Department of Fish and Game, Nobel prize winning economists, and fifty year old fisherman discover the cause of the 2008 financial crisis is ... shark poop!

::::::::

Banks and “Money” 

If a bank lends ten dollars and charges a dollar interest, then the borrower must repay $10+1.  No problem if the monetary system contained $100,000,000 of non-debt based money to begin with.  The borrower can obtain an extra dollar somewhere from the pool of permanent money circulating in the economy to repay his loan.

However, contrary to what most people think, when the bank “lends” the $10, it doesn’t come out of the $100,000,000.  It is “credit”.  The borrower’s promise to repay (the signed loan document) is used to justify creating $10 of bank credit (borrower debt) in a bank account.  That “credit” is indistinguishable from the permanent money, and so it is in effect money, too.  This is what people mean when they say, “Banks create money”.  It is true; they do.

Now, temporarily there exists $100,000,010, and gradually as the loan is repaid, the amount reduces back down to $100,000,000, the credit is extinguished and only the permanent money remains once again.  But, one dollar has changed hands from the non-financial world to the financial world.  At the end of the loan period, there is $100,000,000 permanent money again, $99,999,999 + $1 paid in interest to the bank.

 

Sounds pretty benign, eh?  The problem is that the mathematics looks radically different when the modern fractional reserve banking system is examined.  Without getting into all the gory mathematics, which in my experience most people cannot stomach without first downing a quart of expresso or Jack Daniels first, depending on their favorite vice, let it suffice to say that some permanent money exists in the system, but it is relatively insignificant.  That bank “credit” money now makes up 97%-99% of all money and permanent money makes up maybe 1%-3% of all money.

 

Let’s say $75 trillion exists, and 2% is permanent money.  That’s $73.5 trillion dollars worth of bank credit, and $1.5 trillion of permanent money.  I would be willing to bet there isn’t that much permanent money, but it doesn’t really matter.  Close enough.

 

People are paying interest on $73.5 trillion of bank credit.  The credit created the principle, but not the interest.  So, the people must fight over the $1.5 trillion of permanent money to get the interest needed to make payments on their loans.  Let’s just say the average interest rate of all loans is 5% per year.  That’s $3.675 trillion per year, out of $1.5 trillion of permanent money.  It is not possible.

 

So, what do the banks do?  Lend more money, of course, so people can go deeper into debt but at least they can still make their loan payments.  Does that sound like a pyramid scheme?  Of course it does.  That is why the pyramid is on the one dollar bill.  It is one big inside joke.  Once this system is in place, gradually indebtedness grows until bank credit displaces permanent money as the dominant form of money, and people and Government become permanently indebted to the banks.  The banks own us individually and our Government, too.

.

Inflation and Economic “Growth”

. 

There are important consequences, side effects, as well to the creation of credit-money by banks.  One is inflation. The fact that banks must keeping lending in ever greater amounts causes what is called “monetary inflation”, or “debasing of the currency”.  It’s inflation of the money supply or taking the money off the basis of permanent money (debasement).  That is one kind of inflation.  But, there are two kinds of inflation.  The second kind of inflation is “price inflation”.  That is what everyone perceives as general price levels: of housing, cars, food, gas, rent, labor, etc. 

 

Roughly speaking, there is an equivalency between money supply and general prices.  All else being stable, if money supply increases, so do general prices.  But, economies are dynamic.  Not all else remains stable.  If the money supply increases, general prices do not necessarily rise; it is possible that population and productivity rise as well.  In that case, the increase in the money supply may be spread out over a greater number of people, products and services, and equivalency between money supply and general prices is maintained. 

 

That is why Government and Wall Street are fanatical about and obsessed with “economic growth”.  With monetary inflation an inherent part of the banker’s credit-based money system, economic growth is absolutely necessary to compensate for their pumping up of the money supply.  Otherwise, it would become that much more obvious how basically fraudulent their system is.

 

Now, bankers are like everyone else, greedy when it comes to money and wealth.  They tend to over-reach.  When they lend more money, the existing money in circulation becomes worth less due to the first kind of inflation, but some of that loss in value can be hidden by population and economic growth.  They cannot stop that kind of inflation.  It’s how their system works, mathematically.  But, sometimes they can hide it with “growth”.

 

The bankers and politicians, too, have learned a little trick though.  Lending more money does tend to stimulate the economy, temporarily, so they ALWAYS lend even more, especially in an election year.  A problem is, although a boost in credit does tend to goose the economy, the greater the ratio of credit to permanent money, the less effect each boost in credit has.  Even with real economic growth, year after year, they still expand the bank credit (debt-based) money supply too much, and we consistently get price inflation as well as monetary inflation .  That is why a dollar has lost 95%-97% of its purchasing power by various estimates since 1913, the establishment of the Federal Reserve.

.

Bank Credit and Economic “Crises” 

.

There are a host of reasons why this credit-money system is bad, even when it is working at its best, which is when it is very small compared with the permanent money supply.  Consider what is happening today, when the credit-money supply is huge with respect to the permanent money: a full blown financial crisis, a money-supply crisis.  I say money-supply crisis and not dollar crisis, because money-supply is more fundamental than dollar value.  The dollar’s value depends on the money-supply.  Money, real permanent money, is in short supply.

 

Back up.  Remember what happened to that $10 of bank credit created by the bank and lent out.  When it was paid back, it disappeared.  It disappeared because it was never real to begin with.  It’s only tangible reality was that the bank created it and the borrower promised to repay it.  It was temporary money.  Once repaid, the cycle was complete and it vanished out of existence into nothingness the same way it came into existence from nothingness.  The permanent money supply never changed, and just $1 of permanent money changed hands.

 

Imagine what would happen if $73.5 trillion would vanish back into nothingness, the same way it came into existence and only the $1.5 trillion of permanent money were to remain.  Obviously, such a collapse in the money supply would wreak havoc on the real economy.  Loans, contracts, prices, payments, etc, everything of a financial nature would be in chaos.

 

So, if that is happening, why is it happening?  Let’s go back to the fact that this system requires an ever-increasing supply of bank credit (all bank credit is somebody’s debt) relative to the permanent money supply.

.

Shark Poop 

.

Interest payments to the banking system are like a big Great White (GW) shark (no relation to GWB) that feeds on small, fast, agile fish (the permanent money supply).  The shark takes a bite out of the fish population, but there is only one shark to begin with.  The shark is small, and the fish population is relatively large.  The shark feeds well and spawns baby sharks.

.

Soon the growing population of sharks is putting pressure on its food supply, and some sharks are getting big and having trouble catching the small, fast, agile fish.  Luckily, the sharks have been producing something of their own.  Call it fertilizer (credit), which causes other little fish (borrowers) to grow.  These little fish that eat shark poop are slow and clumsy, and even seals have been feeding on them and growing fat.  The biggest sharks can then feed on the fat seals, and the baby sharks can feed off the slow clumsy fish that all the sharks have caused to grow with their fertilizer.  These fertilizer-fed fish are not very smart either.  The sharks and seals are able to train them to swim right into their mouths, so they do not even have to chase them.  That is why the seals are so fat, and the sharks are even fatter.  They really love fertilizer-fed fish, and fat seals are even better.

 

The problem with this ecological analogy is not that the shark, seal, and fish population cannot keep increasing forever.  Obviously, it cannot.  Natural populations can theoretically stabilize when the carrying capacity of the environment is reached.  The banking system cannot do that.  Mathematically, the banks cannot maintain a stable money supply.  The money supply must increase or there will not be enough money to repay loans with interest.  Sooner or later in the real economy, there will be a point when the people encounter an obstacle to economic growth, people decide it might be better to wait, and not to borrow so much money.

 

For the sharks, that is like saying sooner or later there will be a point where the little fish encounter an obstacle to growth and decide not to eat so much fertilizer.  Well, the sharks just keep growing and eating and putting out fertilizer, the more the merrier because that is just what sharks do.  It’s their nature.  They don’t realize what is going on.  The little fish are not eating all the fertilizer, but the sharks just keep pumping it out.  All this uneaten fertilizer must go somewhere and the little fish are not eating as much of it, so most of it goes to the bottom where crabs make little toxic sludge sand castles out of it (derivatives) or is eaten by sculpin, stonefish, sea slugs, and a host of other exotic but inedible bottom feeders (any number of pointless mal-investments), that cannot or will not give anything back to the sharks when they come looking for seals or fish to eat. 

 

Meanwhile, the sharks are not too worried about the little fish population, especially the big sharks; they hardly notice the fish population is in trouble.  They are too busy eating all the seals first (the industrial base).  But eventually, after nearly all the seals are eaten, the sharks become so alarmed at the falling fish population, they get scared poop-less and stop producing hardly any fertilizer all, which causes the fish population to plummet even more. 

 

When things get really bad, the big sharks start eating the small sharks and even turn on each other.  The craven sharks even go hat-in-hand to the whale, and beg him to go catch great gobs of small slow clumsy fish (that are wising up and refuse to swim into the sharks jaws anymore) with his huge mouth, and puke them up so they do not starve.  The fish complain to the whale it is not their fault the sharks are hungry.  Times are tough.  The fish population is suffering, and the whale will be back on a regular basis to fill up on fish to feed the sharks.  The whale explains to the fish, it is for their own good, but the fish fail to see how, and keep complaining.  The whale is less worried about the fish than he is about what the sharks might do if he does not comply with their “request”, so he agrees to puke up the fish and catch more. 

 

The sharks stop eating each other, at least temporarily, and now expect to be fed by the whale the next time they get in trouble.  When will the sharks feel like pooping again?  Will the small slow, clumsy fish feel like eating?  I do not know.  But the small, fast, agile fish population was never in danger.  It was permanent, and it was never involved in the shark poop/slow fish fiasco.

.

Back to Reality 

.

Getting back to the real monetary-crisis.  A number of economic issues caused people to worry about the economy and their own financial future.  They decided to borrow less than they had been previously, meaning banks lent less, meaning less bank credit-money was created, meaning less money circulating and bidding up prices for goods and services, meaning prices began to drop, notably housing, meaning people began to default, meaning bank reserve ratios dropped, meaning banks got scared to lend, meaning even fewer loans and even less bank-credit money was created, etc.  Meanwhile, people continued to pay down existing loans, and every time they did that, principle is extinguished (remember the $10?).  It’s the credit money supply shrinking.  You would have to study the details of fractional-reserve banking, required reserves, and bank capitalization requirements to understand why that implies bank failures, too.

 

It’s like the first Great Depression, but it might be worse because the arrogant Fed thinks it has the solution to an insoluble problem this time.  The first depression was caused by the inherent inability of the banking system to tolerate anything less than constant growth of the money supply.  A slowing of the money supply caused the pyramid scheme to collapse.  This time the Fed thinks the solution is – just create more credit money and the money supply will never drop.  Sorry, stupid Fed.  The drop in money supply is not a cause; it is an effect.  Increasing credit is not the cure; it is the problem.

 

Hopefully, you can see now that the housing collapse is not a cause of the problem.  It is a symptom.  Bank failures are symptoms, too.  So are derivatives and companies based on foolish business models (mal-investments) that will never show a profit.  All this financial instability, all these bad financial problems are symptoms, results of a 400 year old banking pyramid scheme, fractional reserve banking, that puts out temporary money – credit - that cannot be paid back with interest without an endless exponential increase in such credit.  This system is worldwide, now.  Hence, we have synchronized world-wide collapse of the monetary system, in progress.  Just turn on the TV and watch; it’s happening in real time.

 

For Paulson to request and Congress to approve $700 billion in more credit is a bad joke.  The economy is drowning in shark poop, and the only solution everyone talks about is to how to get the sharks to poop more, or feeding the sharks.  Yes, as the money supply drops, liquidity is needed, but not liquid fertilizer, of which supply so many fish depend on the moods and needs of sharks.  Unstable credit money is not the solution to our problems; it is the cause.  What is needed is a permanent solution, and that requires a permanent money supply, either to replace or work in parallel with the existing system until the existing system can be phased out.

 

Seems like just the right time for a REAL CHANGE to me.  What do you think?

Authors Bio:

Merchant marine experience on ocean research and oil exploration vessels in my youth. Ex-mechanical engineer, oil exploration equipment industry, commercial and military aerospace industries, SCUBA diving and respiratory protective breathing apparatus industries. Sport skin diver, spear fisher, scuba diver, fisherman, boat owner, football player, tennis player, husband, father, math teacher. Ex-Republican, not a fan of the Democratic Party either. Not very impressed with the reasoning ability of Progressives either, who seem gullible and incapable of envisioning the negative consequences of trying to create Utopia by law, but have a soft spot for them anyway because their heart is often in the right place. Long time interests include: political philosophy, ethics, economics, banking and monetary systems, criminology, the Second Amendment and gun control.