More Debt than Money:

The impossible contract.

The Politicians Guide to Money System Collapse


Andrew Chalkley




This book is close to finished. Please send me any needed adjustments before I publish it.

Whilst writing a pamphlet for the Occupy Group, I quoted some official statistics that appeared to be incorrect. One was that the average debt in Australia was $34 000 [2012 Now $41 000]. My experience as a Mathematics teacher led me to reason that it should be zero. Some people put money in the bank. Others borrow money from the bank. The average should be zero. If the average debt was $34000, there must be more money borrowed than there is money deposited in the bank. It did not seem logical that there could be more debt than money. I created a few methods to demonstrate that this is indeed true: There can be more debt than money. I then realised that the answer was there right in front of me in the official statistics: I had spend many hours trawling the Reserve Bank of Australia statistics pages and many other sources and realised that the phenomenon was in plain sight. The Reserve Bank to that date had created $67 billion in cash folding currency. Most of this would be in peoples' back pockets. This is the total of all money created by the Reserve bank to that date. The total of all the money in the nation is listed as the money supply and equaled $1760 billion. Thus the money in bank accounts did not come from the Reserve Bank. The banks are ending out money that did not come from the Reserve Bank. But that is not where the problem lies. The combined debt of the government and the citizens equals close to $5400 billion. Thus there is three times as much debt as there is money. This is an astounding discovery and I had to search far and wide to ensure that I had not made an error. Every country I looked at had the same phenomenon of more debt than money. Europe has about two and a half times as much debt as money. Greece about three. USA was an astounding three and a half and rising. When I combined the figures obtained for countries of the world the average was two. The world has twice as much debt as there is money. The debts are both un payable and uncollectable. Any attempt to repay would reduce the vital Circulating Money to zero. So the debts are unpayable for two reasons. One: because there is more debt to pay off than there is money to pay those debts and Two: because any attempt to pay the debts would cause money to disappear.

It then turns out that we can live with all this debt and we can live with debt that is impossible to repay. But we cannot live with a collapsed money system. When we changed from living as hunter-gatherers to living in small communities, we invented numerous procedures. I have so far worked out these:

We needed a set of rules. Those that created the rules were called the religious people. They tied the rules in with spiritual stuff that fitted with the way the human mind works. If you are good, you go to heaven. If you are bad you go to hell. God is fits into the picture quite well as there is clearly a place in the human mind for a god like figure.

We developed agriculture so that food came to us rather than us going to the food.

We learnt that: if we tied one man to one woman, the energy of the male was harnessed. More on this latter.

We invented money as a temporary store of money to overcome the inefficiency of barter. A strong authority issued money tokens in barely adequate numbers to hold the value of a transaction until the next transaction.

He have constantly had problems with all the listed items over the last 5000 years of civilisation and we are currently breaking quite a few of them at present. Our food is not as healthy as it might be. Its supply depends on money and finance. It's supply is not secure.

It turns out that a collapse of the money system causes a collapse of society faster than a collapse of the other items on the list. 70% of US jail inmates were brought up in a single parent family, which is a modern euphemism for a female headed family.Large numbers of children in the US do not know who their father is. Strong family units are essential for a sustainable society. No fault divorce and inappropriate media are breaking the family unit. But nothing breaks society faster than a collapse of the money system. At the end of the Roman era, the money supply fell to one twentieth of its former value. Their extensive credit system collapsed which left them with only the coinage. They descended into the Dark Ages and there was great loss of life, basically by starvation. It took a long time to recover from this. Another collapse occurred when the Venetian banks collapsed in 1345. Credit and debt had already damaged society as the dispossessed crowded into cities. The disabled society did not have the ability to ward off the plague and one third of the population of Europe died. The collapse follows a pattern. Government creates coins and notes. The people being short of money, borrow it in the form of credit written in ledgers. No one realises that the credit is for money that does not actually exist. When you borrow a million dollars to buy a house, the lender writes one million dollars with a plus sign next to it in the house seller's account and one million dollars with a minus sign against it in your account. From that moment, there is one million dollars more money in the nation and one million dollars more debt in the nation. The debt is then magnified with interest to create a situation where there is more debt than money.

This problem has been recognised from early civilisation and most of the great prophets were actually money reformers. Moses said that: "Thou shalt not lend under usury to thine brother" meaning that you should not lend money and expect a greater amount in return. 'Brother' indicates people in your own community, society or religion. He also said "Thou mays lend under usury to a stranger or foreigner." This clearly shows that he condoned the impoverishment of foreign groups. He also states: "Thou shalt rule over many nations and none shall rule over you." Thus the Old Testaments contain much evil. There is a lot of 'strike the down' type statements. This led to the genocide of the Canaanites. This is a bit disingenuous considering that the Israelites had been freed from debt bondage under the Egyptians, moved to another area and displaced the inhabitants and practiced usury on them.

Over the years of civilisation, humans had learnt many ways to take advantage of the imperfect nature of money. Money became hoarded, monopolised, extorted, duplicated and counterfeited, besides being lent at interest. The practice of usury has expanded to making money from money.

Jesus came along and effectively said "You people are doing things wrong. You must start being nice to each other." He stood up against the authorities by throwing the money changers out of the temple. It appears that he was not just standing against the practice of usury, but against the practice of making 'money from money' and injustice in general. He died standing against injustice particularly monetary injustice. This differs slightly from the teachings of the church.

Mohamed arrived and had a better understanding of money brought about by his understanding of long distance trading and business in general. He clearly understood that business needs money before it can earn money. The Koran is also the only book I can find that talks against the problems caused by the hoarding of money. I have created a procedure where I class money that is held in bank accounts for more than one month as Hoarded Money. It then become easier to understand the mechanisms of hyperinflation, recessions and depressions and the methods that should be employed to recover from such a financial phenomenon. By considering Hoarded Money in relation to Circulating Money, it takes straightforward rezoning to see how these issues arise, what situations make them likely and how current recovery methods are often counter productive.

I have puzzled out that in the current era, it is not the debt that is the problem. We can live with debt. We can also live with unpayable debt, but we cannot live with financial collapse. Our system, at present, is remarkably close to the ideal characteristics for a financial collapse. Yet there is no preparation for such an event and neither is there any inbuilt procedures to prevent catastrophic collapse. Yet such precautions are comparatively simple and straightforward.

The simplest is a reinstatement of Glass Steagall. This was a set of rules implemented by President Roosevelt to recover from the great Depression of the 1930's. This rule required banks to declare whether they were Commercial Banks or Investment Banks. Commercial Banks are typified by the high street banks that lend to homeowners and local business and operate the payment system which underpins out modern money system where balances are moved from citizen to citizen to effect payments. They effectively enable the real economy which feeds, clothes and houses us. Investment Banks operate to make 'money from money' in a financial world in a money making arena that does little to benefit the real economy and much to damage the savings of citizens and the organisations on which the citizenry rely. In the event of a collapse of the Investment Banks, the Commercial Banks would be protected in a manner that would prevent a collapse of the payments system and the savings of the working people.

The mechanisms of hyperinflationary collapse are not well documented. My calculations are that in many nations the volume of Hoarded Money is in excess of ninety percent. Rarely is it under eighty percent. That is only ten percent is circulating and changing hands more often than once a month. This creates a variety of issues. The Hoarded Money may sit in bank accounts for years. Thus more debt is required for adequate Circulating Money to be present in society. For every $1000 in use, whether hoarded or circulating, $3000 of debt is held by other persons. At ten percent interest, that would require $300 interest payments in a year. Thus for each $1000 in society, there is around $300 in interest fees in a year. If only ten percent is circulating in the real economy, we get a situation where for each $100 of Circulating Money in the real economy, there is $300 in interest payment. The next level of lunacy is that, during a financial crisis, the Hoarded Money sitting in bank accounts would suddenly try to find something tangible to purchase. Thus, there would be a violent and rapid increase in the velocity of money. This is the very essence of hyperinflation. The Hoarded Money is like the snow on a mountain side waiting to slide down the hill. Any small trigger could cause the landslide. The next issue is that tax is almost exclusively taken from the Circulating Money component of the money supply. The Hoarded Money is almost entirely untaxed. The two big taxes, Income Tax and Sales Tax are entirely taken from Circulating Money. I have graphs that demonstrate that a reduction in income tax, actually increased the volume of tax collected. Interest is also taken from Circulating Money. Quite logically, those with 'more money than they can spend' do not need to beg the banks for credit. Thus interest comes from the vital Circulating Money.

A strange and unpleasant phenomenon occurs when banks reduce lending or citizens become reluctant to borrow. We observe that less than five percent of money is created as cash currency by the government. The government does not use cash currency for its purchases and tax is collected by payments through banks without any recourse to cash currency. Thus the money supply is dependent upon the rate of creation of new loans and the rate of collection of interest and loan repayments. If the issue of credit dries up, the money supply falls which hits the Circulating Money particularly harshly causing a recession. Where there is typical money velocity in around 1, there is less than 10% of the money circulating within one month. A fall in the money supply of 1% would potentially reduce the Circulating Money by 10% which would likely cause a recession of the same proportion. A recession can also be caused by a reduction in velocity. It is correct that a fall in the money supply at constant velocity causes a recession, but the reverse is not the case. A rise in the money supply will not automatically cause a rise in the economy. Any rise in the economy is likely to be taken by the hoarders. The way to correct the situation is to encourage the businesses that have just been burnt by the reduction in Circulating Money. This is entirely out of the hands of government. The main part taken by the government is in taking the blame for the damage done by the banking industry. During a recession, the government often does the opposite of what is needed and raises taxes and cuts spending, under the illogic that debt is the problem. Why would a government be in debt when it has the sole authority to create the money of the nation? Government debt is irrelevant provided it does not increase too fast. The government is borrowing money, primarily by issuing bonds, to obtain bank credit stored as numbers in bank accounts for the purpose of operating its activities. If it is using money created by other than its own enterprise, it might as well take advantage of the situation. Unfortunately, the government does not call the bluff of the banks as did King Henry against the Venetian banks before 1345. The reverse occurs. The creditors play refusal games when bonds (loans) need to be rolled over and demand conditions of the government which I call 'bond bribery'. By refusing to renew bonds, the creditors can claim that the government is bankrupt and demand all manner of concessions. Open door practices then occur where bank employees rotate in and out of government treasuries. Banks start to dictate policy to governments. Banks cause recessions blamed on the incumbent government, when bank directions are not followed. A quick websearch on the terms 'the bankruptcy of the usa in 1933' will be an instructive lesson on the power of banks over governments. You might see the ridiculousness of the statement about a government bankruptcy. How can a government be bankrupt for its own money that has the authority to create? King Louis became bankrupt to the banks for loans of gold, but why was he using gold, when he could have created his own currency, backed by the assets of the nation. Napoleon rectified the situation with the Bank de France creating currency and spending it into society but it earned him the wrath of the bankers who orchestrated foreign armies to harass him. Germany made a similar move by creating an new German Mark equal to one hours labour and not backed by gold owned by banks. This brought Germany out of its hyperinflation but again, war brought an end to the practice.

As I have mentioned, Income Tax and Sales Tax are counter productive to a healthy economy. These taxes punish the productive. There is a particularly punishing regime on expanding businesses purchase extra stock to trade and assets like machines. The business spends income on these items but cannot claim a deduction until years into the future. Thus the so-called Income Tax is actually a Profit Tax which will have the tendency to inhibit expansion or cause business to scurry to the money lenders. Companies also have a mechanism that allows the affluent to purchase call or part of companies through share purchases such that the affluent end up owning the companies without taking any responsibility for the day to day running. It should never be forgotten that money has no value to the creator. A nation needs business but the money to run the business cost nothing to create but the business must pay dues to those that have 'more money than they can spend'. Govern emend should fund business through low cost loans of money created by the government at no cost. The government, after all, gets its return through the tax system. One extremely sensible logical tax is Land Tax. Hong Kong, Singapore, and to a certain extent, Australia were built on Land Tax. Land was created by nature at no cost for all living things to share on a cooperative basis. However, land rapidly becomes in short supply and picks up a value which capitalises all future rental return. Land rises in price wherever there is employment until the money lenders soak up a good proportion of the income of the workers, factories, and farms. This continues until the factories become unviable and production moves to locations where usury of land has yet to take hold. And the process starts all over again. The solution is that the competitive demand for land should place money in the hands of the government to partially replace of economy destroying taxes such as Income Tax and Sales Tax. If I buy bananas, I pay tax. If I buy gold, I pay no tax. Similarly with shoes and shares. Sales Tax needs to be removed and replaced with an all encompassing, but very small tax of less than $1 per $1000 (0.1%) on all transactions including financial transaction. This is very similar to a Financial Transactions Tax which is sometimes called a Robin Hood Tax.