I like Steve Keen and am working to merge his economic theories with those of us who want to issue a debt free currency. That would save taxpayers 500 billion dollars a year in interest payments on government debt as we would have none. In fact I would favor an Amendment making government debt at the federal, state and local levels illegal. I am writing this in response to a video in which Dr Keen claims to disprove the idea of the 11th marble. In it he says traditionalists argue that if you borrow ten dollars and are required to pay a dollar in interest at the end of the year, the bankers did not create sufficient money to pay both the principal and the interest. They created ten marbles but not the eleventh.
In his video Keen uses an example of a bank which loans out cash that it printed itself as banks did in the 19th century. The bank has cash in its vaults which it loans to its customers. This is not the 19th century so let’s add some realism in stages.
In the modern world banks do not lend cash. A businesswoman takes a $10,000 loan and agrees to repay $11,000 in a year. The bank creates $10,000 in checking account money. This adds $10,000 to the money supply. One year later if she does not renew the loan, she pays the bank $11,000. Please note that the bank pockets $1,000 in interest to their profits. But the $10,000 principal vanishes and reduces the total money supply by that amount.
Suppose a local bank wants to expand its business and starts loaning out money to a neighborhood some distance away with no box stores and lots of small businesses. They get one businessman to take a $10,000 loan. Suppose they get other businessman and women in that neighborhood to take out loans over a period of ten months. At one loan a month a total of $110,000 will be out on loan plus $11,000 in interest due. The first man to take a loan shows up to pay it off. He tells the branch manager that he had some local TV reporters in his neighborhood interviewing the workers whose call center had been suddenly closed that morning. It seems that the federal government had trained workers in Asia to speak English well enough so that another American company had just sent 150 jobs overseas. Half of the people who lost their jobs lived in the neighborhood. The man who paid the loan said he was glad he did because it looked bad for the local businesses. The branch manager called the businesswoman he had made a loan to the day before. She gladly returned the loan as there was no point in remodeling her restaurant.
The federal government will pick up the slack by running an even bigger deficit to make up for all the manufacturing and service jobs they sent overseas. The 1.6 trillion dollar deficit will have to grow even more. Interest on the federal debt will have to go beyond 500 billion dollars a year. The local and state governments will have to raise taxes and lay off workers.
Over the next year that local bank will have to collect as much as it can from that $90,000 in loans and $9,000 in interest. When that $99,000 is paid back, the total money supply is cut by $90,000 and the bank adds $9,000 to its profits for having created money out of nothing. Thus we can see that fractional reserve banking is designed to transfer money from the 99.9% to the 0.1%. And the 99.9% would be far better off if the Treasury just issued a non-interest bearing currency.
That Keynesian nonsense about the government picking up the slack in the economy by borrowing money only increases the burden on taxpayers to pay interest on money the 0.1% created out of nothing. Keynesianism far from rescuing the working and middle classes from high unemployment would seem to have been designed to take wealth from those who do the work and give it to the idle rich.
In fact is is fractional reserve banking that created Depressions, recessions and inflations according to Hyman Minsky who us idolized by Professor Keen. Minsky and the Austrian School agree that a fractional reserve banking system creates a bias in favor of bad investments because loans create money which adds to demand for things like housing. People might want housing but not at the inflated price level that those easy loans artificially created. These Bubbles always collapse creating recessions in which government runs huge deficits and privately held debts are cancelled through business closures, job losses, home foreclosures and stock margin calls.
I think is is far better that we make government debts illegal so there is no transfer from the 99.9% to the 0.1% for money they created out of nothing. That we never have Bubbles induced by unwarranted borrowing at subsidized low interest rates that punish savers. Because there would be no government debts we would have no unpayable Debt Bombs. If you count federal, state and local debt plus all the housing guaranteed loans, Americans owe way more than 20 trillion dollars in government debts which can never be repaid and should never have even existed.
Please consider these undeniable facts: The Traitors in our government who created and profited from those Bubbles in the stock and housing markets with money they created from nothing are the ones who sent 12 million jobs overseas. Those same Traitors got America into wars costing tens of trillions of dollars and taking far too many lives of Americans and those we were duped into calling enemies.
Let’s eliminate fractional reserve banking and government deficits, issue sovereign currencies that require no interest to be paid, and make government debt illegal before we talk again of the 11th marble.
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