47 minutes to kill?

This video, Money as Debt, by Paul Grignon outlines a central idea that debt creation as a means of modern banking is fundamentally harmful because it is in substance a subtle transfer of wealth vis a vis interest. Please watch it and decide for yourself whether any aspect of Grignon's case holds water. Regardless of where you fall politically with respect to monetary policy, as with any other major institution, technology, social convention, or way of life, we have the duty to consider its existence, efficacy and possibly even its obsolescence.

I would like to highlight my understanding of a few ideas I found thought provoking.

Grignon points out that money once commonly thought of as value or asset is today a measure of debt because modern lending recognizes an individual's "promise to repay" as a fungible form of currency. This fundamental switch came as a result of government mandate, presumably because the borrowing and lending by large banks turned the wheels of the economy. Repackaging a "promise to repay" or debt as value or currency allows the money supply to be greatly expanded past the actual total "value" of goods and services in a given economy.


Constant rates of growth, I hear this all the time on the financial reports... durable goods grew by x%, consumer price index up by y%, GDP up Z%. A constant rate of growth as it is commonly defined, increase by a fixed percentage (say 3.5%), is in fact not linear but exponential.
Year One $1.00 x 3.5% growth = $1.035
Actual growth = $0.035
Year Two $1.35 x 3.5% growth = $1.071
Actual growth = $0.036
Year Three $1.071 x 3.5% growth = $1.11
Actual growth = $0.038
Year Four $1.11 x 3.5% growth = $1.15
Actual growth = $0.040

The delta accelerates, it is non-linear, and over time it is impossible to maintain. Realistically the growth rates are not constant, so this is less a factor in a practical sense. However, constant rate of growth, is something I hear my buddies say all the time when they analyze the financials of a compnay, and it is very much in the conversation as an ideal to strive for.


Grignon rightly notes that the purpose of money is to facilitate exchange yet asks an interesting philosophical question; what is the justification for charging interest on borrowed money? Why is there such a thing as interest? If money exists solely for the purpose of making it easier to trade a chicken for a television, charging interest is not relevant to attaining that end. The justification of interest stems from the risk involved in lending - a borrower may not pay back his debt, therefore one either recoups an eventual loss from other borrowers in the form of interest payments, or one charges the borrower a risk of default premium in the form of interest on the debt in lieu of physical possession of some form of collateral. This is a logical argument for a profit seeking entity. However Grignon posits that the borrowing and lending that stimulates the economy should be overseen by the government and not private profit seeking institutions. Since it is the government that owns the mints, it should be solely the government that decides the proper amount of money needed to have a functioning economy. Government sponsored "banking" would either eliminate the need for interest wholly or redistribute the profits from interest on outstanding loans to the citizens in the form of a dividend. Interesting.
Consider the recent bailout, where the treasury department borrowed the future tax receipts of its citizens to pay the current liabilities of the for-profit banks that had made faulty loans to those same citizens today. Do you understand what this means in simplest terms? The banks have said "You cannot pay your mortgage anymore. Well, we are surely not going to go out of business because you failed to pay. We will threaten the politicians with fear tactics, then they will give us the future tax receipts of your children today so that we can settle our account, all the while we still transfer our interest to the backs of your children. Essentially transferring the obligation to the next generation."

Why wouldn't the government just pay the mortgages themselves? Even though it would be a more direct and less costly solution, it would also be perceived widely as socialist and an anathema to capitalism RA-RA USA! The banks know this and exploit it. They should have died. If you made crappy furniture, you will go out of business. If you make crappy lending decisions you should be out of money. It was a con job.

Grignon points out that non-profit banking is a way around this problem. Because the banks are in this business to make money, eliminating profits from borrowing and lending would eliminate the necessity of private banking. A far more efficient method of regulating trade, yet a threat to the existence of bankers.

Another reform movement stresses return to a sound money. This means making the dollar redeemable for something of fixed value, most popularly precious metals. However, the banks argue that this would tightly constrain borrowing and lending by sharply decreasing the money supply or it would create sudden wealth for those with gold and poverty for those without.

I personally, because of my fondness for physics and chemistry, would like to see our currency linked to Gibbs free energy. For example, how many Joules did it take to make this air compressor? How much heat or enthalpy, in an absolute chemical sense, is responsible for a loaf of bread? Ultimately, this is the value of matter, its heat of formation. Therefore, the truest way to represent the power to buy and sell goods is to link it directly to the energy required to bring it into physical existence. Is this not how the trillions of trillions of living cells trade everyday? Look at the majestic economy in even the smallest, loneliest, most nonessential cell. Does the mitochondrion charge interest to the nucleus for ATP?! Absurd! No interest. Only balance, beauty, function, and growth. The cell understands the interrelatedness of its components, the necessity of harmony for function, and that balance means existence. Bankers value the hoarding of money and getting something for nothing. The cell has no banker, and demands no interest on glucose. Ah, but wait, isn't there loss of heat over time? Isn't it true that no chemical reaction has ever occurred with balanced free energy between products and reactants? There is a payment made for every chemical transaction. There is such a thing as cosmic interest. There is entropy, the cosmic banker. True, but I have no problem paying the universe for being my home, existence is worth it.