Post Pandemic Poverty
Delivered in July 2020 by C R Everington to his students.
Lingering beneath the fear of the pandemic itself in 2020, is the widely held conviction that decades of debt repayment and financial hardship will follow it. This is put forward as axiomatically true, universally unquestionable, and patently obvious. It is held with all the complete surety with which every good slave believes in the invincibility of his chains.
Governments have “borrowed” hundreds of billions of dollars to finance income support during the pandemic, and like the wife who must be obeyed, the debt must be repaid.
To all minds limited within the compass of their own experience, somewhere people must have had a part of these billions in their bank accounts. They then apparently volunteered them up to support those impoverished by the pandemic lockdown. Their recompense is morally compelling.
The logic is good and the ethics unchallengeable. Everything points to the moral rectitude of repaying these people, except for the one damnable fact that no such people actually exist.
I have waited patiently all of my life expecting my bank balance to be reduced because the bank has taken at least part of my money to loan it to another. I have asked my friends whether their bank has taken their deposits to make loans. I have spoken to company directors, accountants, investors and whoever, and the answer is always “No”. Nobody has less when someone gets a loan and has more?
Then we come to that age old brain baffler, “Where will the money come from?” The answer is that it doesn’t come from those who have it at all. It all, and always, comes originally from those who don’t have it. Every dollar has to start somewhere. But where? They are conceived with iniquitous ingenuity and nowadays are always born in cyberspace.
Banks lend money which doesn’t exist, but as the public will accept their “loans”, they exist in the public belief system, and as money is that which we believe others will accept as money, it is indeed money.
How important and imperative is it to repay money which was never borrowed from anybody?
The only hope of understanding the need to repay pandemic debt must come from a descent into confusion. While the public “understanding” endures as it is, misunderstanding is permanent. That all order comes originally out of chaos is unarguable.
We need to be confused and to know it, before order is given value, sought out, discovered and cherished.
If the fear of the Lord is the beginning of wisdom, accepting and embracing our confusion is the beginning of understanding. Take care wishing confusion upon your enemies; you may be arming them to discover your undoing. Wish confusion rather upon your friends; it is infinitely preferable to surety in folly.
If this has left you more confused than ever, this is my gift to you with love. Accept it. But we can only give it value through our yearning for knowledge, and with a determination to dissolve the remaining mists which swim before us in this vexed area of money, debt and credit, in the servitude of people who until now have largely been prostrated before ruthlessly empowered abstractions.
After Covid-19 Confusion
Manufacturing plastics, writing computer programmes and fine-tuning internal combustion engines are all technical in their nature. This is universally accepted and we all defer to those with the appropriate technical know-how. In the area of money creation in society and its impact upon the economy, however, we all have surety in our instinctive inclinations. Listening to those who do really have the knowledge to help us here, is as dumb as reading the instruction book when trying to fix your lawn mower.
So let’s put pride aside for a time, and forego the challenge to working it all out by ourselves without help. I can assume authority, but in the end it is only you who may confer it. Let’s read the instruction book before making judgement.
What is money?
Professor Walker in his “Money, Trade and Industry” page 6, defines money as “any medium no matter of what it is made or why people want it, no one will refuse in exchange for his goods.”
Where does it come from?
The Bank of England’s Quarterly Review of Q1 2014 tells us on page one:
Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks.
Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
So when do we need to create more money and why?
(1) When peoples’ incomes are insufficient to purchase the consumer goods in the market place, is one such time.
(2) Another is when the funds available to undertake desirable production are insufficient.
How do we know when Number 1 applies?
We measure it. For example it was measured for the year 2014 in the United States with a Supply and Demands Account which might also be called a National Profit and Loss Account. This account may be viewed at http://www.socialcredit.com.au/uploads/NationalAccountsPrototype.pdf It showed that the total net personal income of all Americans in 2014 was $10.1 trillion, though the total of consumer goods both produced and sold was $12.5 trillion. The shortfall in that year was equal to $7,500 per person, or $30,000 per American average family of four people.
As Americans produced more product than what they were paid to do it, theirs’ was a profitable economy. Of course they could not afford to buy what was their own profit. Their incomes were too low. So in that year American indebtedness increased by $2.3 trillion to keep the economy going and enable sufficient consumption.
This $2.3 trillion was just added to the cost of getting access to all their previous year’s profits, to give a total current national debt for the USA of about $90 trillion. The control of access to American profits by their banking system is a, if not the, primary means of governance in that country. It is similar everywhere.
When should more money be created for production?
The development of modern banking began properly with the issue of credit (the creation of money) to finance production. It has proved to be an almost unsurpassed boon to enhancing human wellbeing; surpassed only by the attainment of ethics and a religious basis of right association in Western culture.
It above all other factors allowed such as the industrial revolution, empowering and enabling the rise of an abundant economy, enhanced health, the growth of science and know-how and foundational education. All this despite the cruelty of its growing pains that Charles Dickens did so much to help us to understand and address.
Financing production with banking debt continues as the optimum way of doing it, and this for two reasons. One is that it funds production without detracting from consumer purchasing power currently available. That is, by reducing the means to purchase the consumer products currently in the market place. The second, and most importantly, is that it furnishes accurate information and enables full responsibility for economic costs.
When a bank finances an industry to produce, it imposes a requirement of efficiency. If when the productive process is complete, it has not been done so as to deliver more desired value to society than it consumed in doing so, a loss is clearly evident. It cannot repay the loan. This loss is borne by both the bank involved and entity undertaking it. Such will then be discontinued, while when greater value is delivered than is consumed in the process it is repeatable, and assumes a permanency in the economy while this condition continues.
Why differentiate bank debt for Production from bank debt for augmenting Consumption?
When bank loans are expended to enable production, some of this money finds it way into incomes in the form of wages and salaries, and if it is profitable, in dividends too.
Consumer debt is now used to fund consumption to the extent that incomes arising from production are insufficient to buy it in the full measure in which it is available and desired. As incomes are not available to buy it, they are also not available to repay the debt used to buy it. The result is that this debt to enable full consumption is cumulative. As incomes from normal production are insufficient to buy it, it grows. This has resulted in a global outstanding debt of approximately $250 trillion. Only a small portion of this is currently debt which is funding production.
This accumulated consumer debt inhibits current consumption through its servicing charges. This compels increased consumer debt in subsequent economic cycles. The dysfunction which results in inflation, higher taxes, periodic recessions and personal hardship, while worthy of another essay, is for our purposes here taken to be self-evident.
How do we begin to stop cumulative debt resulting from insufficient consumer incomes?
The first and unavoidable necessity is that we measure the deficiency. The link given above to prototype national accounts provides a guide. It provides, sadly, the only pattern for National Profit and Loss Accounts and Comprehensive National Balance Sheets now existent in the world.
Corporate Directors and qualified Accountants all agree that company affairs simply cannot be understood without balance sheets and profit and loss accounts. National economic affairs cannot be understood either, without measuring the economy in this way.
Having first measured national economies properly, what might be done will become evident.
There is no need whatever to substantially amend the way in which banks finance industry for production. How deficiencies of consumer purchasing power are managed is seriously in need of reform.
So how can we end burgeoning global indebtedness?
It cannot be done unless we inhibit Banks from financing consumption with debt. This will involve different mechanisms from those presently employed. The follow suggestions are eminently doable.
The first step is to establish a National Credit Authority. This entity would have court-like powers and be independent from Government in a similar way.
It would be empowered to take, subpoena or require evidence or information from any quarter relevant to its function of quantifying aggregated personal incomes, and determining total consumer production available in the market place. This might form part of a National Account called perhaps, a National Supply and Demand Account and juxtaposing available personal incomes against consumer products available in that market in their aggregated totals. This account would serve and function as a national profit and loss account.
It would also establish and maintain a Comprehensive National Balance Sheet listing all of the assets of that Nation whether publically or privately held, and aggregate the Nation’s liabilities. These liabilities would not include liabilities of one national person or entity to another such. Included as liabilities would be all demands outstanding, whether current or not, against any of that Nation’s assets. Debts to foreign entities, national assets owned by foreign entities, and the national money supply currently free (not term deposits) and available to make claims upon the national assets would be included. Having established these national accounts, the National Credit Authority could proceed to exercise its functional powers.
What functional powers would the National Credit Authority be given?
Having established that a deficiency of effective consumer purchasing power existed in the National Supply and Demand Account it would be empowered to direct the nation’s Reserve Bank to issue this amount of funds, payable to the NCA, which would be debited to the National Balance Sheet as a liability. These funds would not attract interest charges.
In the event, unlikely though it would be outside of a state of war existing, that a surplus of purchasing power was discovered in the National S and D A/c, it would be empowered if it so choose to direct the Government to surrender taxation into the National Balance Sheet, thus reducing effective consumer demand and the nation’s liabilities. The Government would retain the right to determine the form in which any such taxation might be levied.
Upon receipt of the funds equivalent to a deficiency of purchasing power as per the second paragraph above, the NCA would invite any and all adult nationals to register as their nation’s Shareholders and be issued with one share each at an agreed par commensurate with their share of the nation’s net assets, with possibly some adjustment for the inclusion of national minor persons.
The NCA’s funds from the nation’s Reserve Bank would then be issued equally to all Shareholders directly into their nominated Bank Account as a National Dividend. All Banks would be prohibited from issuing loans for consumption so as to prevent double funding consumption.
As bank deposits arising from the National Dividend are not properly the liability of those private Banks, an appropriate adjustment to these Bank’s liabilities on their corporate balance sheets should be regulated.
So what will all this mean?
It will mean that all proper persons will become genuine equity holders and real Shareholders in their countries, and this in much the same way that we now share equally in choosing our Governments through the ballot box with one vote each.
Consumer debt will end other than where one person foregoes consumption for the benefit of another.
The nations’ debts will atrophy and wither leaving ultimately only that debt which is advanced to finance production.
Even Government which will not be able to secure Bank loans for its consumption, will in time not be able to finance itself other than through taxation or direct loans from its citizens so its debts will decline too.
Residential housing is also a consumable product, albeit a durable one. Financing housing will be done through non-bank financial institutions (building societies) where one person foregoes his consumption for another. Banks may own these institutions, though they will not be permitted to loan to them.
Loans by Banks for the building of homes will continue, but be repaid upon sale as residences.
As bank loans are repaid and this money is cancelled out of existence (all bank loans create deposits and all bank loan repayments cancel them out), the National Balance Sheet will lose a liability to this amount. The personal equity of persons in their country will thus increase.
National economies will become less dependent upon full employment as personal income is progressively replaced, at least to some extent, by the National Dividend.
Social security while no doubt continuing for the disadvantaged will be less necessary, and less onerous upon the employed.
More harmony will be possible between the haves and the have-nots.
With the coming of artificial intelligence and advancing technology a basic income for all is advanced.
Growth and jobs will be appropriate to our needs and our willingness to meet them with effort and technology.
Employment and social security will lose their monopoly of providing personal income.
Leisure will be increasingly possible.
Frantic advertising to secure limited purchasing power will atrophy. Consumerism as a means of providing employment when burgeoning and adequate production is evident everywhere, will subside.
Demands upon the earth’s resources to produce beyond our needs for products, but which is compelled upon us to provide employment as the only means of income will no longer be necessary. This greatest of all assailants upon the environment will be reined in.
Socially we will have a greater measure of security, be less grasping for fear of want, and will have more time for each other. Even spending more time with our children and perhaps we will have more of them.
Banks will be prevented from lending to multiple clients so lavishly for housing that prices are bid up, both enslaving us all to large mortgages and denying home ownership to many.
The National Dividend will not be dependent upon where one lives, so that “escaping to the country” will be more possible. With the internet and the better communications which are coming, it will also be more attractive.
Where have we now arrived?
If you have come this far and braved the confusion which I recommended to be embraced, you have at least a little weaponry. The ancient Druids are said to have had a motto “The Truth against the World”. It will ever be so.
We need each other on the right side of this one. We need each other’s’ help to break through the bondage of confusion, to help each other understand this difficult matter. A critical mass of understanding can bring these many good things. I could easily suggest a Movement which could help you, but I am not going to do it. The modern person has had enough of Movements; too many have disappointed.
We need understanding as a personal treasure. Later perhaps kindred spirits may be discovered, and then form part of your personal treasure too.
I am so frightfully old fashioned that I pray that you may find them
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