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This article is an extension of the book “Rich Country – Poor Country.” It was not included in the book in order to keep the book as short as possible so people would read it.

In this article we will look at the concept of “sustainability”, a concept economists apply to debt money systems to see if they will operate over a long period of time.

Even though the debt rises exponentially, some economists believe that a debt-money system can still work; they call such a system ”sustainable”. In order for a monetary system to be sustainable (which means it will not crash), the output of the nation must be able to pay the interest on the debt. Since the debt rises exponentially, this means the output must also grow exponentially, at a rate that equals or exceeds the growth of interest due on the debt. Note that in a sustainable system, the debt will still rise exponentially (the characteristic of a debt-money system); it's just that the output must rise exponentially as well to meet the interest demands.

In order to pay the annual interest, new money must be created and loaned into circulation because the interest demanded in law does not exist in fact. In order to get the loans, the nation must have collateral to back the loans; the collateral comes from the increased output of the nation.¹

We will assume in this example that Gross National Product (GNP) does not grow from year to year; we will account for growing GNP later.² Let's start with a money supply of $10 Billion (B) which is loaned into circulation by the banking system, which is also $10 B of bank debt, and $10 B in collateral is pledged to the banks from borrowers assets. Over the year, GNP is $67 B; this figure is chosen to make the numbers easy to work with.³

At the end of the year, 10% interest on $10 B of debt is $1 B, bringing the debt to $11 B. To collateralize this additional $1 B, only $1 B of the $67 B output of the nation needs to be collateralized. This is a small amount, and no one would experience any problem in the first year or first decade of operation.

Let's look at another case after 20 years; the debt has compounded to $67 B and is the same size as the GNP. ⁴ The money supply remains unchanged. Over the years, $67 B in assets have gradually been pledged as collateral for the debt so there was no hardship. Now, 10% interest on the debt is $6.7 B which is 10% of the GNP. People may not notice any problem yet; the required interest payment to the banks is still only 10% of the total output. However, since 10% of the GNP is used to pay interest (a business expense), this cost is added to the price of goods. Prices will be rising.

Let's look at what happens the 21^st year. The $67 B compounds to $74 B, an increase of $7 B.⁵ An additional $7 B in collateral is required. In the very first year, the banks received $1 B of pledged assets; in the 21^st year, the banks received $7 B. The economy has not changed any; the money supply is the same, and the output is the same. What have the banks done in 21 years to deserve seven times the wealth? These obligations to the bank are real; if payment is not made, the banks get to keep the collateral.

Now let's look at what happens in the 44^th year when the debt is $670 B, ten times the GNP.⁶ At the end of the year, 10% interest must be paid on $67 B which will increase the debt by $67 B. This requires an additional $67 B in collateral. At this point, the total output of the nation is pledged as collateral. The next year, the total GNP would not be sufficient to collateralize the loans. At this time, any free assets left in the nation must be collateralized, leaving the entire nation in mortgage. Once the collateral is used up, there can be no new loans to pay the required interest (unless banks are willing to make unsecured loans).

The conclusion is that if the GNP remains constant (doesn't grow each year), the system is not-sustainable. When the interest rate exceeds the rate of increase of GNP, unpledged assets of the nation will be used up faster than new assets are being created. When the time comes that all the assets of the nation are pledged, a great wave of bankruptcies will take place. At this point, the banking system will own all the wealth of the nation.

Since interest today⁷ exceeds the growth of GNP (which is about 3%), the solution as implemented by economists, is to have a business cycle. By contracting and expanding the money supply on a cyclical basis, business are regularly forced into bankruptcy.⁸ The more solvent businesses can buy the bankruptcies up at 2 cents on the dollar. These acquired assets become the collateral for new loans.

What if we try to make this system work by making the rate of growth of assets (i.e., the growth of the GNP) equal to the interest rate? Then new collateral would always be available to borrow money to pay the required interest payments.

Let's spare ourselves a detailed explanation. I will discard this unworkable approach for more general reasons. Productivity cannot grow exponentially forever.⁹ Nothing in creation (that I know of) grows exponentially forever. Even bacteria will stop growing when it reaches the limit of its food supply.¹⁰ World output will eventually reach its limit. Even if it could grow indefinitely, would we want to mortgage it all to the bankers for the sake of making a debt-money system work? Plus, everything produced must be bought and consumed; with exponential growth of commodities, eventually everyone will have what they want and stop buying.

From every angle that I look at it, I can't make a debt-money system work that is free of the evils of recession, bankruptcies, rising prices, profits from other's labor, etc. The only benefit of such a system is to those with a design to enslave the world.

1We will assume that the Fed will provide as much money as needed and will not create a recession by creating a shortage of money.

2The GNP, as a measure of the nation's output, is determined by how often money changes hands in buying and selling products and services. This is the velocity times the money supply. Velocity is typically about 6, which means that over a year, a dollar finds its way into 6 different hands. See Economics, Byrns and Stone, Scott, Foresman and Company, Glenview, Illinois 1981, p. 300.

3For a typical velocity of about 6, and a money supply of $10 B, the GNP would be 6 X 10 or $60 B; I used $67 B for ease of later computation.

4D = P(1+r)ⁿ = $10 B (1+0.1)²⁰ = $67 B. D = debt at the end of the year; P = principal borrowed; r = interest rate (10% is 0.1); n = number of years. This is the compound interest formula.

8The only way to stop debt from following the compound interest formula is to force people to default on their loans. The banks go under as well when people default on their debts, which explains why we have many bank and savings and loan failures today.

When the banks call their loans they destroy the money supply by canceling the demand deposits. They thus increase the purchasing power of money in terms of stocks, property, and commodities. Thus the banks impair and diminish the value of their own securities and impair the solvency of their own borrowers, thereby bringing ruin upon themselves and upon the industry and commerce of the country. [Robert Owen, National Economy and the Banking System, Senate Document #23, 1939, p. 14.]

9Economists at a local university argued with me that output has historically grown exponentially for over 100 years. I was amazed that they would even attempt to defend this system. Why would they want or accept the growth of debt at an exponential rate?

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				Is a Debt-Money System “Sustainable”? This article is an extension of the book “Rich Country – Poor Country.” It was not included in the book in order to keep the book as short as possible so people would read it. In this article we will look at the concept of “sustainability”, a concept economists apply to debt money systems to see if they will operate over a long period of time. Even though the debt rises exponentially, some economists believe that a debt-money system can still work; they call such a system ”sustainable”. In order for a monetary system to be sustainable (which means it will not crash), the output of the nation must be able to pay the interest on the debt. Since the debt rises exponentially, this means the output must also grow exponentially, at a rate that equals or exceeds the growth of interest due on the debt. Note that in a sustainable system, the debt will still rise exponentially (the characteristic of a debt-money system); it's just that the output must rise exponentially as well to meet the interest demands. In order to pay the annual interest, new money must be created and loaned into circulation because the interest demanded in law does not exist in fact. In order to get the loans, the nation must have collateral to back the loans; the collateral comes from the increased output of the nation.¹ We will assume in this example that Gross National Product (GNP) does not grow from year to year; we will account for growing GNP later.² Let's start with a money supply of $10 Billion (B) which is loaned into circulation by the banking system, which is also $10 B of bank debt, and $10 B in collateral is pledged to the banks from borrowers assets. Over the year, GNP is $67 B; this figure is chosen to make the numbers easy to work with.³ At the end of the year, 10% interest on $10 B of debt is $1 B, bringing the debt to $11 B. To collateralize this additional $1 B, only $1 B of the $67 B output of the nation needs to be collateralized. This is a small amount, and no one would experience any problem in the first year or first decade of operation. Let's look at another case after 20 years; the debt has compounded to $67 B and is the same size as the GNP. ⁴ The money supply remains unchanged. Over the years, $67 B in assets have gradually been pledged as collateral for the debt so there was no hardship. Now, 10% interest on the debt is $6.7 B which is 10% of the GNP. People may not notice any problem yet; the required interest payment to the banks is still only 10% of the total output. However, since 10% of the GNP is used to pay interest (a business expense), this cost is added to the price of goods. Prices will be rising. Let's look at what happens the 21^st year. The $67 B compounds to $74 B, an increase of $7 B.⁵ An additional $7 B in collateral is required. In the very first year, the banks received $1 B of pledged assets; in the 21^st year, the banks received $7 B. The economy has not changed any; the money supply is the same, and the output is the same. What have the banks done in 21 years to deserve seven times the wealth? These obligations to the bank are real; if payment is not made, the banks get to keep the collateral. Now let's look at what happens in the 44^th year when the debt is $670 B, ten times the GNP.⁶ At the end of the year, 10% interest must be paid on $67 B which will increase the debt by $67 B. This requires an additional $67 B in collateral. At this point, the total output of the nation is pledged as collateral. The next year, the total GNP would not be sufficient to collateralize the loans. At this time, any free assets left in the nation must be collateralized, leaving the entire nation in mortgage. Once the collateral is used up, there can be no new loans to pay the required interest (unless banks are willing to make unsecured loans). The conclusion is that if the GNP remains constant (doesn't grow each year), the system is not-sustainable. When the interest rate exceeds the rate of increase of GNP, unpledged assets of the nation will be used up faster than new assets are being created. When the time comes that all the assets of the nation are pledged, a great wave of bankruptcies will take place. At this point, the banking system will own all the wealth of the nation. Since interest today⁷ exceeds the growth of GNP (which is about 3%), the solution as implemented by economists, is to have a business cycle. By contracting and expanding the money supply on a cyclical basis, business are regularly forced into bankruptcy.⁸ The more solvent businesses can buy the bankruptcies up at 2 cents on the dollar. These acquired assets become the collateral for new loans. What if we try to make this system work by making the rate of growth of assets (i.e., the growth of the GNP) equal to the interest rate? Then new collateral would always be available to borrow money to pay the required interest payments. Let's spare ourselves a detailed explanation. I will discard this unworkable approach for more general reasons. Productivity cannot grow exponentially forever.⁹ Nothing in creation (that I know of) grows exponentially forever. Even bacteria will stop growing when it reaches the limit of its food supply.¹⁰ World output will eventually reach its limit. Even if it could grow indefinitely, would we want to mortgage it all to the bankers for the sake of making a debt-money system work? Plus, everything produced must be bought and consumed; with exponential growth of commodities, eventually everyone will have what they want and stop buying. From every angle that I look at it, I can't make a debt-money system work that is free of the evils of recession, bankruptcies, rising prices, profits from other's labor, etc. The only benefit of such a system is to those with a design to enslave the world. Footnotes 1We will assume that the Fed will provide as much money as needed and will not create a recession by creating a shortage of money. 2The GNP, as a measure of the nation's output, is determined by how often money changes hands in buying and selling products and services. This is the velocity times the money supply. Velocity is typically about 6, which means that over a year, a dollar finds its way into 6 different hands. See Economics, Byrns and Stone, Scott, Foresman and Company, Glenview, Illinois 1981, p. 300. 3For a typical velocity of about 6, and a money supply of $10 B, the GNP would be 6 X 10 or $60 B; I used $67 B for ease of later computation. 4D = P(1+r)ⁿ = $10 B (1+0.1)²⁰ = $67 B. D = debt at the end of the year; P = principal borrowed; r = interest rate (10% is 0.1); n = number of years. This is the compound interest formula. 5$67 B X 1.1 = $74 B. 6$10 B (1+0.1)⁴⁴ = $663 B; round it up to $670 B. 7This book was originally published in 1992. 8The only way to stop debt from following the compound interest formula is to force people to default on their loans. The banks go under as well when people default on their debts, which explains why we have many bank and savings and loan failures today. When the banks call their loans they destroy the money supply by canceling the demand deposits. They thus increase the purchasing power of money in terms of stocks, property, and commodities. Thus the banks impair and diminish the value of their own securities and impair the solvency of their own borrowers, thereby bringing ruin upon themselves and upon the industry and commerce of the country. [Robert Owen, National Economy and the Banking System, Senate Document #23, 1939, p. 14.] 9Economists at a local university argued with me that output has historically grown exponentially for over 100 years. I was amazed that they would even attempt to defend this system. Why would they want or accept the growth of debt at an exponential rate? 10I have been told that when bacteria and rabbits multiply beyond their food supply, their population also crashes.