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     Mar 8, 2012

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Who really holds the gun?
By Darius Guppy

Greece, for example, could issue an electronic drachma to run in parallel with the euro. And one could envisage the principle being devolved below the level of the nation to local authorities - a London guinea, a Birmingham dinar, a Southampton shilling and so on.

In recent papers written for the Foundation for the Economics of Sustainability in Ireland, the brilliant (and recently departed) economist Richard Douthwaite has explored the possibility of parallel currencies by which debt-free money could be injected into the financial system, on a national and on a local level.

Briefly, the government in question would pay a portion of its wage


and social welfare costs in the newly created currency to cover its deficit. Being entirely electronic, individuals and companies would transfer funds in the new currency to each other by means of mobile telephone, Internet and telephone banking.

Companies would earn the new money by supplying goods and services to prospective customers, informing them what proportion of payment they would be prepared to accept in this new money. Likewise, employers and employees would negotiate the proportion of wages to be paid in the new money.

Limitations of space make it impossible to cover the details of such a system in its entirety but permutations would include the government monitoring the velocity with which the new currency circulated and adding new units of the currency to accounts with the greatest velocity and withdrawing them from accounts with the lowest velocity in order to maintain the new money's value.

Now while some may consider my suggestions too radical, the alternative - to keep adding to the debt pile and to continue in our destruction of societies and the environment to fund that pile - is far more radical.

Actually, the moment to effect genuine change has never been more propitious because if the system in its current format were to collapse, such a collapse has rarely been less likely to lead to food shortages or any of the other dire consequences that one associates with economic hardship for the simple reason that the current crisis is one that affects the virtual economy far more than the real one.

It is not as if there would suddenly be fewer crops in our fields or natural resources in the ground. Nor would people lose their homes - in fact, under my proposals they would be far less likely to do so.

It is the current configuration of economic power that would be threatened, not the amount of goods in circulation, nor the efficiency with which we exploit resources.

If the banking system were to implode, huge debt write-offs were to occur (so that effectively we all owed less), the creation of money were to revert to the state, and the banks now had 100% reserves-to-loans ratios, would we all necessarily suffer as we are being told? Quite the reverse, it seems to me.

How far the debtors' unions would seek to push things would be up to them, (although it seems to me that, whatever the final details, the end of fractional reserve banking in conjunction with the use of debt-free money would be the fundamental components of a new order).

Workers' unions do not necessarily wish to destroy the companies that employ them. What they wish for is sufficient bargaining power to ensure that they are not completely sold down the river. My hypothesis is that, as debtors, potentially we have enormous bargaining power.

But there is an obvious retort:

Why force the issue?

Why not just allow the system to crumble under its own weight since this is what is bound to occur sooner or later?

First, because it offends against the concept of free will - that crucial element which separates human beings from other creatures - and without which, notions such as "freedom" and "democracy" are illusory. (If we are cattle and all our actions are pre-determined, then our "freedom" and our "votes" are meaningless).

And second, because it constitutes the ultimate irresponsibility, coinciding perfectly with the mindset of our politicians: to kick the can down the street and to delay the evil hour for future generations. But the longer you put off evil hours the more evil their inevitable advent.

There will be many, not least among the middle classes, who would fear the idea of a global collapse of the banking system. But they must understand: sooner or later this will happen in any case and the essence of my argument is that since the gun is in fact in their hands - if only they knew - they can have far more say in the new dispensation than if they simply allow things to unravel on their own.

It is a fallacy - pushed by our experts - for the middle classes to imagine that they have a vested interest in maintaining the current order.

Writing in the mid 1990s, Margrit Kennedy showed how the first 80% of the German population paid out more interest than it received, with the next 10% receiving slightly more than it paid out and the final 10% receiving twice as much, a trend which has intensified throughout the world. Only very recently, for instance, in the United States the Congressional Budget Office Report regarding household income distribution in America from 1997-2007 has demonstrated how the income earned by the top 1% of the population rose dramatically at the expense of the remaining 99%.

In other words, our financial system comprises an upward redistribution mechanism that acts to the detriment of nearly all of us. In sitting back and doing nothing, the great part of our population will not be "all right". Income gaps will increase while living standards decline.

Nor should we be fooled by the argument that "education, education, education" will protect our children from the snare that has been set for them - a falsehood demonstrated by the fact that an increasing proportion of Britain's two-and-a-half million unemployed have graduated from university. Unless we alter radically the manner in which money is manufactured and circulated within the community, then in a generation Britain will be like Egypt, a nation of taxi drivers with PhDs.

But how about if certain people reading this essay were in the enviable position of being able to opt out in some way? To sell assets, pay off their debts and conduct all their future transactions in cash? Surely in such a scenario they would be freed from the debt trap and they could afford to sit back and relax?

Again, this argument is false because interest on ever-increasing indebtedness is included in all the prices we pay, whether or not as individuals we have one penny of debt. Herein the evil - there is no opt out.

In the bar of soap, in the property, or in the car we buy, a huge proportion of the price is made up by interest compounded over time and which the manufacturer has had to pass on to us. Which is precisely why the creation of money out of nothing and the charging of interest on that money is the root cause of inflation and a devaluation of our purchasing power - an inflation that is deliberately disguised by omitting crucial factors such as house prices, food prices and household energy prices in its computation.

And if we do not act now, we will miss the perfect opportunity to effect genuine change as did the South American debtor nations when they blinked and "re-structured" their debts in 1982 instead of clubbing together and defaulting en masse. And all because they failed to realize that it was they who held the gun and not their creditors.

In such a scenario, as occurred in 1982, the same "re-structuring" or "re-capitalizing" remedy, currently being engineered by our experts, and by which the payment of debt is simply forestalled by extending its term and adding to the amount outstanding, will be the outcome - the ultimate head-in-the-sand strategy.

Effectively, when something becomes "too big to fail" but is in fact just about to fail, its demise is delayed and the agony prolonged by making it ... even bigger!

In this way, to prevent their collapse the banks will be made even larger and even more powerful before, inevitably, they fail, to the detriment of our descendants. Taken to its logical extreme one could even envisage an Orwellian nightmare of complete, global financial integration.

In conclusion, to subscribe to the arguments I have laid out there is no requirement to be some Trotsky-ite or even "anti-capitalist". One need only appreciate the distinction between productive capitalism and parasitical capitalism.

It is perfectly possible therefore to support the principle that those who actually produce wealth should be rewarded for their endeavors and that their rewards should be made flesh in private property that is protected by law, whilst recognizing that the greatest threat to such a principle is no longer a frightening Soviet-style system but in fact parasitical capitalism, by which we become not owners of wealth but slaves of debt.

It is time for the middle classes to un-learn what has been indoctrinated into them.

For the evidence shows that, contrary to the orthodoxy, they have not been subsidizing a lazy and undeserving underclass; they have been subsidizing a parasitical and undeserving financial class.

1. For essays referred to, see here and here.

Darius Guppy is the author of Roll the Dice, (1996) Blake Publishing.

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

(Copyright 2012 Darius Guppy)

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