October 9 2011 at 02:41pm
You are already directly in debt if you are a citizen of a country in debt, and all countries are in debt. The fact of your citizenship makes you liable even if you don't think you are personally in debt to anyone.
The collateral for each country's interest-bearing debt is the ability of its inhabitants to work and pay taxes. The taxes are used to cover the nation's interest payments, and since the interest is compound interest our financial system is biased toward unstoppable exponential growth reflected in price inflation.
This shadow financial system is now where real world power lies.
When some deals went bad, insiders got nervous and rushed in unison to claim their “real” money -- but the money wasn't there, so deals began to unwind chaotically as values dropped since no-one trusted value anymore. It was essentially a financial panic in the shadow financial system.
Asset hyper-inflation, whether in stocks or real estate values, is fake wealth which shows itself as such when the artificially inflated bubble finally bursts as it always does eventually.
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Our world faces a large, profound, and very important problem: systemic debt.
We are each and all in debt, whether or not we have actually borrowed from anyone.
This is because our financial system is based on debt and interest on debt.
Our individual interest payments are disguised as taxes and hidden in the inexorable price inflation we each experience.
You are already directly in debt if you are a citizen of a country in debt, and all countries are in debt. The fact of your citizenship makes you liable even if you don't think you are personally in debt to anyone.
The collateral for each country's interest-bearing debt is the ability of its inhabitants to work and pay taxes. The taxes are used to cover the nation's interest payments, and since the interest is compound interest our financial system is biased toward unstoppable exponential growth reflected in price inflation.
So it becomes imperative to grow the economy in line with exploding interest-bearing debt so that money does not lose its purchasing power in terms of goods and services.
But real world growth is limited by the laws of physics (broadly construed) and ecology, since we live in nature; and by the laws of psychology and sociology since we live in cultures and are all real beings with finite needs. For example, no single person can live in a thousand houses. And we can each eat only so many meals in a day.
Even wars, which are tremendous growth engines since they hyper-produce to destroy and then hyper-produce to rebuild, cannot go on forever because they exhaust us: physically, psychologically, morally, and spiritually.
So: interest-driven debt needs to grow beyond real economies into a virtual world of financial “economies.” In such a virtual financial world, in one form or another, debt is used as collateral for even more debt which then itself needs yet more debt and so on up for several levels in order to meet the growth needs of the financial system when it exceeds the capacities of the real world.
This virtual world of high finance, the shadow financial system, is invisible to most people, but it is by far the largest financial system on this planet. Its notional size is probably somewhere approaching the region of 100 times the size of the real world global economy.
This shadow financial system is now where real world power lies.
The so-called global financial crisis is a symptom of a fall in the notional value of the shadow financial system because of a cascading loss of confidence in the assets behind it.
When some deals went bad, insiders got nervous and rushed in unison to claim their “real” money -- but the money wasn't there, so deals began to unwind chaotically as values dropped since no-one trusted value anymore. It was essentially a financial panic in the shadow financial system.
Deals were frozen in the ice of uncertainty and losses, magnified through leverage, were made good through so-called “bailouts.”
This bailout money is not trickling into the real world but is only “balancing the books” in the shadow world of super high finance and keeping the financial markets artificially inflated to make savers and investors feel their financial wealth is safe and holding value..
Asset hyper-inflation, whether in stocks or real estate values, is fake wealth which shows itself as such when the artificially inflated bubble finally bursts as it always does eventually.
The whole western-led global financial system has become a hyper-inflated bubble which will burst as all bubbles eventually do.
Whether or not we are rich enough to have money directly in the financial markets, we will all ultimately pay for the many trillions of dollars spent on financial bailouts through a combination of higher taxes and reduced public services in an economically depressed world.
The money for the bailouts of these super-banks and other institutions is borrowed by governments at interest, even from some of those same institutions being bailed out, and we are the collateral because our governments are guaranteeing the bailouts and pledging our taxes and our productivity as the basis for the guarantee.
In their time of dire need, by seeking government social welfare benefits, the biggest super-capitalists have suddenly become welfare indigents as the recipients of social grants: just like the poor people they so often accuse of being social burdens, useless eaters, and ill-educated drains on taxpayers and “free markets”.
None of us ordinary people gained much from the shadow financial system we are all now supposed to suffer to save... read more>>
