Wikinvest Wire

Money as Debt

Tuesday, January 08, 2008

You may have already seen this fine animation Money as Debt by Paul Grignon (hat tip JL). I sat and watched all 47 minutes of it the other day - very sobering.

Don't worry - the screen is blank for about the first ten seconds. Here are the links to parts 2, 3, 4, and 5 at YouTube and a larger version of the entire video is available here.


Mathlete said...

The first half makes sense, and then he goes off into Malthusian la-la land.

vader said...

I agree that he presents the problem well, but the solution is a bit out of this world.

IMHO we got here because that consumption in the US had to increase to keep the elites happy but the problem was that their other policies beggared the workers. Debt solved the problem but increasingly had to be made easier to get to keep the scam going. Now we are at the end of the game and things will have to play out. Possibly with deflation as the debt backing the money declines and with fractional money or leveraged money it will decrease at some multiple of the decrease in debt.

Anonymous said...

I disagree, I think this is one of the most sober analysis of our money system I've seen. I think the solution offered makes a lot of sense - at least, it makes more sense than the other alternatives. It's true - gold standard or silver standard advocates always ignore the many problems with using a metal resource as money, and the list of those problems is much longer than this video explores. And I don't think "Malthusian la-la land" is an accurate description of his negative forecast of the current system. He doesn't say at all that the human race will collapse; just that broad loss of assets will occur when we run out of finite materials - or just run out of the ability to produce more of them each year. It stabs at the heart of the issue - our current system has "growth" as its goal, and this is partly motivated by loan payments. As it is, we have a fiat money system anyway. The only difference is that he proposes we don't extract blood from a stone to create more of it, while putting inflation more firmly in the hands of elected officials who are more accountable to voters.

Anonymous said...

The heart of the issue is theft. The present system exists to enable theft under the guise of providing growth. Theft of real savings is what happens when banks can collect interest on money is created out of thin air (i.e. money that is not theirs). How does this optimize growth? The best solution is to allow people to opt out of it.

Mathlete said...

The two arguments in the video are not even connected, in the sense of one leading to the other. Frankly, a more plausible argument is that falling birthrates are a greater threat. Exhibit A: Japan. Their economy peaked just as they were entering demographic peak.

Plus, an economy does not depend on stuff, it depends on wants. Much of the economy is already in services because the cost of producing stuff keeps dropping and because people only want so much stuff. That's why in developed economies, there's far more travel and healthcare and things that can be classified under "self-actualization".

You have the direction of causality reversed on the system. The reason why the monetary system works so well is because people want growth. The real reason we are trying to harness the power of the Sun is not because we are running out of energy but because our energy needs are infinite. One day there will be people discussing "Peak Solar" and how we need to harness the power of more stars or black holes. C'est la vie. A better monetary system will help us grow faster.

Anonymous said...

Beware of what you wish for. A cancer is also growth and typically much faster too.

d said...

I'm surprised the NSA hasn't mysteriously censored this yet.

Anonymous said...

"The reason why the monetary system works so well is because people want growth. "

Remember Easter Island...

Anonymous said...

Still watching, but the "no growth" argument at the end "for sustainability" is something I've seen in peak oil and environmental circles. The peak oil graph they had in there is probably not a coincidence.

Here's my answer: it ignores "energy intensity" and especially the virtualization of goods and services.

Just consider the logical extreme: what if money created as bits in a banks computer are spent on iTunes stored in Apple's computer? The money was created and disappeared as bits,

There is some small overhead for computing services, but with Moore's Law and especially recent computing power iniatives that is falling.

We also have this virtualization of money in the gaming system, with armor sold on ebay and "gold farmers" working in Asia.

It is an open (and scifi-ish) question how "virtual" our economy can become, and the extent this will solve the growth problem.

BTW, wanna buy a ring tone?

Anonymous said...

"Just consider the logical extreme: what if money created as bits in a banks computer are spent on iTunes stored in Apple's computer? The money was created and disappeared as bits,"

Seems not to understand what money is. Labor and capital invested to create iTunes has now been exchanged for what? And, if money created is not explicitly backed by savings, it effectively is counterfeiting, which can have no net productive economic impact.

Anonymous said...

No, you miss my meaning.

The second half of the movie makes the peak oil (or more generally Malthusian) argument that growth is always tied to "resources."

As bits collapse the amount of resources required to support economic activity falls.

Maybe I was a little loose in my "disappears" but what I was trying to get across was the idea that the role of resources is reduced.

Anonymous said...

But surely...whatever it is we're trading with each other is finite over a finite period of time. Call it "resources" or not, something is going to run out eventually. Perhaps our wants are infinite, but that's the problem - the practical application is that those needs are never satisfied because we are limited to a finite world over finite time. The point of this is exactly as he says - "The only thing of any value in the transaction is the borrower's promise to repay." We sometime will promise to repay far more than is actually possible over the loan term - even if, in theory, resources are infinite, that is in a far distant and dimly conceived future. It's a power transaction - the bank owns your promise to repay, and you own less and less (inflated) money. In the end, the bank has everything and everyone tied to it. That's not a Malthusian collapse - that's a concentration of power. These days, it's not really the banks either - it's whoever owns enough money to live off of it. The banking structure is just the mechanism that makes it very profitable to do so while making very many people powerless. See it more as exposing a confidence game - as someone else said, it is essentially counterfeit money that one is loaned. The fact that you cannot loan it to yourself at 0% interest and no repayment schedule is all you need to know to see that it's a swindle. I should open a bank for myself and run it in the red so I can loan myself a million bucks. Why the hell not? It sure is legal. I'll just deposit 10% of my infinite loans to myself and that should satisfy the accounting!

Anonymous said...

That is the interesting question, what is finite (and in short supply) and what time-frame concerns us?

Economic cycles are very short compared to resource depletion cycles. As you say, what matters in short term debt is whether the borrower can fulfill his promise and pay.

I think this video is veering into peak oil territory though, and the idea that a medium term (decades?) crash in energy and resources could put the whammy on the whole system.

I think that "looming whammy" is unproven at best, and emotional fear-bundling at worst.

Mathlete said...

If a businessman takes out a loan at 8% interest, he does so because he can generate more than 8% of profit. It results in more wealth, not less, for the borrower. If banks didn't help make their clients wealthy, their clientele would be a 100% overlap with the scratch ticket market.

Anonymous said...

I still think you're missing the point. The "looming doom" he talks about is not peak oil, but a choice between endless inflation or massive foreclosure and a huge dip in the supply of money. Either situation, by design, consolidates power upwards. And the whole thing runs on greed. In our upside-down world, we have rationalized our extreme greed and called it good. If that doesn't bother you, you might as well buy a lottery ticket as take out an 8% business loan.

Anonymous said...

Watch it again. Note that when they talks about exponential growth of money/debt he they tie it to natural resources, and how those cannot grow exponentially.

The refrain you hear in "no growth" arguments is that (a) the growth becomes exponential, and (b) you cannot grow infinitely on finite resources.

This tallies with that. Now, it's true that I might be bringing some baggage from those other discussions ... but, well look at your comment:

"a choice between endless inflation or massive foreclosure"

why inflation?

The "finite earth" argument is that it is because that money must chase a fixed amount of resources. That doesn't mean to me that everything must inflate, or that it will ally be symmetrical.

I mean, have iTunes and ringtones run up with the "other" commodities?

Anonymous said...


A modern bank isn't needed to lend nor borrow. If you have savings, you act as the bank and borrowers will come to you. However, if an entity can create credit out of thin air (counterfeiting), your savings are devalued. It is a legalized transfer of wealth from savers to banks.

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