Back after a long and well deserved vacation, which I will write about in a longer article soon. In the meantime, I return to my regular commentary on current events with this post about the massive debt being carried by all the world's nations...My question: Who do they owe all this money to?
News about the debt problems of Dubai, Greece, Spain and so many other countries prompted me to look up the debt situation in the world this morning. Wikipedia was quick to provide the answer with a nice table showing the indebtedness of all nations and listing debt as a percentage of their GDP.
It was no surprise to learn that the U.S. was the world's greatest debtor, with over $13.7 trillion owed. (95% of our GDP). The UK was in second place owing $12.6 trillion, a staggering 374% of their annual GDP! The list went on and on...Germany, France, Spain...the Western nations simply awash in debt. But India and China, where most people live, only had a combined debt of half a trillion, just a tad over 5% of their respective GDPs. The only nations who were not in debt were tiny states: Brunei, Leichtenstein and Macau, where neither country reported any outstanding national debt or budget deficit.
So all this begs the question in the title of this post: If the whole world is carrying these massive amounts of debt, with huge budget deficits to boot, to whom is all this money owed? The answer: they owe the money to each other! (The U.S. borrows billions each day, from states like China and Japan. But how did China and Japan get themselves into debt then? Again the answer is simple: Banks, and the whole system of fictional money creation we call "banking."
Loans, you see, are not made with real money that banks take from their vaults, money held there in safekeeping from all your deposits. When a loan is made the bank simply creates the money, and the debt, by keystroke on a computer. They have created loans and debt that exceed their actual deposit base by at least ten times.This is the sleight of hand magic trick now called "fractional reserve lending." It also means that all the money you presently think you have in your bank account simply isn't there--it was lent out long ago.
Since all these loans are made with an interest fee due, there is never really enough money in the system for them to ever be paid back. The banks create the loan money, but not the interest money. The net result of this shenanigans is what you will find on the national debt table in Wikipedia. Every nation owes money to someone else, but none reports a positive balance! Amazing! It's as if the entire debt burden of the world, and all the attendant misery it has caused, is simply nothing more than a shady gentlemen's agreement, nothing more than numbers in a computer...pixels.
So the odd thought occurred to me, strange as it may sound--why have this big economic crisis? Why don't we all just start over? Let's have a big meeting at the UN instead and simply declare that all debts, public and private, are hereby absolved. No one owes anyone anything. We all start fresh. Then we tell the banks that fractional reserve lending was fun while it lasted, but now it's over. We only allow them to lend actual deposits. The end.
The simple reason this will never happen is that the wealthy would not like it. Wealthy people are simply folks who have more money owed to them than most others. Repudiating debt would also erradicate their pixelated "wealth," so they would never want this to happen. The wealthy depend on debt, and debtors, to remain wealthy. End of story. And this is why we have the "system" we have...and why most people live hand to mouth in this world, largely impoverished, so the tiny fraction at the top can play with the balances in their spreadsheets.
We call this "The miracle of capitalism."
News about the debt problems of Dubai, Greece, Spain and so many other countries prompted me to look up the debt situation in the world this morning. Wikipedia was quick to provide the answer with a nice table showing the indebtedness of all nations and listing debt as a percentage of their GDP.
It was no surprise to learn that the U.S. was the world's greatest debtor, with over $13.7 trillion owed. (95% of our GDP). The UK was in second place owing $12.6 trillion, a staggering 374% of their annual GDP! The list went on and on...Germany, France, Spain...the Western nations simply awash in debt. But India and China, where most people live, only had a combined debt of half a trillion, just a tad over 5% of their respective GDPs. The only nations who were not in debt were tiny states: Brunei, Leichtenstein and Macau, where neither country reported any outstanding national debt or budget deficit.
So all this begs the question in the title of this post: If the whole world is carrying these massive amounts of debt, with huge budget deficits to boot, to whom is all this money owed? The answer: they owe the money to each other! (The U.S. borrows billions each day, from states like China and Japan. But how did China and Japan get themselves into debt then? Again the answer is simple: Banks, and the whole system of fictional money creation we call "banking."
Loans, you see, are not made with real money that banks take from their vaults, money held there in safekeeping from all your deposits. When a loan is made the bank simply creates the money, and the debt, by keystroke on a computer. They have created loans and debt that exceed their actual deposit base by at least ten times.This is the sleight of hand magic trick now called "fractional reserve lending." It also means that all the money you presently think you have in your bank account simply isn't there--it was lent out long ago.
Since all these loans are made with an interest fee due, there is never really enough money in the system for them to ever be paid back. The banks create the loan money, but not the interest money. The net result of this shenanigans is what you will find on the national debt table in Wikipedia. Every nation owes money to someone else, but none reports a positive balance! Amazing! It's as if the entire debt burden of the world, and all the attendant misery it has caused, is simply nothing more than a shady gentlemen's agreement, nothing more than numbers in a computer...pixels.
So the odd thought occurred to me, strange as it may sound--why have this big economic crisis? Why don't we all just start over? Let's have a big meeting at the UN instead and simply declare that all debts, public and private, are hereby absolved. No one owes anyone anything. We all start fresh. Then we tell the banks that fractional reserve lending was fun while it lasted, but now it's over. We only allow them to lend actual deposits. The end.
The simple reason this will never happen is that the wealthy would not like it. Wealthy people are simply folks who have more money owed to them than most others. Repudiating debt would also erradicate their pixelated "wealth," so they would never want this to happen. The wealthy depend on debt, and debtors, to remain wealthy. End of story. And this is why we have the "system" we have...and why most people live hand to mouth in this world, largely impoverished, so the tiny fraction at the top can play with the balances in their spreadsheets.
We call this "The miracle of capitalism."
