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Interest and credit: the root cause of economic problems

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The economic problems we face now, again lead to a discussion of capitalism versus socialism. We have seen that both economic systems have their limitations. Supporters of capitalism will argue that the problems we have, are caused by government intervention in the markets. Proponents of socialism will argue that the problems we have, are caused by too little regulation of the markets. Both arguments seem reasonable but they conflict. My conclusion is therefore that this is a false debate, and that the real cause lies somewhere else.

If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilograms of gold. This is 1.9 * 10^27 cubic metres of gold weighing 317 times the complete mass of the Earth. This simple example demonstrates that interest on money is unsustainable and leads to crisis.

Credit makes it possible for an economy to grow above potential during a boom phase. In the boom phase investors add leverage using credit which further intensifies the boom, creating shortages of materials and labour resulting in rising prices. Interest on money entices banks to lend money to leveraged investors during the boom phase. Credit is the creation of money out of thin air, which fuels the boom. When the cycle turns into bust, investors start to deleverage, which further intensifies the bust, creating surplusses of materials and labour resulting in falling prices.

What most economists do not see, is that credit and interest on money are the root causes of economic booms and busts. Most people do not realize how bad the economy really is. The mainstream media are associated with government and business interests and therefore are not necessarily telling the truth as it is, especially when the truth could disrupt the current social order. The real unemployment rate in the US is already above 15% if the same calculation was used as was done before Bill Clinton became president. The number will rise further as the US economy unravels completely in the near future.

Even comparisons with The Great Depression do underestimate the real magnitude of the problem. The main differences between The Great Depression and the current economic situation are:
1. Markets were relatively free before and during The Great Depression, so market forces could correct imbalances. Now markets are completely rigged and therefore markets cannot correct imbalances until the system breaks down completely.
2. Before The Great Depression, people had more savings and government budgets were more balanced. Now many people and governments are deeply in debt.
3. Before The Great Depression, living standards were relatively low compared to now, and less people were living in cities, so people could adapt more easily to the new situation. People in the US today are living in cities, accustomed to a high standard of living and deeply in debt.

However the problem can be solved easily. The depression can be over in a few months. The economy can grow constantly at maximum potential. Unemployment can be a phenomenon of the past, forever. Government intervention in the economy can be a phenomenon of the past, forever. Inflation can be a phenomenon of the past, forever. As the US economy is heading for unprecedented disaster, the opportunity for a real change is arising. You can read more about this here:

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http://www.naturalmoney.org

I was born in a village in the East of the Netherlands and have lived in this region as a child. I studied Business and Information Technology and Philosophy of Science, Technology and Society in Enschede, which is also in the East of the (more...)
 
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