The Crash Course - Chris Martenson [30]
I’m not going to cast judgment on this system and say whether it’s good or bad. It simply is what it is. By understanding its design, though, you’ll be better equipped to understand that the potential range of future outcomes for our economy are not limitless; rather, they are bounded by the rules of the system.
All of which leads us to another concept, the idea that perpetual expansion is a requirement of modern banking. Without a continuous expansion of the money supply (via credit expansion), all sorts of trouble emerges within the modern banking system, including debt defaults, which are the Achilles heel of a leveraged, debt-based money system.
Just to be clear, I’m not saying that this requirement to expand is written down somewhere, neither etched in legal stone in the basement of the world’s centers of power nor forever enshrined in Google’s search cloud. Instead, I use the word “requirement” in the same way that your body requires oxygen. Yes, the system can operate for brief periods without it, but it’s a lot happier and more productive with it.
By understanding the requirement for continual expansion, we are in a position to illuminate the future and make informed decisions about what is likely to transpire.
1 Some argue that there is enough money to pay back all of the loans, but this is only true under highly unrealistic conditions, where every loan creates goods or services that are bought by the bank or bank shareholders, who buy them with interest payments that are perfectly recycled to the very same people who took out the loans. I call this the “theory of perfect interest flows.” While theoretically possible, it is not at all realistic and is therefore something of an intellectual parlor trick. Under this model, nobody can ever take out a purely consumptive loan, undertake a failed business venture, or save money without spending it. As soon as any of these three things happens (and they happen all the time in real life), there’s not enough money to pay off all the loans. Suffice it to say that this vision of “immaculate interest flows” is an interesting thought experiment, but it is not at all useful in understanding how the system operates in practice and is therefore not terribly helpful as a way of understanding the current situation or future risks.
2 I know that I have skipped over a number of details, some of them quite important for the sake of accuracy, but we’ve covered enough of the process for the purposes of this book. For more complete explanations please see the Crash Course at www.chrismartenson.com/crashcourse.
3 This chart uses the M3 data series from the Fed up until March of 2008, when it was discontinued. No further M3 data is available from the Fed, although a number of private firms still construct and follow this data series. Using their data to continue the graph does not alter the conclusions; the money series displays nearly perfect exponential behavior.
4 Again, for those who prefer data over theory, consider that in the United States at the end of 2009, there were more than $52 trillion of total credit market debt, but only approximately $14 trillion of money (and money equivalents). This means that we now have far more debt than money.
CHAPTER 8
Problems and Predicaments
John Michael Greer makes a very important distinction between two common but critical words: “problems” and “predicaments.”1 This terminology is important, especially in an urgent situation, because knowing whether you’re facing a problem or a predicament is integral to shaping your understanding of and response to the situation.
The distinction boils down to this: Problems have solutions; predicaments have outcomes. A solution to a problem fixes it, returning all to its original condition. Flat tires get fixed, revenues recover, and bones mend. Once a suitable solution can be found and made to work, a problem can be solved.