Why the financial pyramid is finally collapsing

Finance has been around for a long time, in fact since money was invented.

Think about this: you find yourself stranded with nine people on a desert island. To organise their survival, all ten decide on work sharing. One will fish, another will cook, another will build huts and maintain them, etc. There is no need for money; the implicit assumption is that each person provides a service to the other nine which is of equivalent value as what he gets from each of them.

Now suppose No.4 starts producing works of art, on top of his agreed duties. He may do it for free. But suppose his ego pops its head up, and he begins to hint that he would like some compensation for his extra input.

The group then invents money: on a piece of stone, numbers are engraved to show No.4’s credit on his companions. They now all recognise a debt towards him, and this debt is an asset for him. If No.7 starts making clothes, in addition to his own duties, he too will claim a credit. No.4 and No.7 will now be able to trade their credits between them. On this island there is now money and debt, two sides of one medal.

Stretch your imagination and extent the process to the whole of mankind. The piece of stone with engravings is the banking system, with the Central Bank in the middle. All the banking system does is to create debts and credits, which are pure social conventions (supported by the legal system).

You want to borrow to buy a car; your bank creates the amount of money you need out of thin air and lends it to you (by a simple bookkeeping entry: debit loan to you / credit your current account). And when you pay for your car, if the seller has his account with another bank, a transfer occurs in the books of the Central Bank from the account of your bank to the account of the seller’s bank. And if there are too many transfers out of your bank, your bank simply receives a loan from the Central Bank.

So far so simple, but notice a key point: not only will you have to repay your loan, you will also have to pay interest. And, whereas the amount of your loan has been created by the bank, no extra amount has been created for the interest. So how can it ever be paid to the bank?

Only by you succeeding in extracting more money from holders of accounts with a positive balance than was created at the time when you received your loan. If you succeed in extracting this extra, other players somewhere in the big game of the economy will be short.

Don’t worry, banks have the remedy: more debt, and therefore more money in the system. But, if you think about it, this means that the system has to keep growing, for it is a pyramid, a Ponzy scheme. And for the financial system to keep growing, the “real” economy has to keep growing: more cars, financed by more loans, more houses, more travelling, more of everything and anything.

Got the drift? The growth of the (purely virtual) money and financial system and the growth of physical economic activities are intertwined. They cannot be stopped, or the whole set-up collapses.

After a gradual build-up that took many centuries and accelerated tremendously in the last three decades (when global capitalism was granted a free run) the whole system is reaching tipping point: the pack of cards is totally unstable and can only fall down. Do not believe a word of propaganda from the banks or from political leaders; we are reaching the end of the game.

But now go back to the hypothetical desert island and your nine companions. Everything was fine as long as barter and free gifts formed the social contract. Trouble started when the ego of one claimed more than an equal share. Mankind’s economic problem can only be fixed with a fundamental change in mentality, in attitude towards others: no ego, no competition, no accumulation by a few. This is so fundamental that it touches spirituality, for spirituality carries the central idea of oneness in the universe. Animals, plants and stones on the desert island have the same value as the ten Robinsons: all are part of nature, part of one universe of energy and consciousness.

Does that make sense to you ?

Fear not and keep well.

Leo

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