Money Is Not Real

So, the world's elites have decided to focus all their efforts on generating another Great Depression. Their cunning plan is to destroy their countries in order to save them:

As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight. Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations... Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession... [David Stronge] moved to reinvent himself, returning to school with thousands of other Irish, in hopes that a higher degree would lead to better prospects. Mr. Stronge plans to seek alternative energy jobs in Britain once he gets his master’s degree in August. "Ireland isn’t going to spend on infrastructure probably for another 10 to 15 years," he said. "So you have to go to where the opportunities are." At the D Café, a sandwich shop facing a stretch of empty buildings in Dublin’s Docklands enclave, even that dream seems impossible. “If you’re self-employed and lose your job, you’re entitled to nothing, not even the dole,” said Debbie, the owner, who would only give her first name. She transformed her convenience store into a deli when Liam Carroll, a property baron, threw up the nearby developments. But the tenants never came, and her business evaporated. "It’s so destroying," she said, gazing out the window. "We all live day by day, and we don’t know when it will ever pick up."

Of course, much of the world's elite understand exactly what they're doing: i.e., use the economic catastrophe they themselves created as a pretext to kill the welfare state they've despised for 65 years. Nonetheless, a significant chunk of them actually believe they're doing the right thing for everyone.

How is this possible? The best explanation I've seen appears in a 1994 book by John Ralston Saul called The Doubter's Companion. It's a kind of dictionary—the whole book is just him defining and discussing a bunch of words. And one thing he defines is "debt, unsustainable levels of." Everything you need to understand about our current attempt to obliterate ourselves can be found within it. His most important point is that money is not real. Yet somehow we've decided it's a great idea to stop feeding real food to real people and cease educating real children in order to demonstrate fealty to an abstract concept.

My favorite parts are these, but you should go below the fold and read the whole thing:

A nation cannot make debts sustainable by cutting costs. Cuts may produce marginal savings, but savings are not cash flow. This is another example of the alchemist’s temptation... Civilizations which become obsessed by sustaining unsustainable debt-loads have forgotten the basic nature of money. Money is not real. It is a conscious agreement on measuring abstract value. Unhealthy societies often become mesmerized by money and treat it as if it were something concrete. The effect is to destroy the currency’s practical value.

• • •

DEBT, UNSUSTAINABLE LEVELS OF

National debts are treated today as if they were unforgiving gods with the power to control, alter and if necessary destroy a country. This financial trap is usually presented as if it were peculiar to our time, as well as being a profound comment on the profligate habits of the population. The reality may be less disturbing.

1. The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving the problem: execute the lenders, exile them, default outright or simply renegotiate to achieve partial default and low interest rates.

2. There is no example of a nation become rich by paying its debts.

3. There are dozens of examples of nations becoming rich by defaulting or renegotiating. This begins formally in the sixth century BC with Solon taking power in debt-crippled Athens. His organization of general default – “the shaking off of the burdens” – set the city-state on its road to democracy and prosperity. The Athens which is still remembered as the central inspiration of WESTERN CIVILIZATION was the direct product of a national default. One way or another most Western countries, including the United States, have done the same thing at some point. Most national defaults lead to sustained periods of prosperity.

4. The non-payment of debts carried no moral weight. The only moral standards recognized in Western society as being relevant to lending are those which identify profit made from loans as a sin. Loans themselves are mere contracts and therefore cannot carry moral value.

5. As all businessmen know, contracts are to be respected whenever possible. When not possible, regulations exist to aid default or renegotiation. Businessmen regularly do both and happily walk away.

The collapse of the Reichmann financial empire – larger than most countries – is a recent example. The family was able to turn around, walk away and almost immediately begin a new life, promoting the biggest property development in the history of Mexico.

6. There are no general regulations dealing with the financial problems of nations simply because they are themselves the regulatory authority. There is however well-established historical precedent. Mexico effectively defaulted in 1982-83, thus regenerating its economy. The reaction of Western lenders has been to treat these crises as special cases. The sort of thing that only happens to Third World countries. That’s nonsense.

7. The one major difference between private and public debt is that the public sore cannot be based upon real collateral. This makes default a more natural solution to unviable situations.

The question of national collateral was fully addressed in the eighteenth century when it became clear that an indebted people could not owe their national rights (their land and property) to a lender. The citizen’s natural and concrete rights took precedence over the lender’s abstract rights.

One of the most peculiar and insidious aspects of twentieth-century CORPORATISM has been an attempt to reverse this precedence. The managerial imperative suggests that national debts can be indirectly collateralized in several ways. Governments can be forced to sell national property to pay debts (PRIVATIZATION). They can also be pressed to transfer ownership of national property to lenders, as has been done in the Third World.

There is also the threat that defaulting nations will be treated as international pariahs. This is a strange argument since it doesn’t apply in the private sector (see 5). It is also an idle threat, as Mexico has demonstrated (see 6).

8. Debts – both public and private – become unsustainable when the borrower’s cash flow no longer handily carries the interest payments. Once a national economy has lost that rate of cash flow, it is unlikely to get it back. The weight of the debt on the economy makes it impossible.

9. A nation cannot make debts sustainable by cutting costs. Cuts may produce marginal savings, but savings are not cash flow. This is another example of the alchemist’s temptation.

Mrs. Thatcher spent a decade trying to slash the British national debt. She had the advantage of being able to use North Sea oil income for this purpose. The result was a damaged industrial sector, economic stagnation and endemic unemployment.

The payment of debts is a negative process which can only be a drain on investment and growth. The more successful major repayment programs are, the more the economy will be damaged.

10. Strong nations weaken their own economies by forcing weaker ones to maintain unsustainable debt-levels. For example, in spite of enormous efforts on all sides, the Third World debt has continued to grow. In 1993 it was $1.6 trillion. This costs them far more in interest payments sent to the West than the West sends in aid. The practical effect is to make economic growth impossible. The Third World thus constitutes a dead weight in our ongoing DEPRESSION; a barrier to renewed cash flow

11. Civilizations which become obsessed by sustaining unsustainable debt-loads have forgotten the basic nature of money. Money is not real. It is a conscious agreement on measuring abstract value. Unhealthy societies often become mesmerized by money and treat it as if it were something concrete. The effect is to destroy the currency’s practical value.

12. An obsession with such false realities and with debt repayment indicates a liner, narrow managerial approach to economics. The management of an economy is the profession of finance-department technocrats, economists and bankers. Their approach is quite naturally one of continuity. This is a means of denying failure.

To treat money or debt as a contractual matter – therefore open to non-payment or to renegotiation – would mean treating the managerial profession as of secondary importance and unrelated to fundamental truths. What sensible people might see as originality or practicality, fiancnial expers see as a threat to their professional self-pride.

13. Does all of this mean that governments should default on their national debt? Not exactly.

What it does mean is that we are imprisoned in a linear and managerial approach which denies reality, to say nothing of experience. Money is first a matter of imagination and second of fixed agreements on the willing suspension of disbelief.

In other words, it is possible to approach the debt problem in quite different ways.

14. There have been changes which limit our actions in comparison to those of Solon or Henry IV, who negotiated his way out of an impossible debt situation in the early seventeenth century and re-established prosperity. First we have to recognize and protect the investment made by citizens directly (government bonds) and indirectly (bank deposits) in the financing of national debts. Second, there is the new and unregulated complexity of the international MONEY MARKETS, which now constitutes an important corporatist element.

15. Our central problem is one of approach. For two decades governments have been instructing economists and finance officials to come up with ways in which the debt can be paid down and interest payments maintained.

No one has instructed them to propose methods for not paying the debt and not maintaining interest payments. No one has asked them to use their creativity in place of a priori logic.

16. Were the members of the Group of Seven (G7) each to pool their economists and give them a month to come up with modern versions of default, we might be surprised by the ease with which practical proposals would appear.

17. There are two simple guiding points:

A. The appearance of continuity is easily achieved in default scenarios through paper mechanisms which can be categorized as “debt retirement.”

B. What is difficult for a single country in contemporary circumstances is easy for a group, particularly if that group speak for the developed world. See: ETHICS.

—Jonathan Schwarz

Posted at June 29, 2010 03:34 PM

