Let us look at the debt of a random country such as Australia. In Australia, The Reserve Bank of Australia has created a total of $67 billion in Cash Currency. This is the folding notes in our wallets. This is the sum total of Cash Currency created by the Reserve Bank of Australia. The Reserve Bank of Australia has created no more than $67 billion total in folding notes. The banks list the total of all money in Australia as $1760 billion. This is vastly more than the total Cash Currency created by the Reserve Bank of Australia. The difference, about $1700 billion, clearly did not come from the Reserve Bank of Australia. It turns out to be virtual. It exists only as numbers written in registers. It is credit created by the bank. It is the amount of money the banks owe their customers. The Australian banks owe their customers about $1700 billion even though that money never came out of the Reserve Bank.
The next piece of information is even more surprising. The total of government debt and private debt in Australia is $5400 billion. The volume of debt in Australia vastly exceeds the volume of money in Australia and that money did not originate from the central bank. Here it is represented in a graph:
The volume of debt in Australia exceeds the volume of money by a factor of three. The debt is impossible to repay. Luckily, the banks keep lending more money which allows past interest to be repaid. You might also notice a bit of a ripple at 2008. Australia got through 2008 without too much drama. The banks kept creating credit.
Australia is not alone in this phenomenon. Let us have a look at New Zealand, New Zealand has 'more money than debt'. New Zealand relies on the bank creating fresh credit so that past interest can be paid. The amount of money owing to the banks exceeds the amount of money available. Even though it is impossible for New Zealand to repay its debts, it would be unwise for it to do so.
If the green region was used to pay off the red, The green would disappear. The vital trading medium would vanish and there would be no economy. This is what happened at the end of the Roman era. It is explained here in a quote from a Report by the U.S. Monetary Commission of 1878:
“At the Christian era the metallic money of the Roman empire amounted to $1,800,000,000. By the end of the fifteenth century it had shrunk to $200,000,000. Population dwindled, and commerce, arts, wealth and freedom all disappeared. The people were reduced by poverty and misery to the most degraded conditions of serfdom and slavery. The disintegration of society was almost complete. History records no such disastrous transition as that from the Roman empire to the dark ages. The discovery of the New World by Columbus, restored the volume of precious metals, brought with it rising prices, enabled society to reunite its shattered links, shake off the shackles of feudalism, and to relight and uplift the almost extinguished torch of civilization.” [Report U, S. Monetary Commission 1878 as quoted in Coin's Financial School by WD Harvey 1894.]
Any reduction of the money in circulation has a habit of initially creating a recession followed by a depression. If New Zealand were to try to use its circulating medium to repay even a portion of its debt it would suffer a horrible situation. It might be more than just the sheep eating grass.
Next I show you Poland. It also has debt that is impossible to repay.
If Poland tries to pay off its debt, it will have a drastic fall in its money supply. Similar happened during what was called the 'Crime of 1873'. Here is a quote on a drastic reduction in the Money Supply in 1873 caused when Silver was removed as an acceptable form of money in the so called United States of America as quoted in 'Coin's Financial School' by WD Harvey 1894.
“When demonetization of silver took place (1873), the supply of primary money was reduced by about one-half, and the half that was demonetized became credit money. At this point there was very little supply of primary money (gold) compared to (1) credit money, (2) checks, drafts, etc., payable on demand, and (3) notes, bonds, etc., payable in the future. ... All property gradually declined in value as compared to gold. (Gold rose in value, as compared to property.) The decline was painfully steady. These conditions caused new debts to be contracted to pay old debts, and the volume of new debts increased rapidly. Money began to be borrowed on property as collateral. Falling prices continued - there was not enough real money behind the credit money, the checks and drafts, and the notes and bonds. Borrowing continued. By 1890, notes and bonds -- debt -- in circulation had grown enormously. Every town and city felt the weight of debt. Farms were mortgaged. Property in the cities was nearly all mortgaged. A panic began. An unprecedented financial storm was now on the country; it involved not only categories (1), (2), and (3), but primary money itself was involved under the enormous strain placed upon it.” [Coin's Financial School' by WD Harvey 1894]
Only a few years earlier in 1842, Charles Dickens had written during a trip to Boston:
“There is not a man in this town nor in this State who has not a blazing fire, and meat every day for dinner, nor would a flaming sword in the air attract more attention than a beggar in the streets.” [As quoted in 'Seven Financial Conspiracies Which Have Enslaved the American People' by Mrs. Sarah E.V. Emery. in 1888]
The USA had a plentiful supply of money at the time of the visit of Charles Dickens, whilst England appeared not to have a plentiful supply. Charles Dickens writes this about the wage-worker in England:
“He sees before him only toil, unremitting, half-requited toil ; hope dies out in his bosom, despondency takes possession of his heart ; and unless sustained by a strong faith and a giant will he breaks beneath the weight of oppression, seeks relief in a suicide's grave, or worse still attempts to drown his grief in the intoxicating cup and finally drifts into the great army of inebriates.” [As quoted in 'Seven Financial Conspiracies Which Have Enslaved the American People' by Mrs. Sarah E.V. Emery. in 1888]
Although Dickens also wrote this about Washington.
“I saw in them, the wheels that move the meanest perversion of virtuous Political Machinery that the worst tools ever wrought. Despicable trickery at elections; under-handed tamperings with public officers; cowardly attacks upon opponents, with scurrilous newspapers for shields, and hired pens for daggers; shameful trucklings to mercenary knaves, whose claim to be considered, is, that every day and week they sow new crops of ruin with their venal types, which are the dragon’s teeth of yore, in everything but sharpness; aidings and abettings of every bad inclination in the popular mind, and artful suppressions of all its good influences: such things as these, and in a word, Dishonest Faction in its most depraved and most unblushing form, stared out from every corner of the crowded hall.” [Charles Dickens 1842]
Canada also has more debt than money. Imagine Canada trying to pay off its red debt with green Monetized Credit. There would be a large fall in the M3 Money Supply. Canada had a little ripple where the M3 Money Supply fell by 1.6%. This had an interesting effect on the GDP. First of all the Money and Debt graph:
In 2008, the M3 Money Supply fell by 1.6%. This caused an astounding fall in the GDP of 8%.
This also caused a nasty fall in Tax Revenue. It would be unwise for Canada to repay its unpayable debt. A 1.6% decrease in the Money Supply caused an 8% fall in economic Output and a nasty fall in Government Tax Revenue. One can imagine the effect of even a moderate repayment of debt.
It was the fall in the Money Supply in the Great Depression that caused the Great Depression. During the Great Depression, the volume of Cash Currency folding notes did not fall. Although it is assumed that the Cash Currency is produced by the government, it is actually produced by a private corporation over which the government has no control. The control tends to be the other way. However, the Cash Currency had a gentle steady rise. It was a drastic fall in bank created 'Monetised Credit' that fell. It is called it 'Monetised Credit' because it is credit that is used as if it were money. It is numbers recorded in registers held by the bank. Payments are effected by adjusting balances in the registers held by the bank. During the Great Depression, the volume of 'Monetised Credit' fell dramatically.
The Great Depression lasted from 1929 to 1939. It is described as an economic crisis, but in reality it was a human crisis. When we changed from a hunter-gatherer way of life to a community based life commonly called civilisation, various items were needed. One of these was the money token. Once we become familiar with money tokens, money tokens must be regulated in quantity to ensure neither oversupply, nor undersupply. Measures needs to be taken to ensure that tokens are used and not hoarded. Thus an element of compulsion and control over society is needed. The Great Depression was economic shock that left millions of citizens unemployed, hungry, and miserable. In Australian, unemployment rose to 32 per cent in 1932. Figures for unemployment in the USA are quoted as 25%. They were high in numerous countries. By 1932, manufacturing output in the USA had fallen to 54% of its 1929 figure. The Great Depression most severe depression experienced by the industrialized Western world. Stock prices in the United States fell to about 20% of their 1929 values by late 1932. However, all prices tend to fall in a depression and the 1929 prices were overvalued by idiotic exuberance where persons would borrow to purchase inflating stocks in a frenzy of greed. As the Monetized Credit evaporated and persons could not pay interest nor repayments on past loans, the assets that backed the Monetized Credit issued by the banks evaporated. 11 000 of the 25 000 banks in the United States had failed by 1933. When you borrow Monetized Credit from a bank to purchase a house, the bank uses your asset and the loan documentation as the backing for the Monetized Credit. During a downturn, the loans become what we now call NPL, a nonperforming loan. The banks collectively are not providing the extra credit needed to repay interest on past loans. Like a game of musical chairs, someone is not going to be able to pay.
Mrs. Sarah E.V. Emery had previously described the need for money tokens in 1888:
“As blood, the circulating medium of the body, is the life of the body, so they knew that money, the circulating medium of the country, was the life of the country. Its industry, its education, its morality, in truth, its very life depended upon its medium of exchange. Controlling it, they could inflate or depress the business of the country at pleasure, they could send the warm life current through the channels of trade, dispensing peace, happiness and prosperity, or they could check its flow, and completely paralyse the industries of the country.” ['Seven Financial Conspiracies Which Have Enslaved the American People.' by Mrs. Sarah E.V. Emery. 1888]
Here is a graph of Money and Debt for the United Kingdom. In the United Kingdom, Cash Currency issued by the Bank of England comprises 3% of the money of the nation. 97% exists as computer entries in bank registers.
Mervyn King, Governor of the Bank of England 2012: “... the pretence that debts could be repaid was maintained for far too long.” [4]
Not even my good friends in Germany escape this conundrum of the impossible contract.
When I sum the figures for all the countries in the world for which figures are available (which is most of them), I get this graph:
Worldwide we have a phenomenon where debt cannot be repaid. These debts cannot be repaid for at least two reasons: