The authors of “The Story of Stuff” published a nice little update called “The Story of Broke”, about the vast sums of money the government spends on subsidizing private business…. This sequel “Part II (the end of broke)” was first posted in a comment, on how the still bigger story of broke, debt piling on top of debt, both was missing from the list of now overwhelming government costs, and has a … very natural end. Government debt provides guaranteed growing returns, whether the economy grows or not. Lenders take government interest payments and add them to what they lend back, multiplying their lending and returns. It builds up, slowly at first then explosively, as the world’s debt burden
grows on little but the good faith and credit of government guarantees.
You’ve heard of government debt called a “safe haven”. It’s where investors put money to be “safely assured of ever multiplying returns” when they can’t find even better growing returns elsewhere. Where that debt spiral comes from and goes to has been a subject of many have tried to explain. The view Keynes came to, that I think is the most clear headed of all, outlines the necessities for surviving a debt spiral for a market economy. Nature would surely not shape her facts of life on earth for our approval, but most people react to the facts of life for surviving debt spirals as if to reject nature’s requirements as “socially unacceptable”, … apparently not seeing Keynes’ elegantly clear logic. So this is written in the story telling style of Free Range Studio in their Story of Stuff. —
The End of Broke, the True Whole Story of Debt!
The BIGGER “Story of Broke” is one that starts quite small, but is designed to actually keep growing ever bigger. As it does so it also casts its own vote in the story of business influence in government and demand for subsidies and preferential services, persuading government that’s the way to get money to pay its ever growing debt! It’s the story of how a small amount of debt naturally grows relentlessly big, with no natural end other than either creditors spending it or both government finance and economic collapse.
The whole story of debt is a very very simple little thing. It’s that some of us earn by $units and others by $%’s… and by providing guaranteed returns to lenders, in an economy you can actually earn by $%’s till the economy collapses. What seems like a totally innocent “little difference” in measurement, between units and ratios, makes AN INFINITE DIFFERENCE over time in life. Some people have called it “our misunderstanding of the exponential curve”, others simply call it “greed”. The problem with this kind of greed is how very addictive it is and that it grows explosively, making a “little greed” become SO.. GREEDY, with its promise to multiply the rewards of greed forever. Greed of this kind, based on guaranteed % returns a lender can reinvest, is only designed to multiply as if forever of course, so the actual design is to multiply either until the whole economy has $0 profit to keep its debts from growing further (the important part Keynes figured out) or breaks down from the strain before that. That means it’s not just you and me and our government that goes broke, by someone skimming a little profit to then use it to skim a little more and more all the time!!!
What’s so very tricky about it is it becomes a whole society’s addiction. How it starts looks like it’s making more and more wealth FOR EVERYONE, seeming to be an ever growing “free lunch” for all. How it ends is with all the wealth in one pile of course, a “super pile of money”, that is only used to feed the severest addiction any gambler or any society can get. It’s now in the news every day… and no one seems to have a clue where it came from.
It came from a very small amount of money and continually adding small %’s That’s the addiction a gambler gets when they look at their odds and IT LOOKS LIKE THEY HAVE A SURE BET !$!$!$!$. With a sure bet WHAT PEOPLE ALWAYS DO is the most addictive thing. They take their winnings and add them to their bets, to keep their bets “multiplying like rabbits” as the phrase goes…
The only catch is that in the frenzy everyone gets so disoriented that they don’t notice that taking sure winnings from your own society brings about the collapse of its whole financial environment. So that’s the story of broke we really need to get across, because our “super pile of money” is still “multiplying like rabbits” with our whole society still completely addicted to feeding it.
The delusion is that it’s a source of revenue,… not just ballooning debt to ourselves that can’t physically be paid. We’re all still addicted to pouring ever more money down the magic money hole, not looking to where the money that flows out of it has to come from. It has to come from us, of course. It has to come from us through that completely hidden but ever inflating tax, the one you never ever get a receipt for, the hidden tax of ever growing universal debt.
As we said at the top, our fate is sealed only if people remain mesmerized by its false appeal. The true escape from “lending money to use only for lending more money” (squeezing the whole economy for growing returns till it goes broke), is to require that its earnings be creatively spent instead of reinvested. What seems “socially unacceptable” about that is the idea of expecting anyone to actually WANT to give up a limitless source of free multiplying wealth.
People would need to spend their finance earnings instead of compounding them. That’s needed to both relieve the financial pressure on debtors by giving them earnings to help balance their books, and by also “turning off the pump” that is multiplying the lending. It’s the one way our economy can survive it’s most deadly addiction, but so far also …socially unacceptable and so largely unstudied, a misguided social discrediting of good science with a long history.
A dollar saved in the past is promised an ever growing return in the future, but actually would not even return $1 of value to its owners, if the society that owes those ever growing sums in the future collapses from how much it can’t pay. In fact that society will end up not being able to pay earnings to anyone.
So, this systems physics says it’s just like with Scrooge, that the surest trap of the rich is hording money for robbing the poor. The surest escape is the same too, for the holders of credit to discover their own humanity, and the original purpose they had in wanting more money to begin with, before they became addicted to hoarding wealth. People addicted to the false bet of their money endlessly making them ever more money, just have to rediscover the true higher values they wanted to spend it on in the first place.
Jesse –
Fantastic. Check out Sylvia Nasar’s discussion of Dickens at the beginning of her new book, Grand Pursuit, the Story of Economic Genius.
Dickens was really on to it.
Leland
Thanks, I didn’t find the exact quote to respond to, but I found the New Republic review. They said she didn’t get beyond Dickens’ plea for a more humane political economy and then spent the book on the life stories of a handful of “great men”, so a piece of journalism rather than intellect. It seems to me that even Dickens only understood his tale as a moving bit of social morality, and missed the gem of systems science that held it together as a wider truth.
It seems that’s what you get with “populist thinking” generally, the good luck occasionally of people hitting on a story line that has “resonance” but mostly who chant things that have no resonance with the larger truths of nature. Those are hard to find, especially if that’s just not what you’re looking for. As the “Occupy” and “no-growth” groups of different kinds start finding their voices what bothers me is how confident their social values are “leading the way” while placing no value at all in understanding how nature works, that I can see anyway. I don’t seem to have a cure for that particularly impractical human infatuation.
The only real way to tame the growth system we see many the harmful effects of is understand it as a construction process. The proper way to finish a build is to put on a roof. It has no effect to simply change the name, calling the building “mud” or whatever if you stop liking it. If you want to change it you need to use how it builds, to bring its building to a stable climax. “Putting a roof on it” is what would happen if “the rich” rediscovered the values for which they wanted money in the first place, because the ONLY end use of money is to give it away. They need to find their “Rose Bud”, as it were, and give every child on earth two or three perhaps… anything at all but to keep hoarding money in ever growing piles till there’s so little spending on earth no one is able to pay their debt.
How Keynes put it was:
Lolwut? I don’t get this. You seem to define the problem as lending with interest, but after waxing lyrical about it for some time, describe the solution as people spending their money, on “true higher values” instead of hoarding and gambling. The two problems I see with this are (a) it’s a slightly more sophisticated way of saying “people should stop being greedy”, and we’ve had at least 2000 years of that, and (b) the greedy people who rip us off the most – the private banks – will love to profit from more gullible people spending their money and not being greedy gamblers. I wonder if you’ve understood the pattern of nature at all.
I guess what you call “waxing lyrical” may have been for you “junk DNA”, full of critical guidance on my reasoning that needed to be unlocked, by some other process. There are two important results of using spending **from investment funds** to deplete them. One is that it reverses the growing disparity of wealth in the society, and the other is it ends our automatic growing demands on the earth. What you seem to miss is that ending the means by which wealth is concentrated is directly a constraint on the power of “the private banks” as well as others that use money to multiply their money. If they profit from a healthy economy, but spend their profits…!!, then their control of the earth and our lives doesn’t multiply. ;-) Wouldn’t that be good?
I guess that didn’t catch your interest as I’d hoped. I’m not seeing the problem as “lending with interest” but “lending with compounding“.
The latter guarantees the lending will keep doubling, till something interferes with the compounding.