More Debt than Money

Andy Chalkley 2016

We live in a world where there is more debt than money. This debt cannot be paid back, nor can it be collected. The citizens are in an impossible contract to the banks and the banks are running insolvent. However, we can live with debt, we can live with impossible debt, but we cannot live with a monetary collapse. The efficiency provided by a money system enables modern civilisation. Our system has all the characteristics required for a collapse. The ability to hold debt is close to its limit and debt is essential to keep the money system fluid. If the money system collapses, expect starvation. The solution is straightforward, but the biggest obstacle will be the self-interest of those making money from money. A major problem turns out to be the imperfect nature of money. Money does not act as an aid to enable transactions, whilst it is used as a store of wealth. The act of making money from money leads to hoarding of money which eventually destroys the economy that gives Hoarded Money its value. My book analyzes the problem, considers history and evaluates the solutions.

The ugly mug of Andy Chalkley

More Debt than Money.
The impossible contract.

Andy Chalkley

Occupy School of Money
2016 | Kindle $9.95
Money | Debt | Economics
View main book page

Table of Contents

The Long Summary
Chapter 1 - Economists Have Failed Us
Chapter 2 - A Public Bank
Chapter 3 - The Definition of Usury
Chapter 4 - Taxation is Good
Chapter 5 - The Inadequate Definition of Money
Chapter 6 - Warnings About the Danger of Money Creation by Private Banking Corporations
Chapter 7 - The Bank of Parrot
Chapter 8 - A Room With Some More Unhappy People
Chapter 9 - A Room Full of Indebted People
Chapter 10- A Room Full of Happy People
Chapter 11 - Quotes about Private Banking Corporations Creating Money
Chapter 12 - Examples of Debt-Free-Money systems
Chapter 13 - Quotes on National Debt
Chapter 14 - Public Bank Example in Australia 1911
Chapter 15 - The Story of the Goldsmiths of Amsterdam
Chapter 16 - Demurrage
Chapter 17 - A Model Representing World Trade
Chapter 18- A Few Thoughts on Usury
Chapter 19 - Sir James Steuart (1767) 'An Inquiry into the Principles of Political Economy'
Chapter 20 - Quotes about Private Banking Corporations and the Money they Create that did not come from the Central Bank
Chapter 21 - Quotes about Banks Creating Money Out of Thin Air
Chapter 22 - Quotes on Bankster
Chapter 23 - Glass-Steagall
Chapter 24 - Random Blog Rants on Banking
Chapter 25 - What is Usury?
Chapter 26 - Collapse of the Roman Empire
Chapter 27 - Extracts from Usury, A Scriptural, Ethical and Economic View by Calvin Elliott 1902
Chapter 28 - Why Are Derivatives Dangerous?
Chapter 29 - Usury in the Middle Ages
Chapter 30 - Australian Bank Exposure and Stability
Chapter 31 - Some Quotes on Usury
Chapter 32 - Ownership of Australia
Chapter 33 - Recessions and Depressions
Chapter 34 - Why was Jesus Crucified?
Chapter 35 - Blog Rants about Usury
Chapter 36 - Quotes and Blog Rants about Usury and the Fall of the Roman Empire
Chapter 37 - Blog Rants and Quotes about Religion and Usury
Chapter 38 - Quotes about Banks and Control
Chapter 39 - Why you can't have a Jubilee
Chapter 40 - Quotes on How Loans are Made
Chapter 41 - Are All Loans Usurious?
Chapter 42 - Quotes on The Effects of Usury
Chapter 43 - Blog Rants About How Money is Created
Chapter 44 - How To Start A New State
Chapter 45 - The Business Card Story
Chapter 46 - The Diamond Industry
Chapter 47 - Quotes about Corporatism
Chapter 48 - Mrs. Sarah Emery 1888
Chapter 49 - Blog Rants about Riba
Chapter 50 - Government Bonds
Chapter 51 - How to Control a Nation
Chapter 52 - Quotes on Trade With China
Chapter 53 - The Usury of Land
Chapter 54 - Complimentary Currencies
Chapter 55 - Islamic Banking
Chapter 56 - Jesus Was a Rebel
Chapter 57 - Moses Was a Money Reformer
Chapter 58 - A Foreclosure Letter
Chapter 59 - Government Accounting
Chapter 60 - Usury as a Weapon of Control and Enslavement
Chapter 61 - Transactions Tax
Chapter 62 - Dead Money Reformers
Chapter 63 - The Bank of England Bulletin
Chapter 64 - Hyperinflation
Chapter 65 - Quotes about Hyperinflation
Chapter 66 - The Absurdity of the National Debt
Chapter 67 - Quotes about Money System Collapse
Chapter 68 - Post Office Bank
Chapter 69 - How to Survive Economic Collapse
Chapter 70 - Demurrage
Chapter 71 - Silver and Gold
Chapter 72 - When Banks Close Their Doors
Chapter 73 - The Financial Collapse of 1345
Chapter 74 - The Solution


More Debt than Money.
The impossible contract.

The Politicians Guide to Money System Collapse
Andrew Chalkley


Introduction and Summary


Dear reader

I assume you want the formula to fix your financial system. To create a solution, it is necessary to understand the way money works for society, for both money and humans are imperfect and the solution, itself, will be imperfect. So a solution is a combination of imperfect components. This is a problem for me as I am a bit of a perfectionist. Money is imperfect because it not able to act as a store of value at the same time as enabling transactions. Money was invented to facilitate transactions and so it needs to act as a temporary store of purchasing power between transactions, but it does not need to hold value any longer than the next transaction. I take you back to a village of old not long after we came out of our hunter-gather stage. Instead of swapping eggs for carrots, we swapped eggs for a universal token as a mode of payment, then walked across town and swapped the tokens for carrots. Humans soon established typical mutual exchange values which we call 'price' and so items have a value measured in tokens. Note that, because every item has a value or 'price', accounts can be created in the common unit of account. This method of mutual exchange is a far superior method of trading that overcomes the inefficiencies of the barter system. Money enables efficient transactions, enables us to set 'values' in the marketplace and, to do so, acts as a temporary store of value. The process works well until someone holds onto the tokens for too long, to use them as a store of value for future use. This hoarding inhibits the exchange of eggs for carrots and so we have the first imperfection of money:

   Hoarding inhibits transactions.

The tokens only need to maintain value for as long as a typical exchange occurs. It turns put that the average time taken to the next transaction is critical to the operation of money.

Humans are also imperfect as they tend to maximize for their own benefit, which is tolerable when conducting transactions but not when holding influence over a money system. The inventive nature of humans will cause the tokens to be used for other perceived benefits including hoarding for a 'rainy day' or using tokens to make more tokens or commandeering the supply of tokens or monopolizing the stock of existing tokens or lending tokens. It also includes creating virtual tokens which are traded in a parallel system to the original physical tokens, forming an alternative payment system by transferring virtual tokens. Such is the inventiveness of the human. Another innovation is the practice of: 'lending of tokens and expecting a greater number of tokens in return'. Throughout history, this has consistently been called usury and the practice regularly denounced and often banned because it becomes impossible to pay more tokens than exist.

   Usury is the practice of lending tokens and expecting a greater number of tokens in return.

We must never forget that tokens were designed solely for the purpose of exchanging carrots, eggs and apples. Our inventiveness and natural self-interest will cause us to use money in ways that are counter-productive to the original purpose of money which was to enable trade. The whole area of making money from money is an evil, that is not currently recognised as such.

We might imagine the tokens to change hands at least once a day which is three hundred and sixty-five times a year which would be expressed as: Velocity = 365. If we imagine money to change hands once each week, we would have: Velocity = 52. If we perceive money to change hands each month, we would have: Velocity = 12. Modern money commonly changes hands twice a year which is expressed as: Velocity = 2. The reason is that we are not using money for its intended purpose. We are doing any number of things with it rather than its original purpose. Just as in the village, the practice of hoarding tokens inhibits transactions involving eggs and carrots. In our society, the hoarding damages the Real Economy. Possession limits growth. The carrots and eggs section of the economy is called the Real Economy. Even modern day study of money focuses on making money rather than spending money in the Real Economy. If we reduce our expectation that money should move from the apple seller to the egg seller, say, to once a week, then we should expect: velocity = 52. So it follows that possibly only 4% of money is Circulating Money doing the real work of money in the Real Economy at any one time. (2/52=4%) If we reduce the expectation to once a month, then we are requesting money to change hands with a velocity of 12 times a year, which suggests that 17% of money is 'Circulating Money' being used for transactions and 83% is Hoarded Money.

It thus appears that almost all the money is hibernating or used in financial transactions. Humans have run a constant battle against the misuse of money and its use for anything other than trade in the Real Economy. The Real Economy is that part of the economy that is concerned with producing goods and services rather than the part of the economy that is concerned with buying and selling on financial markets. In the modern world, we manipulate the use of money so much and put so much human effort into its manipulation that we watch our Real Economy get destroyed. We import food and watch our industry collapse whilst an army of financial advisers fight to tell us how to make more money from money. If traders have no money with which to trade, there is no economy.

No Perfect Solution

The solution is going to be difficult because there is no perfect solution and the rampant misuse of money has become excessive and normalized. Much of the study of money is directed to ways of misusing money rather than ensuring its appropriate use as a medium of exchange. Even the definitions have been distorted to aid its misuse. So you will need to travel a little journey with me to study the imperfections so you can evaluate a workable solution. It is imperative that I take you on this journey as there is no simple set of rules and many things will improve the economy without being a complete solution. Monetary reform is also very dangerous as you don't want to cause a collapse of the system. Not fixing it is a fairly sure path to collapse, and the collapses tend to be rapid and brutal. If there is a collapse, it will be beyond Mad Max. Food transport to the cities will cease entirely.

Like the punishment of a good father, you will make the system resilient to total collapse. You make the system friendly to those exchanging eggs and carrots in the Real Economy. You will cut the volume of money that is evading the 'eggs, carrots and apples' Real Economy. You will reduce instability. You will collect tax to prevent the oversupply of tokens in a manner that enhances the Real Economy. Surprisingly, there are taxation methods that are fairly painless and actually boost the economy rather than damage the economy, as most current taxes do. You will correct the issue of government debt and a host of other issues on the way. You don't want to bring the whole system down to fix the complaints of the anti-bank people. The anti-bank people are as much a problem as the get-rich-people and their support team of devious bean counters. You cannot entirely get rid of usury but you can get rid of it where it is damaging and dangerous to the banking industry and civilized life. You will change the current 'rampant usury' to a 'controlled usury'. You will need elements of usury to enable easy credit for business entrepreneurship and to allow the banks to make a healthy profit. The bankrupting of occasional citizens is tolerable but the bankrupting of nations is a dead end road for banks that will lead to their demise. We rely on the payment system of the banks to pay bills rapidly, efficiently and over great distances, even between people of different languages. This payment system is utterly fabulous and universally trusted. I can pay my bills from my kitchen table. I use the bank statement to create my business records. I can pay for a new motor for my electric bike from a business in some unpronounceable town in China where they do not even speak my language. The system is highly efficient and almost completely error free. It is a credit to the banking industry to have developed such a sophisticated worldwide payments system. Our modern world is not possible without the payments system and the fees for using it are very cheap. As a database writer, none of my customers match the efficiency and accuracy of the banking industry. During 2014 The USA Automated Clearing House Network handled:

around 18 billion transactions. [10064]

moved approximately $40 000 billion. [10064]

has close to zero errors.

Our problem is not the fantastic payments system, our problem is the horrendous debt that this money system generates. It is a system that consistently generates more debt than there is money available to pay those debts, as I shall shortly to demonstrate. This debt, in itself, is only the small part of the problem, it is the unpayable nature of the debt that is even more troubling. Even the unpayable nature is minor compared to the last problem. As we look at the issues further, it is the instability that is by far the greatest worry. The unpayable debt, the volume of hoarded money and various other destabilizing issues create a situation where a financial crisit will feed its own collapse. You don't want to be on the top of a ladder when you have a heart attack. Don't sleep walk in no mans land.zzz Don't picknic on a cliff edge. The financial instability is like the long slow build-up of snow on a hillside that has become so deep that any moderate trigger could cause a landslide of a size never experienced in the history of mankind. My studies suggest that it is like the recent era of Australian firestorms that have burnt with a ferocity never previously imagined. As we have improved snow landslide management and fire management techniques, we need to do the same with our financial system. The current economic system has the pent-up potential to create a financial Armageddon of a magnitude never seen in the history of mankind. This will be an interesting historical event but it will be unpleasant. People will be fighting with machine guns over a sandwich. It will be a doomsday event that will be in the history books in a thousand years time. And one of the sentences in the history book in a thousand years time will be that the people knew nothing about it ----------- until the day it happened.

Unfortunately, the scenario of a total collapse is entirely possible but also entirely fixable. So we will try and change that sentence in the future history book and the one next to it that says that 'the financial meltdown was so sudden and was of such a magnitude that .......' You can fill in the dots. I give you the chance to alter history. A few months ago, a coloured child was shot in the streets and it caused riots. What will happen if all the ATM's cease to function, all the bank-credit evaporates, no bank transfers can occur and food cannot be transported to the cities? Once the food stores get ransacked, nobody will be brave enough to bring food to the cities for fear of attack. There will be no food. You have no choice but to educate yourself about this as the alternative does not bear thinking about. By the end of the book, you should be able to remove the instabilities and change those sentences in the future history books. I have written this book in a style that even simple people and politicians should understand but it also contains much that is not currently considered by economists.

The money token system has beautifully evolved from the exchange of carrots, eggs and apples in a village. At the same time, the manipulation of the tokens has become extreme. It is hoarded, virtualized, extorted and has led large portions of the population to dedicate their lives to 'making money from money' and accumulating more of it, which is, of course, exactly what you should not be doing with money. Money is solely for the purpose of exchange and hoarding damages its use as such. The village tokens need to be released into society in appropriate volume which might depend on how many eggs, carrots and apples exist. You need to release a few more tokens into society each year as the apple, egg and carrot growers get more efficient. Thus, we release more tokens as the volume of goods and services increases.

   A crucial component of a money system is the control over the volume of tokens issued into society.

It is difficult to be sure whether token increase leads to an increase in production of eggs and carrots or an increase in egg and carrot production requires more tokens or both. We release a few more tokens each year as the population grows and we will need extra tokens to make up for those that frustrate the system by hoarding our tokens. Lastly, we need to release a few more to cover anyone lending under usury. The term usury has been softened to the word 'interest'. Usury is a historically much-condemned practice of lending and expecting more tokens in return. When usury occurs, the debts magnify to become unpayable which then requires more tokens to be released to cover the interest. If we don't release more tokens it will be impossible to pay the interest. The USA releases about 5% more tokens each year and China releases about 15%, whilst the UK is all over the place, but is about 7%. Euro Area releases about 8%. To manage your economy you will need to maintain a constant increase in the magnitude of the money supply somewhere in this region. However, this effect can be made by increasing the velocity by decreasing the Hoarded Money. This is difficult because you will find it almost impossible to control the cyclical and inappropriate lending habits of the banks. Driving a car blindfold will be easier than controlling the lending habits of banks.

First, I must lead you through some of the logic of money. We live in exciting times. Debt free societies are possible and have occurred before. National debt is curable. Most of the instability of the system can be removed and much of the environmental damage can be reduced with some smart thinking. Sensible use of money allows the distribution of resources, it energizes the populous to work hard, it shapes the development of the nation and makes us competitive amongst nations and it can be done without debts and destruction.

I wrote this summary of the full book at the request of Dan who I met in Costa Rica one holiday. He appeared to want it for some committee. The summary turned out better than the book and so the summary became the book. It allowed me to build the solution into the structure as I went through. The book developed from a pamphlet I wrote for the Occupy group three years back. I was new to activism. I noticed that activists were good at finding the faults but poor at finding solutions. Whilst writing the pamphlet, two glaring errors poked me in the eye. First was that the official statistics stated that the average debt per person in Australia was $34 000. As an ex-mathematics teacher, I reasoned that it should be zero, as some put money in the bank and some borrow it. The next glaring error was that the tables of money owed to the IMF/World Bank were all negative. All nations are in debt to the IMF / World Bank except four that were zero. This had to be wrong as one half must be in credit and the other half in debt. They are all in debt. So who is the IMF / World Bank? It turns out that the IMF/World Bank are not owned by nations or the United Nations. They are owned by international banks and have a structure similar to any other multinational corporation. They exist to make a profit from nations, not for the communal benefit of nations. Currently, the IMF has accumulated 2814 tonnes of gold [10001] and the Bank for International Settlements 108.0 tonnes. [10001] My further research led to this book.

Money has a few imperfections. It was invented to facilitate trade, to allow more efficient use of resources, to facilitate transactions. It thus has to store the value of the last transaction until it transacts the next transaction. Whatever its value was at the last transaction must be held until the next transaction and so forth. However, it is not always predictable how long it will be held until the next transaction. There must be enough of these value holding tokens to cover for all transactions during a day. So the volume is unpredictable. To maintain value, there should not be too many tokens. Nor should there be a shortage. So management of the tokens is a haphazard guess at best. To ensure that everyone uses the tokens, some level of administrative force is required. So the 'issuing of money' goes hand in hand with control of a society. If someone bucks the system and creates their own money, they get hammered by the authority. If they are a nation, they get flattened, literally. Because the tokens have value, the issuer has an advantage over ordinary citizens in that the issue of fresh tokens gives the issuer an advantage at the first use of the token. This is called seigniorage. If the issuer is constantly releasing (spending) new tokens, then they need to reduce the volume of tokens to prevent an oversupply. Because the volume of tokens required is unpredictable and because it is difficult to predict how long people will hold tokens before re-using them, the rate of removal is not precisely predictable. So some flexibility needs to be built into the system, so that tokens are available on demand. This is particularly relevant to business where an increase in workload requires more tokens for a short period of time. If tokens that are surplus to requirement are not removed, excess tokens build up and dilute the pool of tokens in a process called inflation. It is difficult to predict how long people will hold tokens before reusing them. A milkman restocks his milk cart daily. A shop restocks weekly. A shirt shop may restock monthly. A beggar spends within minutes. A wage earner may be broke in one week. So the number of transactions completed by money in one year is not predictable. One might expect it to be twelve times a year. In most countries it is two or less. There is a big problem in society with Hoarded Money. This Hoarded Money, if all spent at once will overwhelm the volume of goods and services and cause massive inflation of even hyperinflation.

The imperfect nature of money is easy to see when you consider the ways we use money:

Money is prone to hoarding by people with more than they can spend. They steal it from the circulation like removing the balls from a pool table, mugs from the tearoom or the coins from the carwash.

It can be stolen.

It can be counterfeit.

It can be monopolized.

It can be lent. People with more than they need, may lend it to those that need money tokens for some reason. If the borrower is required to pay back more than they borrowed, it is possible to have more owing than there is tokens.

Substitutes can be created by writing on a certificate: "I owe the bearer of this certificate one token" and "collect it anytime you want!". Yet the lender may not have the token that that the certificate represents. The token supply has effectively increased by the number of unbacked certificates.

If the volume of substitute tokens is high and they are lent into society at say 10% interest, it is easy to have more debt than money. If there are 100 tokens and 100 certificates, within eight years there will be over 200 tokens owing to the certificate issuers. In thirty years there will be 1744 tokens owing to the certificate issuers, yet there is only 100 tokens and 100 certificates in circulation. Yet the naughty certificate issuers never had the tokens that backed the certificates in the first place. The money system is no longer functioning for the benefit of society. The certificate issuers have bought the land, assets and politicians.

The system is collapse-prone. If trust in the tokens evaporates, the people revert to barter.

If money is hoarded, it can all come out of hiding in one day and flood the system causing loss of confidence.

More Debt than Money

When I explain the logic of money to people, I first demonstrate that it is possible to have More Debt than Money. Initially, people find this difficult to accept. I get some seriously puzzled faces when I demonstrate this mystifying phenomenon. I could not believe it myself when I first discovered the situation, so I worked on numerous ways to confirm to myself that this was truly the case. I give three examples and then a graphical representation to demonstrate that there can be More Debt than Money.

My first example:

Imagine the time when gold was money. Imagine all the gold in the world. Imagine all the gold in the world is lent out by those that hold the gold. Interest is payable at 10%, in gold. At the end of the year, how is it possible to pay the interest? How can you pay back more gold, than there is gold? The interest has done something very strange, it has created unpayable debt! Money has created unpayable money. The process of expecting more in return than was lent is called Usury.

The next example:

Consider all the money in the world that has been created by the central banks of all the nations of the world and imagine that all the money is lent out at 10%. How can the interest be paid? How can we pay back more money than there is money? The banks want more money than all the money. This Usury is a major feature of our money system. Our modern money system creates More Debt than Money. Our money system creates more debt than can be repaid with the money in circulation. The creditors want more money than all the money that exists.

My third example:

There are ten people in a room that represent the people of our nation. You are one of them. I am a bank and I will lend each of you one hundred money tokens which we shall call dollars. The interest rate is 10%. You may trade with each other, build each other houses, and carry out regular business.

It is now the end of the year and I want my money back and you each owe me $110. If you cannot pay, you can give me your real assets. In days gone by, this would have included enforced servitude or even your wives and daughters taken as concubines.

This, clearly, will not work. So the first thing we learn is that it is possible to have More Debt than Money. More Debt than Money means that the debts are unpayable. If the debts are unpayable, then an Impossible Contract has been created. If this Unpayable Debt is an Impossible Contract, is the debt legal? I don't have an answer to the legality of Impossible Contracts, but they appear to be very common. I call this:

The First Flaw of Economics

   It is possible to have More Debt than Money.

Asset Stripping and Default

If an economic system generates More Debt than Money, it is a flawed system. It is characterized by Unpayable Debt and constitutes an Impossible Contract. The debts are uncollectible. The debts are unpayable. Default, foreclosures and asset stripping are inevitable. However, we can live with some usury. Individuals die and their debts die with them or their houses get repossessed. This is uncomfortable but sustainable. Debts to governments, however, are sustainable until the nation is stripped of its assets. From then on, a default is inevitable. A nation cannot be foreclosed or repossessed, and so a default is inevitable. Various interesting terms are used such as: 'bailout' and 'haircut'.

'bailout'=Create and advance more virtual credit to the nation so that the nation can pay the interest on the previous loan. This avoids killing the horse that allows the banks to scalp the public.
'haircut'=The debt or interest is reduced to a payable level. The bank only lent credit that it created out of thin air. The money did not originate from a central bank.

There are some obvious solutions but nobody seems bright enough to use them:

The government mints a coin with one trillion dollars stamped on it. It uses this Trillion Dollar Coin to pay off its debt to the banks.

The government creates a Public Bank. This bank is owned by the government. It lends money to the government when prudent. The government thus owes money to a government bank which makes the debt irrelevant.

The government creates a digital version of cash. This would be real or virtual currency notes where the serial number, a digital picture and an ownership history of the note are stored on smart phones, smart cards and anonymous cards like metro cards. The digital data is passed instead of a paper note with its serial number. This is different to the bank system where you have a balance of credit for money that never existed. In this system, you own the notes as you would have title to the notes and it would be recorded in the same manner that land titles, car registration and domain name titles are recorded. Thus, there is no reliance on a single computer system. As with land titles, vehicle registration and domain names, ownership details get updated when appropriate, rather like using a credit card on an aeroplane or ship. The updates can be done at the next convenient time.

The fourth example of unpayable debt is an examination of the figures for Australia:

You now study The Reserve Bank of Australia. The RBA to date has created a total of $67 billion currency in the form of cash folding notes. This is the total of the money created by the Reserve Bank up to 2015. It has created no more than this $67 billion. All figures in this book are in billions and mildly rounded, so remember $67 billion. The total Money Supply for Australia, (officially called M3), is $1760 billion, which is misleadingly called 'Deposits'. Clearly, the $1760 billion did not come from the Reserve Bank nor was it generated by the Reserve Bank. More on this in a while. However, we have noticed that there is a lot more money in circulation than the money created by the Reserve Bank. The next discovery is even more startling. The total debt in Australia owed to lenders is $5400 billion. (as listed by the Australian Debt Clock.). As a society, we owe more Australian money to the Australian banks than there is Australian money. In round figures: The total debt in Australia owed in Australian dollars exceeds the total money in Australia by a factor of three. Do not think that this is an Australian peculiarity. Almost all countries have the same scary 'debt to money' situation.

Back To Our Village

In our village scenario, this situation arises when only, say, one tenth of exchanges for carrots and eggs occur using original tokens. Most transactions now occur using borrowed tokens. It occurs like this: There are insufficient tokens to make for egg and carrot trade efficient, but a generous person who claims to have 'excess' tokens, offers to loan you tokens at 10% interest per annum. The token-lender says that he will keep the tokens in his vault and that when you wish to pay someone he will transfer the tokens to the other person. The token-lender says he will give you real tokens if you really need them at any time. You now trade eggs and carrots for these virtual-tokens. Soon, almost all trade is done using virtual-tokens from the token-lender. Soon your village society has 100 real tokens and 1000 virtual-tokens. The token-lender demands interest on the 1000 virtual-tokens each year which amounts to 100 tokens each year payable in tokens or virtual-tokens. Clever you, will spot the impossibility of paying the 100 tokens because that would leave your village with no real tokens. What occurs is that the debts build up or the token-lender creates and lends more virtual-tokens. Either way, the debt increases as follows: 1000, 1100, 1210, 1331, 1464, 1610, 1771, 1948, 2143, 2357, 2593 [10 years], 2853, 3138, 3452, 3797, 4177, 4594, 5054, 5559, 6115, 6727 [20 years],7400 ,8140 ,8954 ,9849 ,10834 ,11918 ,13109 ,14420 ,15863 ,17449 [30 years]. Yet you have only 100 real tokens. Usury is a mathematically impossible menace. The village collectively owes 17449 tokens to the token-lender even though the token-lender may not even have had any genuine tokens to start with. Anyone could set up this lending system because the lenders are not lending out real tokens. They are lending virtual tokens. They are lending tokens that do not exist. However, you would be hard put to run your village with only the real tokens because your village chief has not issued enough tokens and because the virtual-tokens are easier to use and because business needs money or credit before it can operate. The village chief was not up to standard on each of these three.

The Village Chief

As village chief, your task is to ensure sufficient real tokens are released into your village so that resort to borrowed virtual-tokens is less necessary. In reality, the token-lender never had the tokens that were lent out, but the virtual-tokens did enable trade whilst there was a shortage of real tokens. The token-lender had another benefit to society. The token lender would extend credit to business to allow expansion of business and to cope with the fluctuation in the money needs of business. The village chief spent money into society which created an inflexible money supply. His input did not give on-demand supply of money in line with the needs of business. Business needs money when it needs it, not to buy fancy cars, but to purchase stock for the Christmas rush. Businesses cannot expand if they cannot obtain capital. The village chief was not aware of this and only spent money into society on a random basis. This was good for general employment, but hopeless for expanding business. If the chief were to run small local banks that lent to farmers and business to carry them through tough times or to buy better equipment the businesses would be less likely to scurry to the token-lenders. The money supply expanded in harmony with the needs of society whilst the village chief had issued insufficient real tokens. The borrowed virtual-tokens had accumulated interest that was impossible to pay. So the token-lender finished up owning almost all the real assets and land in the village. The token-lender generously funded your re-election because you were inept at issuing real tokens. The token-lender then dictated policy to the democratically elected chief. This was why all major religious texts forthrightly condemned the practice of usury as it deprives the village people of their real assets. The religions texts forgot about the needs of business. Business needs money tokens before it can create an income. One of your problems is that the virtual-tokens are readily available and easier to use. As village chief you started to use virtual tokens from the token-lender because they were easier to use, which led to your second problem, the village administration became in debt to the token-lenders. And yet another problem was that you as village chief lost control over the number of tokens in society. The village chief was no longer spending tokens into society, the token-lender was lending virtual tokens into society. If the token-lender lent more tokens than he collected in repayments the token supply increased and if the token-lender backed off on token lending, the volume of tokens in society decreased. The decrease caused business collapse and hunger which was blamed on the chief with claims that you were incompetent at economic management. Don't entirely blame the token-lender. The token-lender expanded the money supply in line with the needs of business. Unfortunately, the token-lender got carried away and got citizens and governments into debt. As an individual citizens are a little like businesses. You need to look after your future. You need to educate yourself in real-world situations both in schools and as many jobs and real work situations as possible. You need to look after your reputation. Like a business, you may need to borrow to buy the appropriate clothes and car to get the job. Government only arranges the job and pays in arrears, whereas a bank will give you money before you earn the money. We don't want to destroy the banks, we want them to behave. That will take understanding and regulation and some adjustments to government money procedures.

Richard Henry Dana 1867

After the discovery of America, capital was in demand, and men were ready to pay interest on it. Then the theologians were obliged to review their teachings. If it had come to this, that money must be had, and men would pay interest on it, ecclesiastical ethics must be revised.

If business people do not have money to start or expand a business, they are keen to borrow money or credit or anything that looks or acts like money. Bank credit fulfills this role. The bank-credit never came from a government bank but is has the same effect, it enables transactions. Even though it does not exist, it enables trade and is available on demand. The more business needs, the more the banks create. It is ideal, until it collapses, which usually coincides with excessive greed in the finance sector. Nowadays, the banking sector is more interested in making money from money rather than assisting business to grow. On occasions, they will withdraw funding and take over the assets of the businesses they were previously supporting.

The Value of Transactions in Cash

Although the volume of cash currency in nations is generally less that 5%, the value of trade carried out with cash is even less. According to the US National Automated Clearing House Association, in 1995, $533 000 billion was transferred by wire, $11 000 billion by Automated Clearing House and $800 billion by credit card, $73 000 billion by check and $2 200 billion in cash transactions. [10063] This gives a total of $620 000 billion of which a mere $2 200 billion was in cash transactions which is 0.35% of the total transaction value. However, I am not confident that they have covered all cash transactions. So we have: Less than 5% of money is in the form of government created cash currency, and less than 1% of the total value of transactions is conducted using cash currency.

US Money Supply and Debt Figures

Currency created by the Federal Reserve: $1 250 billion[10002]
Total Money Supply (M2 not M3):  $12 010 billion[10002]
Total Debt:  $43 290 billion

[Dec 2014 in round figures. US National Debt $17 820 billion (Federal Reserve), St Louis plus US Private Debt $25 470 billion (Bank for International Settlements)]

(Note: M3 is not published in the USA, which distorts the result somewhat.)

(Note: I use round figures throughout the book as we are dealing with concepts, not high finance.)

(Note: I avoid using trillions and quadrillions. All figures are in billions.)

In the village terms these USA figures are equivalent to the bizarre scenario of:

Real tokens= 100
Virtual Tokens= 860
Tokens owed to the token-lenders= 3450

[This is the same ratio as USA.]

As chief of the village, you have inherited a money system where there are 100 original tokens, 860 virtual-tokens that do not exist and 3450 tokens are owed to the token lenders. Your task is to get out of that situation.

And some graphs that I have created to scare you:

In my graphs, the orange is the total cash currency created by the central bank. The green line is the money supply of the nation. The green is credit created by banks. Notice the almost insignificance of the orange part. In your village, the orange represents real tokens, the green represents the virtual-tokens and the red is tokens owing to the token-lenders. Your village is now operating on credit rather than tokens. For each genuine token in circulation, there is now thirty borrowed virtual-tokens and eighty tokens owed to the token lenders.

Some Scary Graphs


Graph of Australian Money Supply and Debt

Australia has significantly more debt than the total money in the nation.
The ratio of Debt to Money is about 3.0 [$5400 billion divided by $1760 billion]

Amongst the total collective of all debtors and mortgage holders in Australia, only about one-third of their debts can be repaid.

Australian banks list these debts as assets. Only one-third of these debts are collectible.

Only about ~ 3.5% of the money in Australia was created by the Reserve Bank of Australia. [$1760 billion divided by $67 billion]  We are running the nation on credit.

USA graph of debt and money

Graph of United Kingdom Money Supply and Debt

Graph of Germany Money Supply and Debt

Graph of Poland Money Supply and Debt

Canada. A graph of Money Supply and unpayable Debt. 
Some people ask why the Bank of Canada can't directly increase or decrease the money supply at will, since it regulates the supply of paper currency in circulation. 
The answer is that the banknotes issued by the Bank represent only a small portion of all the money circulating in the economy at any one time.



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