How to Get Your Country Out of Trouble – Part One
How to Get your Country out of Trouble Part One – the Problem by Stephen Cook
This paper was originally written with the UK in mind but its basic principles apply to virtually any country. At this time, many nations are struggling economically, some are having a very hard time indeed and a few are just about managing, somewhat precariously, to hold their own. The global economy coughs and splutters like an old banger with kerosene in the gas tank. On every hand we see constriction and decline, escalating debt, soaring fuel and other prices and money scarcity. The “austerity measures” that the economic dunces in many governments have managed to dupe their people into accepting have not worked. They have done nothing to reduce the debt of nations. But they have reduced the standard of living of nations and upset an awful lot of honest people, while the soaring debts such measures were purported to handle have continued to soar. So now the pendulum of economic ineptitude swings back the other way (again) and there is talk that “what we really should do” is spend our way out of trouble by pumping lots of money into the economy and thus bring us out of recession. But I’ll make you a prediction: that tactic, while it makes sense on the face of it, will wind us up in even deeper debt and insolvency. A few years hence, as we are crushed under a mountain of debt even more onerous than the one that bears down on us now, someone will be saying, “what we need to do now is reduce the debts” and will then introduce even harsher austerity measures that will do nothing to reduce the overall levels of debt being carried by the people of Earth. Something is seriously wrong with the global economy and its money system. All the cosmetic tinkering in the world has not fixed it or stopped it getting worse. 1
How to Get Your Country Out of Trouble – Part One
A problem exists because something causes it to exist. Addressing and removing the cause of the problem will resolve the problem. Addressing and trying to handle something that is not actually causing the problem but is itself a symptom of the problem and leaving the cause of the problem in place will cause the problem to persist. In fact it, will usually deposit further layers of complexity – worsening symptoms if you will – upon the problem. If something got you into trouble, doing more of it and then more of it still is not going to get you out of trouble: it will inevitably get you into deeper trouble, which is precisely what is happening to us. The fundamental flaw in our money system, the "held down seven" in the calculator that makes all its sums come out with wrong answers, I have described in detail elsewhere but I going to summarise problem and solution here, very briefly. The Cause of the Problem The problem with our economy is that the government does not create money. Most people assume that it does but in fact it handed that privilege – the privilege of creating money - to banking institutions. Banking institutions create money out of nothing and then enter that new money into circulation by lending it to you and me, business, governments and so forth. Those loans are made at interest so that every time a sum of money is created and entered into the economy, it does so as a debt and MORE DEBT THAN MONEY IS CREATED. Our economy runs on debt, not money. There is virtually no true money, per the proper definition of money, in circulation! That it is called money does not make it money any more than putting kerosene in the gas tank and calling it gas, will make it gas. Call it gas all you like, believe that it is gas all you like but the car still won’t run properly. And that in a nutshell is the fundamental flaw that underpins all the economic trouble we are having, our precipitate decline, instability, relentlessly escalating debt, money scarcity and declining standard of living. 2
How to Get Your Country Out of Trouble – Part One
Let’s go over that again: Money is our means of exchange. It is the system of tokens or symbols we use to pass back and forth among ourselves in lieu of actual goods, but confident that at any time we can exchange money for real goods. Being able to exchange it for real goods is what gives it its value. Someone has to create money. If nobody created it, it would not exist. But who creates it? Currently banks create it. They simply “print” it so to speak. But having been created, how does it get into circulation so that it can be passed around among people? Currently, the method of getting newly created money into circulation is that banks, having “printed” it, then lend it to borrowers. The borrowers then take the money loaned to them and spend it. Thus it enters circulation. But each time the bank lends out money it has just created, it charges interest. The interest it charges is its profit on printing money and lending it. Thus, each time newly created money is gotten into circulation by lending it to someone, interest is added and that someone then owes more money than he borrowed. In other words, more debt has been created than money with which to pay the debt back. This produces many adverse effects that give us all a hard time, a few of them are: There is more debt in existence (far more) than money. When an economy expands, through increased population or more goods produced and coming onto the market, the money supply, the stock of circulating money, must be increased along with it. But in the current system, if we increase the money supply – through the mechanics of lending – we increase the overall debt by an even greater amount. This is why in periods of economic boom, levels of debt soar.
3
How to Get Your Country Out of Trouble – Part One
The existence of money depends upon people, businesses and governments carrying debt. In order for money to exist someone has to be in debt and they have to carry more debt than they have money. For one person or group to get out of debt or reduce their debt, someone else must go deeper into debt if the volume of money circulating in the economy is to be maintained. Money enters the economy through three main channels of borrowing: borrowing by the consumer, borrowing by industry, borrowing by government. If, for example, a credit squeeze restricts borrowing by the consumer and industry, there is an increased pressure on government to borrow so as to prevent the money supply shrinking (recession.) If government seeks to reduce its own borrowing, the pressure increases upon the consumer and industry to borrow. A”credit squeeze” or “austerity measures,” in that they seek to reduce borrowing, bring about a decline in the stock of circulating money. Money becomes scarcer. Money scarcity is known as recession. Understanding that basic "why" of our trouble enables us to come up with a simple plan for national economic recovery, which will enable us to extricate ourselves from the mire in which we are stuck, turn around our national fortunes and bring about a boom beyond all imagining. Bear in mind that whatever trouble we have, it is rarely an inability to produce in abundance all the food, clothing, furniture, computers, roads, houses, schools and so forth we need. We can produce any amount of these things and so the potential for material wealth is there. There is a difference for example between being hungry because the crops won’t grow and being hungry because we don’t have the money to buy crops that either have been grown or can be grown. What is scarce in a recession is money and thus our ability to express demand for what we want because money is the thing we use to express our demand. And so businesses go bust due to a "decline in demand". But it is not people’s desire for industry’s products that has suddenly, inexplicably waned. What has happened is a relative scarcity of money. 4
How to Get Your Country Out of Trouble – Part One
If you haven’t got the money you can’t buy the dishwasher and if you can’t buy the dishwasher, the dishwasher manufacturer can’t sell it and so goes out of business, no matter that the dishwasher exists, nor how much you want the dishwasher and how much he wants to sell it to you! Okay, so now we know what is causing us all this needless trouble. That trouble is not going to magically disappear unless the cause of it is removed. That cause is being held in place and then hidden from view by those who profit from it and their proxies in government. But what can we do about it? Continued in Part Two – The Solution
Acknowledgements I am indebted to the late Dr Edward Hamlyn for introducing me to the principles of monetary reform, the economist Michael Rowbotham and his masterful and enlightened work Grip of Death, and to Abraham Lincoln for his Monetary Policy. Stephen Cook
5
How to Get Your Country Out of Trouble – Part One
6