The Future of Money Creation

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It is not hard for anyone to see that our current money system is experiencing difficult times. Even though interest rates are historically low, this still does not ignite the economy the way that the leaders hope. We are still in a deep recession, where youth unemployment is very high, companies are struggling, and where it is increasingly hard for anyone to create a life for themselves. Then on top of this, the situation in the middle east and Africa, is to put it mildly, catastrophic. The consequence is that refugees flood into Europe serving to destabilize the economy even further.

When investigating why our economy has become so weak, why we have so many structural flaws in our system, and why there does not seem to be in an end in sight, I have time and time again seen that these are strongly tied with how money is created in society. For those that do not know, money is created as debt. Commercial banks put out money in the economy, at an interest, when companies, and private individuals take out loans. This in turn means that there is ALWAYS a deficit of REAL money in the system, because DEBT accumulates without additional, new, debt-free money being inserted into the economy. We do not need a rocket scientist to conclude that this is bad math and also, big problems.

One clear and relevant example of how excessive debt can effectively destroy an entire country is that of the Greece sovereign debt crisis. Coerced by the financial powers of Europe to pay back its debt, Greece has now breached some of the most basic Human Rights there are. Pensions have been slashed and public jobs as well as salaries have been cut – the result is a disaster of epic proportions. And when we look at the reason for this destruction of human potential it all comes back to one thing – DEBT.

We should really ask ourselves why we structure our economy this why, because can we not find a better way? Does it not make sense to instead build our economy on debt free money, where countries are empowered using debt free grants to strengthen instead of being sucked dry of all life with the excuse that they owe money to someone, or something?

Having a money system that is based on debt creates extreme limitation, and at the end of the day, it only serves those few that are  in control of money creation, which is commercial banks. We have become so used to thinking that we must become indebted to buy houses, to receive educations, and to achieve a comfortable life, though this is ONLY a political structure – not a ACTUAL REALITY. Fact is that we could structure our money system in such a way where our governments issue debt free money that could be used to build houses, improve infrastructure and the general well-being of the public. Debt is fictional – a mirage created through laws – but in reality we all have an equal right to live a dignified life.

Investigate DEBT and the SOLUTIONS presented to this problem – the organization POSITIVE MONEY is offering a very cool solution – to implement this we require political participation – as it is through politics that laws are written and society is built.

Down below is an example of videos made by positive money that explains how banking works.

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Micro Credits – A Solution For Poverty?

After the Norwegian Nobel prize committee decided to give the United States president Barack Obama the peace price, a president that later came to continue to war in Iraq, and also fund insurgents in Syria, I seriously started to doubt the reasoning skills of the members of this Nobel price committee. And after having watched the documentary ‘The Micro Debt’ by Tom Heinemann, I have concluded that the Nobel prize committee (at least those handing out the peace prize) do not know anything about what it means to create actual peace in this world. Because when they decided to give Muhammad Yunus the peace price, for having founded the Grameen Bank, and invented the concept of micro loans, and for thereby apparently having found a solution to poverty, they were obviously not using basic mathematics to assess the outflows of such loan methods.

Professor Muhammad Yunus, Nobel Peace Prize winner visiting theThough, before we dive into the basic mathematics of Micro Debt and whether this can be a solution for poverty or not, let me share the story of Muhammad Yunus, his bank, and the stories that has begun to surface about his money lending practices. It begins in 1976 when Yunus (supposedly) found out that small loans could make a disproportionate difference in a poor person’s life. According to Wikipedia, the first loans Yunus gave, made it possible for the borrowers to profit. Yunus business expanded, and by July 2007, his bank had issued around US$6.38 billion to 7.4 million borrowers.

As mentioned above, Yunus was awarded the peace price in 2006 for his efforts to create economic and social development. However after the release of the documentary ‘The Micro Debt’ the Bangladeshi government decided to review Yunus bank, and Yunus himself was removed as Managing Director of his bank. This is not particularly strange considering the claims that are made in the documentary, and the compelling evidence that it presents, that the micro debt is not at all a solution for poverty, but rather a trap, making the large amount of borrowers worse off than before.

Though in this blog I am not going to focus on Yunus and whether the claims made against him are true or not. My focus will instead be the concept of micro credits and whether these loans makes any sense; is it really possible to remove poverty through debt? The Micro Credit concept is not unique to Bangladesh; it has also become popular in South Africa, where it has created the opposite of poverty reduction. The following quote gives a stark description of the situation that unfolded.

”The microcredit-induced problems that emerged in South Africa are two-fold. First, microcredit per se is actually an “anti-developmental” intervention. For one thing, it exists on paper to support the smallest income-generating activities, but in practice is increasingly all about supporting consumption spending. In South Africa, the microcredit movement has created an incredibly risky and expensive way to support the immediate consumption needs of the very poorest.

With few poor individuals possessing a secure income stream that might ensure full repayment of a microloan – unemployment is now higher than it was under apartheid – many of the poorest individuals have been forced to repay their microloan by selling off their household assets, borrowing from friends and family, as well as simply taking out new microloans to repay old ones. For far too many now “financially included” individuals in South Africa, using microcredit to support current spending has been a disastrous and irreversible pathway into chronic poverty.”

Milford Bateman, Microcredit has been a disaster for the poorest in South Africa, http://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster (2015-09-25)

euro-427528_640Academics and other proponents of the Micro Credit as a way out of poverty makes the assumption that the money lent will be used by the borrower to further his business. This however, is just that, an assumption. Most poor people are just as middle class people, not entrepreneurs, and do not have a very entrepreneurial relationship with money. The loan will be used to buy goods for immediate consumption, and will only serve to put more pressure on the debtor. In worst-case scenario, this will lead the already poor person, to loose the little safety they do have, when they are forced to sell their house to meet interest and installment payments.

Further, those borrowers that are indeed entrepreneurs, and that do invest their money in a business, there is nothing that says that these businesses will be able to profit. Nine out of ten startups fail – and that number will probably be even higher when not only you, but also all of your neighbors, decide to go out on the streets and sell the same thing – which did happen in South Africa.

Then we have the big problem when it comes to Micro Credits, the interest rates. On some of the Micro Loans that interest rate will be at 100 % or more. There is no startup that yields a sufficient profit to cover such a high interest rate. Conveniently for the creditors, most of the debtors are not proficiently literate, and will thus not really understand what they are signing.

Yunus was applauded when he was able to offer loans to poor people that cannot offer any securities in case they would forfeit on their installments. However, to ensure repayment of the loans, Yunus bank have developed a system of “solidarity groups”. It is these small informal groups that together apply for loans and its members act as co-guarantors of repayment and support one another’s efforts at economic self-advancement. Hence Yunus use the psychology of group pressure to ensure that the poor people are sufficiently motivated to pay back their loans. And even though this might seem innocent, in reality it has lead to the most horrific of consequences. One woman that was unable to pay her loan was pressed by her co-guarantors to take up prostitution as a way to meet her installment payment. That woman later poured kerosene on herself, and lit herself on fire. That is the effectiveness of group pressure when survival is in the picture.

What are we then able to conclude from all of this? One thing is clear: We cannot trust academics to know what is right! Even though they have a degree in economics, and even though they have received the Nobel peace price, that does not mean they actually understand how reality operates. Academics have their nose buried in deep books and because of that they will many times miss what is right before their eyes. Hence, we have to educate ourselves, and take responsibility. We cannot rely on a small intellectual elite to know how to solve such things as poverty – this is a problem that involves, and touches all of us, and accordingly it is everyone’s responsibility.

Then, the second thing we can learn: Change cannot come through DEBT. The very reason why we are living in a world where money is increasingly more difficult to obtain is because of DEBT. We live in a debt based system, and this forces us to work more – and even still there will/must be a loser. With debt, someone always loses; someone must be that poor guy that has to pay back the interest.

Real change will come through changing the structural design of the economic system – because only through changing the rules of the game are we removing this incessant fear of survival that is currently holding the entire human race in its grip. That structural change must involve giving all human beings a dignified life, real security, real safety, and easy access to money. This cannot come from debt, as debt is the very instigator of fear, anxiety and stress.

Hence, if you are interested in solving poverty, I suggest that you investigate the Living Income Guaranteed. This is an economical system that will revolutionize the way we think about money – and that is precisely what we need. We need something new, a brand new way of looking at things – a fresh start – free from debt and the old pessimistic ideas that apparently, poverty is unable to be removed from the face of this earth.

For more reading:

http://www.marlenvargasdelrazo.com/the-micro-debt-the-nefarious-business-on-poverty/#

http://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster

Watch the documentary ‘The Micro Debt’

https://www.youtube.com/watch?t=791&v=yoAGKFaqwjM

https://www.youtube.com/watch?v=M6KHa4omGG8

https://www.youtube.com/watch?v=FdmXLpjykNk