Friday, October 29, 2004

"The system which governs our economic lives, which we call capitalism, is itself is a limited resource. Capitalism is a pyramid scheme. Let me try to explain this.

It is a built on a system called fractional reserve banking. Almost the entire money supply – generally, depending on where you live, between 90 and 95% of it – is issued not by the state, but the commercial banks. It is issued not in the form of notes and coins, but in the form of loans. Between 90 and 95% of the money supply, in other words, is debt.

To pay off the debt that is issued today, the banks must issue more debt tomorrow, and so on and so forth. In a world which is not based on material realities, the world which might exist, for an example, in a computer model, it could expand for ever. But in the real world, the supply of money is linked to material realities called collateral: the real wealth which gives the loans meaning, and without which the whole scheme would be exposed as a fraud. Eventually the amount of lending must inevitably exceed the availability of meaningful collateral, for the simple reason that the material world is finite while the possible issue of credit is not. That is the point at which the whole structure comes tumbling down." 1

1. George Monbiot, 06/10/2004. No Longer Obeying Orders.