granted that “fiat” money is issued by sovereign governments for the benefit of their national economies. Not exactly. Most currencies are valued on the basis of the solvency of the government, its international balance of payments, and the stability of its economy. International exchange rates are based on such factors. But since the early 20th century, for the most part such assumptions have been a fiction. In the U.S., despite the Constitution, which authorizes the Congress “To coin money, regulate the Value thereof, and of foreign Coin,” the government does not create money. Yes, it still stamps out pennies and quarters, but the private banks, which own the Federal reserve, create most money. In 1910, the major private banking interests conspired at their infamous meeting on Jekyll Island to control the national monetary system. In 1913, Congress passed the Federal Reserve Act, empowering the cartel of private investment banks to control the money and banking system and “loan” money created out of nothing and from nowhere to the U.S. Treasure. Hence, the national debt. What a windfall for the banks – and a permanent indebtedness for the nation – unless we reassert our national sovereignty.

It has worked out much better – for the mega-banks – having the government borrow money from the private banking cartel called The Fed so that the banks can control everything and the rest of us can take on all the resulting debt! If our government were actually sovereign (instead of subservient to the mega-banks), it could ISSUE money rather than borrow fake money from corrupt banks. What a different economy that would produce.

Global Capital, Illusions of Wealth, and the Walking Dead

Any genuine scientific analysis of the trajectory of global capital is hard to find. Economic history is rife with ideological stories of “wealth creation,” “capital formation,” and the mythical “invisible hand.” What is capital? What is wealth? What is money? Well, they are all pretty much taken for granted in most economic thinking – conveniently so for the financial elite. On top of that, economics itself has been dominated by the ideology of the power elites that dominate society. Little room is left for science. International finance and the ‘wealth of nations’ are managed in very strange ways – I describe them below in a highly condensed sketch.

Global Capital and Central Banks
Put as succinctly as I can, during the industrial age finance (the management of capital) has gradually become globalized. But it was not international trade that spurred the emergence of a global financial network of banks. It was more a matter of the most powerful banks forging a network of control over the monetary systems of nations. In fact, industrial development and the human misery that has accompanied unprecedented wealth have always involved a struggle between public and private control of money and banking.

Each historical example of public banking and sovereign control of national currencies has been accompanies by prosperity and stable prices, then followed by an assault on public authority by private banking. Usually, this has led to the “privatization” of what is in its essence a public utility: money and banking. Benjamin Franklin explained to the British parliament how the Pennsylvania and other colonies were funding their economies by issuing credit in the form of paper script not “backed” by gold or silver to stimulate commerce, leading to unexpected colonial prosperity. Soon King George banned colonial script, and Parliament passed a Currency Act, requiring all taxes to be paid in gold or silver, forcing them to borrow from the Bank of England at usurious rates. That put an end to colonial prosperity based on public credit and gave a strong impetus to revolution.

Numerous other examples, from Canada to New Zealand, Lincoln’s “Greenbacks,” etc., eventually let to a cartel composed of the central banks of each nation, each privately owned and coordinated by the Bank for International Settlements (BIS) in Geneva, itself owned by the central banks. The International Monetary Fund (IMF) and World Bank (WB) impose financial requirements and lend to ‘developing countries’ in support of the interests of global capital in dominating national economies.

So, the currencies and banking requirements of nations are controlled by the private international banking cartel. The control of national economies in the interests of central banks, causes booms and busts in their pursuit of bank profits and control of national economies. Today, each central bank is largely controlled by its relationships to the cartel. Governments take a back seat to the whole of global finance, and their economic and monitary policies are subordinate to the global capital markets controlled by the BIS, the IMF, and the WB, all operated in the interests of the banks, not nations.

Illusions of Wealth
Most of the ‘highest values’ of modern economic ideology are buzzwords for the mechanisms by which the Big Banks control national economies and extract vast amounts of “wealth” from them.

“Free Trade,” for example, is actually the freedom of giant corporations and the giant banks that finance them to exploit labor internationally and avoid any responsibility for environmental damage they do in the nations in which they operate. “Financial innovation” is actually the various schemes of the Big Banks to extract phantom wealth out of the banking system by ‘packaging’ debt into complex derivative instruments from which additional fees and profits are squeezed, and risk externalized.

It is all built on a system of debt-based money, that is, money created out of debt through double-entry electronic bookkeeping when a bank makes a loan. Banks are allowed to lend much more money than they have ‘on reserve.’ The money they lend is thereby created “out of thin air.” They can borrow even more from the central bank – the Federal Reserve in the U.S. – at very low rates and lend it to their customers at much higher rates. Remember, the Fed is owned by its member banks.

It’s a great big illusion. Why? Because the creation of money is not related to actual economic activity in the real world. Of course, lending does occur for actual production of goods and services for the economy, but the money and banking system I am describing here operates independently and in addition to the real world of investment in the economy itself. In the past couple of decades the phantom-wealth ‘economy’ has expanded to the point where it accounts for a much larger share of the GDP than before. Yet, it contributes nothing to the real economy. Despite massive “quantitative easing,” little of the vast funds released to the Big Banks have reached down into the real economy. Contrary to the dominant ideology, you could do away with these “too big to fail” banks and nothing much in the real world would be missed.

The Walking Dead
The unbridled global capitalist system has no natural constraints, except the finite supply of energy and other resources. It is in the early but rapidly accelerating stage of near-death. Unless it is radically transformed, quickly, the extinction of the human species from which it emanates, will be its final constraint. That will depends upon whether or not the illusions of global finance capital continue beyond the tipping point of ecological and societal collapse. In either case, it is already the walking dead.

Making Money: The Ultimate Illusion of a Debt-Driven Economy

How is money made? Well, in conventional terms we work for it. But where does it come from? We know that the economy needs a sufficient “money supply” so we can exchange “goods and services” every day. Of course, it’s not that simple. After the “Great Recession” of 2008, the Federal Reserve injected hundreds of billions of dollars into the Big Banks. The purpose was to keep them from going under as a result of their gambling with depositors’ money. So, where is all that money now?

The conventional wisdom is that the “the government prints our money.” Technically but only partially true, this image of overworked treasury printing presses is increasingly irrelevant. Most money today is created electronically when banks lend up to some multiple of the money held in their accounts. A bank’s solvency depends on the money it holds “in reserve” – does not lend – in accordance with banking rules. If the ratio of loans to reserves is too high, the bank risks not being able to cover losses if loans go bad.

Reserve requirements were reduced significantly in the years before the 2008 crash. But the “too big to fail” banks took it a step further. They packaged many risky mortgages into highly leveraged “derivatives,” re-sold them to investment clients and each other, and took exorbitant “fees” at each step. It all blew up when mortgages failed and the Big Banks couldn’t cover their losses. So, the Fed stepped in and kept them solvent by “lending” them billions upon billions of dollars.

With the lowering of reserve requirements and the elimination of the firewall between commercial and speculative investment banking, all hell broke loose. Lending practices and the bundling of debt took on the logic of gambling in a casino, but with more hubris. Reliance on complex mathematical models of “risk management” to justify reckless behavior became the biggest illusion of all.

Most critics of the federal “fractional reserve” banking system worry that our “paper money” or “fiat currency” is not “backed” by gold. They consider gold to be “real money,” not arbitrarily “created” money. Gold is an effective standard of value because it is scarce, not reproducible or easily faked, and is universally valued by humans. That’s great, as long as everyone believes in gold’s value.  After all, value is what we make it.  But any economy needs its money to circulate. If paper money had to be backed by gold, there would not be enough to circulate and the economy would stagnate. Yet, if too much paper (or electronic) money is put into circulation, borrowed and invested, then inflation can get out of hand.

There is some validity to the concern of producing an oversupply of money leading to inflation, as has happened in several historical cases. But the biggest problem of money creation lies in our debt-based banking system, created under the influence of the big bankers in 1913. That was when the Big Banks convinced the government to create the Federal Reserve banking system. The Fed is essentially a private banking cartel that “lends” money to the federal government – the nation. Where does the Fed get the money it lends to the government? It simply creates it out of nothing – other than the government’s authorization for it to do so! That sounds crazy because it is, unless you own the Big Banks. But if national banks were owned by the nation, then money creation would not produce national debt.

So, you can see that fundamentally the “national debt” is an illusion created when the government gave up its sovereignty over our currency. Without the privatization of currency creation, indebting the government, there would be little need for an income tax.

A debt-based monetary system is inherently unstable and succeeds only as long as economic growth continues. But as long as conservative reserve requirements held sway and investment banking was separated from commercial banking after the Great Depression, another crash was averted. The Glass–Steagall Banking Act of 1933 kept commercial banking separate from investment (speculative) banking after the Great Depression. And relatively strict reserve requirements limited the Big Banks tendency to engage in excessive speculation – until deregulation beginning in 1999 unleashed the Hounds of Wall Street.

For a hundred years, the government has become increasingly indebted to the Federal Reserve and buyers of treasury notes and bonds.  These instruments are the means by which  the Fed sells our government’s debt worldwide. Despite the increasing debt and interest payments, the economy could be managed as long as it kept growing – adding new money from new debt to pay old debt and interest. The Federal Reserve – the private central bank owned by its member big private banks – partially controlled inflation by controlling interest rates, some of the time.

But the illusion of endless growth and the phantom money it creates are rapidly coming to an end on our finite planet. The debt-based monetary system will be unsustainable in a steady-state economy aligned with real-world limitations – it must be replaced. We must move to a stable ecologically grounded economy.  We can no longer support an ever-growing debt-based money system. In an ecological economy, money will simply circulate as the means for exchanging real value – that is, actual goods and services.

Clearances, Foreclosures, and Evictions

I used to wonder how it is that after generations of Americans spent their entire adulthood paying mortgages just as their parents had, only a tiny fraction actually owned their modest homes outright upon retirement. The next generation, in most cases, starts the process all over again with little if any inheritance. Where is the accumulation of wealth in home ownership? In the 1950s, interest rates were very low, around three per cent, and the credit card had not yet been invented. Of course, World War II had pulled the nation out of the Great Depression. Roosevelt’s New Deal programs had only partially alleviated the suffering against all odds and aggressive opposition by the wealthy. But after the full employment of the war and the educational and lending benefits of the GI bill, a returning veteran could get an education and a job with a wage to support a family. With most women staying home, a man could still support his family and save enough for that standard twenty percent down payment to purchase a home. That’s quite a contrast with conditions today.
I had been reading a lot about money and the debt-based economy before I began a trip through Scotland last August. But I wanted to get a sense of the lives of the Scots in the centuries past that were represented in the many historical sites I observed across that land, so I decided to read Neil Oliver’s A History of Scotland, as I traveled. The thick small paperback traveled well and the saga drew my interest, although I was a bit stunned by the incredibly bloody record of violent transitions among clan chiefs, noblemen, kings, and eventually the industrialists. That got me thinking about the possible inheritance of America’s culture of violence from Great Britain’s violent evolution. What I did not expect was to find parallels in economic history.
Then, later in Oliver’s book, I read of “the clearances,” which had occurred with the agricultural “improvements” of the eighteenth and nineteenth centuries, and had accompanied the early stages of the industrial revolution. After countless generations of attachment to the land through tradition and relations of fealty, large populations of both highlanders and lowlanders were forced off their land and into the industrial towns or expanding coal mines, or to emigrate to North America or Australia. James Webb chronicles the subsequent lives of the Scots-Irish descendants of those emigrants to the U.S. in his fascinating book, Born Fighting: How the Scots-Irish Shaped America. The landowners, clan chiefs and noblemen, needed to combine the small traditional plots into larger more efficient holdings to apply the new agricultural techniques with far fewer workers and vastly greater profits.
Those “clearances” reminded me of the eighteenth and nineteenth century English “enclosures” which ended traditional rights to common lands, but were accomplished by the legal means of the parliamentary “Inclosure Acts.” As I traveled through Scotland, that context brought to mind the current massive loss of the homes of American mortgagees. How could it not? Our national economic crisis was brought on by the vast concentration of “paper wealth” (indeed, more accurately, electronic forms of abstract wealth) in the shape of heavily leveraged sub-prime mortgage debt packaged into a falsely valued derivative “asset” pyramid that ultimately collapsed because investors could not be paid when inevitable losses occurred.
The government covered the losses of the Big Banks because the Treasury and Fed officials all came from Wall Street firms where their first loyalties (and wealth) could be found, and because too many in congress drank from the trough of Wall Street lobbyists. The Banksters kept their giant bonuses and nobody went to jail. But we know all that. My point is that in each case, a very small number of very wealthy people found a way to exclude very large parts of the population from any viable participation in the economy in order to vastly advance their own wealth.
New and old ways of removing people not needed for the current ‘capital formation’ game, and consolidating assets among the wealthiest 0.1%, are essentially much the same. The technological, economic, and political tactics have changed, but the plunder of the larger society by its most powerful elites remains the same. Having read of the bloody history of Scotland, I cannot say that today’s billionaire bandits are any more ruthless than their historical counterparts, except in the scale of the suffering their plunder causes. But they get to keep the suffering they cause at such a greater distance that they are conveniently insulated from it. It is clear that given the planetary impact of their misdeeds, the consequences for humanity are vastly greater.

Money: Banking on the Economy of the Absurd

Money and banking seem far too mysterious to far too many people.  Read all about it and you may feel that much of your time was wasted, simply because at root it seems not all that complicated.  Oh, the world of money and banking has been made quite complicated, but that’s because of who is running things and why they make decisions over all of our financial lives the way that they do.  With the endless elaboration of the complex institutions from which emanate the decisions that matter for the rest of us, the so-called “financial industry” has emerged as a much larger share of the economy than ever before.  But what does that mean?  Are we all wealthier?  Hardly.  As the “main street” economy has faltered while big corporations and banks grow ever larger profits, why has the financial industry—which claims to be so vital  to the nation’s economy—grown so large?

Along with the ideologically excused deregulation of banking and finance—driven, actually, by the growing influence of the big banks and their corporate companions over the laws that govern economic activity—have come a steady onslaught of banking practices that have made a very few people and corporations very, very rich and resulted in the rest of us falling further and further behind.  By expanding their control over the creation and lending of money, these institutions have expanded far beyond their usefulness to the nation. To big to fail?  Yes, if propped up by government bailouts.  But more important, too big to tolerate!

Have you ever wondered why over many generations people pay mortgages on their homes, yet very few of the succeeding generations ever live in a home without it being mortgaged?  Where is the accumulation of wealth?  Well, while complex interactions of a number of factors are at play, and individual cases vary, the “bottom line” is that we live in a debt-based economy, and it is debt based on purpose.  No, it wasn’t your idea and it wasn’t my idea.  It was the idea of the private bankers who took over the public function of banking way back when.  In a debt based economy, new money has to be created to pay the interest on old debt.  That requires endless economic expansion financed by new debt.  It is a never-ending cycle until one of two things happens:  1) a crash brought on by the excessive speculation in new debt—gambling—by the Banksters; or 2) the whole system expands beyond the carrying capacity of the ecological system on which we all depend.  The Great Depression of the 1930s has been matched by the real unemployment of the “Great Recession” of 2008-present as the absurd economy roars past sustainability.

Banking is an inherently public function.  In fact, money is a public institution.  Whether private banks control it has varied in time and place.  When you are playing Monopoly (the board game) the players are equivalent to the public but each acts as an individual, not as a member of that very small public—which helps to instill in the players an individualistic sense of what money is.  But the “play money” used in the game is “real money” for the purposes of that game.  One player is designated the banker, but only manages the allocation of money during play.  The players agree as to the initial distribution of money (usually equal) and to the rules of the game.

Eventually, through luck and skill, one of the players gathers so much money and property that the game is over—s/he won!  Oh, but then there’s no game anymore, unless the players want to start another game, in which case they have to redistribute the money so each player will have money with which to play.  In fact, once the game is over, there is no money, only amusing little pieces of colored paper in a box with the board and various symbols of property, etc.  But why does someone always win Monopoly?  The widely ignored fact of economic reality also ends every game of Monopoly.  Once a player has accumulated significant economic power, that player’s ability to gain economic power increases.  So it is in the real economy, with the added bonus of increased political power, which means that to keep the game going, something’s got to give.  The result has to be either collapse or some form of redistribution, that’s what history demonstrates.

So, you can see the difference between a game and social reality, or, technically, economic reality.  In the real world, the game can never be over, even when one element—the Banksters in our case—accumulates enough wealth to render the other players powerless to make a successful move.  In the real world, this holds right up to the point where some starve to death for lack of resources.  In the game, with all the money accumulated by a small number of lucky and/or skilled players, everyone else is out of the game.  In real life that is deadly and is bound to result in some kind of chaos, collapse, or major restructuring of the economy.  Look around, both in the world today and in history.  Money hasn’t been in play all that long.  It emerged slowly and in various odd forms when and where some surplus of valued goods was accumulated.  When, at various times when wealth became so concentrated in the hands of the elite, a monarch or emperor recognized that wealth had to be radically redistributed in order to keep the economy going.

The earliest examples of money and debt were in societies where sedentary agricultural practices replaced nomadic hunting and gathering.  Much of this is chronicled in David Graeber’s fascinating book, Debt: the First 5,000 Years.  Graebner is an anthropologist whose analysis of money and debt as cultural phenomena clearly breaks out of the illusions about money and debt upon which our deeply absurd, and equally unjust, economy is based.

Unless we face some very fundamental and widespread social illusions, we will be unable to grasp how debt drives our absurd economy and how deeply destabilized the system has become.  Sometimes these illusions have two sides, neither of which reflects economic or cultural reality.  For example, we have the “gold bugs” and the advocates of “fiat money.”  Gold bugs confuse symbols with reality and fiat money fanciers confuse wealth with abstractions of value.  Both obsess over the form of money, failing to see that the very essence of its existence is consensual rather than essential.

There is nothing in the essence of gold that makes it money and there is nothing in the essence of paper that prevents it from being money.  All manner of items at one time/place or another have been money because the conditions allowed and the people agreed to define them as money, from sticks to shells to stamped pieces of copper or other metal to beads to paper.  In no case did just any stick, shell or piece of paper do.  It had to have certain qualities or it couldn’t become money.

In one fascinating example, a stick with certain inscriptions would be split in two and the creditor and debtor each took a piece.  No other stick could represent that relationship of value-exchange because no two sticks will split in exactly the same way.  That made the stick parts a unique symbol of the value exchanged.  With gold, the size, ie., weight, of a nugget or shaped coin stands for its exchange value.  In every case of an object that becomes money, its value is designated in such a way that it cannot be altered.  So it is with paper.  With paper money, methods are devised to make it nearly impossible to duplicate without detection, but of course some counterfeiters have been very skillful, which results in a technology race between the legitimate and illegitimate printers of money.

Today, of course, most money takes the form of an electronic entry in computerized accounting systems controlled by banks and other financial institutions.  And that brings on an entirely new level of complexity and exploitability of what at base was a very simple relationship. But, as always, who controls the creation of money is still at the root of the way the money system works.

Because the nation so stupidly gave away the rights to control a fundamental public utility—money—to a cartel of private banks, the Federal Reserve, the creation of money (except for coins, which, trivially, are minted by the U.S. Treasury) is controlled not by public policy but by private banking interests.  “The Fed” is owned by its member big-private-banks yet is politically defined as a quasi-public institution even though it is entirely controlled by the cartel of private banks, except to the extent that the political system can influence its actions, which is almost nil.  Power flows from the banks to the government, not the other way around.

Well, you saw how well that worked out when the federal government essentially gave away the commonwealth by “covering” the bad bets of the world’s biggest gamblers—the Banksters, as I prefer to call them—because their agents, from Treasury Secretaries “Hank” Paulson and Timothy Geithner, Larry Summers, and the rest of the Wall Street gang were very much in control of the political response to the crisis.  These same Banksters had helped steer the congress to do away with the protections against gambling with depositors’ money that resulted from the Great Depression of the ‘30s.  The recent ‘Great Recession’ was the result of the same kinds of financial manipulations as precipitated the great crash, but now with lightning speed of computerized trading and lax limits on holding reserve capital to cover losses, as well as a whole new breed of “financial instruments” which are “derivatives” of complex combinations of debt.  The whole Dodd-Frank “reforms” were a smokescreen to cover continued abuse by the financial elite.

The whole system is, as they say, rigged.  And because it is entirely dependent on generating more debt in order to sustain profit, ultimately all that debt cannot be paid, since it is really a pyramid scheme basing illusory wealth on ever-expanding debt that cannot be sustained.  No, it is not about “the national debt” and “deficit spending” by the federal government, though they are part of the system.  And the “debt ceiling” is pure political theater.  It is about the centralized private control of the public means by which money is allocated to the actual people who participate in the economy as a way of sustaining their lives—through debt—with that private control being exercised in the sole interests of the so-called “masters of the universe,” the Wall Street Banksters and financial deal makers who have no idea what a real economy looks like.  It’s all about the art of the deal which generates paper profit [or, I should say, electronic profit] out of money generated with no other purpose, but which bounds the people to a system of debt over which they have no participation except as victims.

Therein lies the absurdity of the economy for you and me.  Money, the function of which had been to provide a medium for and a repository of actual exchange value—that is, the exchange of real objects and services of value to people in a real economy—has been perverted into a devise for generating false wealth—paper or electronic profit—which is treated as real wealth by the Banksters who control the Economy of the Absurd.