Debt fu­els a poor re­sult

Townsville Bulletin - - OPINION - RON WAD­FORTH, An­nan­dale.

HERE in a “nut­shell” is all we need to know about how the process be­hind the sorry state of na­tional fi­nances in Greece and around the world de­vel­ops (“We can’t get caught by the Greece trap”, TB, 2/ 7/ 15).

Cen­tral banks in­ject cur­rency into the econ­omy at in­ter­est. It can be ac­cel­er­ated by eas­ing lend­ing stan­dards, re­duc­ing in­ter­est rates, and the di­rect pur­chase of gov­ern­ment bonds.

These ac­tions all in­volve the cre­ation of money “out of thin air” and al­ways re­sult in a gen­eral price in­fla­tion and/ or as­set bub­bles in real es­tate or stocks.

Par­al­lel to “mon­e­tary pol­icy” is “fis­cal pol­icy”; which usu­ally in­volves gov­ern­ments spend­ing ( and bor­row­ing) ex­ces­sively in or­der to fi­nance oper­a­tions.

The short­fall ( deficit) is par­tially cov­ered by the sale of bonds to the cen­tral banks which print the money to buy the bonds.

Be­cause 100 per cent of cur­rency is in­jected into the sys­tem via pri­vate or public loans, all money sup­ply is debt.

Out­stand­ing loan prin­ci­pal plus com­pound in­ter­est must there­fore al­ways be greater than the to­tal money sup­ply.

There­fore, debt can never be paid back. In cen­turies past, this was called usury and was of­ten banned. Prin­ci­pal plus in­ter­est equals money sup­ply.

As bub­bles de­velop and/ or in­fla­tion in­creases the money sup­ply ( lend­ing) is tight­ened. A “liq­uid­ity cri­sis” de­vel­ops as a grow­ing num­ber of bor­row­ers, both public and pri­vate, must sud­denly scram­ble to get their hands on enough new debt- money to re­pay old loans.

As loans are paid back into the bank­ing sys­tem, the money bub­ble de­flates. Bank­rupt­cies surge and mar­kets crash as fright­ened de­pos­i­tors “run on the banks”. The eggheads re­fer to this as a “cor­rec­tion”.

To “pro­vide liq­uid­ity”, (“pal­lia­tive”) cen­tral banks re­turn to Step 1 and re­peat the process. And on and on and on the mad­ness of “eco­nomic cy­cles” and debt con­ta­gion con­tin­ues decade af­ter decade af­ter decade. It is that sim­ple! We can keep dis­cussing treat­ments but if you want to pre­vent the sick­ness, the time to have a na­tional dis­cus­sion on money re­form is now.

So, what is the “cure”? That’s sim­ple too!

Abol­ish the cen­tral bank and abol­ish all forms of con­sumer ( not com­mer­cial) lend­ing at in­ter­est. Apart from the sound com­mer­cial loans which will fuel fu­ture pro­duc­tiv­ity and growth; is­sue debt­free cur­rency from the Trea­sury in di­rect one- to- one pro­por­tion to an­nual pro­duc­tiv­ity lev­els.

New cur­rency can be in­jected into the econ­omy through a com­bi­na­tion of “use­ful” public works projects, in­ter­est- free home loans, grants and di­rect tax re­bates.

CASHED OUT: A re­tiree in tears out­side a na­tional bank branch in Greece.

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