by
Andrew Chalkley
2017
Whilst writing a pamphlet for Occupy Wall Street, questions arose for which I could find no answer in economics texts. As a trained engineer and retired mathematics and science teacher, I did my homework. Some of my key questions were:
I present the answers for you. In Australia, there is three times as much debt as there is money. In Europe, debt is greater than money by about two and a half times. In the USA, there is around three and a half times as much debt as there is money.
The debts are unpayable. The debts are also uncollectible. The people and their government are locked into an impossible contract. Although this debt is impossible to repay, we can live with debt. We can also live with unpayable debt. But we cannot live with monetary collapse. When the money system collapsed in 1345, nearly one third of the population of Europe perished. At the end of the Roman era, the money system failed and the money supply fell to about one twentieth of its former level [2]. There was great loss of life and Europe descended into the Dark Ages. Money was one of the items that enabled the creation of civilization. Without money, civilization immediately collapses.
The money system nearly collapsed in 2008. The repair left us with greater debt, but the money system survived. Monetary collapse is still possible. Since 2008, the parameters have got worse. Various items need to be adjusted to prevent collapse. However, we also need preparations to protect our civilization in the event that a collapse occurs. The simplest known protective measure is a reinstatement of Glass-Steagall. Glass-Steagall was a set of rules implemented by President Roosevelt to recover from the great Depression of the 1930s. This rule required banks to declare whether they were Commercial Banks or Investment Banks. Commercial Banks are typified by the high street banks that lend to homeowners and local business and operate the payment system which underpins our modern money system where balances are moved from citizen to citizen to effect payments. They effectively enable the real economy which feeds, clothes and houses us. Investment Banks operate to make ‘money from money’. Their money making operations do little to benefit the real economy and much to damage the savings of citizens and the organizations on which the citizenry rely. In the event of a collapse of the Investment Banks, the Commercial Banks would be protected in a manner that would prevent a collapse of the payments system and the savings of the working people.
In our current society, we rely on laws rather than ethics. The act of making ‘money from money’ has become normalized. Humans live by trading with each other. Money was invented by one of our ancestors to make the trade more efficient. It was a gift freely given to all mankind. It was not invented for some groups to abuse by ‘making money from money’. The next messiah will declare the act of making money from money to be a great evil. These money making activities are carried out by people that don’t realize the damage that they do causes to our civilization.
“Do not hoard the circulating medium.”
Money was not invented to hoard. Hoarding takes money out of circulation preventing the transactions that money was invented to enable. Hoarding is another evil. A high proportion of our money supply is hoarded for years on end by people with ‘more money than they can spend’. I have calculated that in excess of ninety percent of money is hoarded. Hoarded money has the potential, in a situation of financial strife, to rapidly be spent into circulation. Hyperinflation is the act of spending hoarded money into circulation. Imagine all the money hoarded in tax havens being spent into circulation in a hurry. A hyperinflationary collapse of the money system would occur. There are a few possible monetary collapse mechanisms possible. In any collapse, people will be fighting in the street over the last sandwich with machine guns.
To calculate the volume of Hoarded Money in society, I have make some assumptions. I class money that is held in a bank account for more than one month as Hoarded Money. This makes it easy to understand the mechanisms of recessions, depressions, hyperinflation, and the methods that should be employed to recover from such a financial phenomenon. This book takes a look at the volume of Hoarded Money and the volume of Circulating Money in society. Straightforward reasoning demonstrates how economic issues arise and any politician will comprehend better ways to correct the issues as they arrive. This book shows how current recovery methods are often counterproductive. Politicians are prone to make age old economics errors, brought about by a lack of understanding of Hoarded Money and Circulating Money. This lack of knowledge is corrected in this book.
Never before have we needed a better understanding of the mechanisms of money and its crucial role in the operation of society. Our imperfect money system impoverishes millions, is prone to collapse, is prone to abuse, has no protection against collapse and causes conflict and war.
In most countries, private banks lend money and this generated credit forms the bulk of the Money Supply. Although the associated debt grows to exceed the volume of money, we can live with the debt provided fresh credit is available. Unfortunately, the private banks are inconsistent with their lending. They lend profusely for a while which puts extra money in society, then they cease lending with dramatic effects. When they lend, they often favor speculators that push up asset prices without adding anything to the economy. The banks periodically cut their lending dramatically as shown in this graph:
The graphs show the erratic lending habits of private banks. There are ways to counter this as you will soon learn.