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The over-debt monetary system and the possible resolutions By Dr Costas Kyritsis Department of Finance Technology and Education Institute of Epirus, Greece Erasmus exchanges program JAEN 2012

Global over-debt is not the result of the borrowers global economic behaviour. • Mass media , sell the idea that over-debt is a local particular economic behavioural problem , for each country, enterprise or household separately . • But as over-debt becomes a global ubiquitous problem, the deeper true causes must be sleeked in to the type of money flow forced in the current monetary system

The history of the American overdebt monetary system • “The American dream” (Spanish subtitles) •

• 1913: The year that the US government and US people lost the privilege to print money • See also the Blog: •

Who and when is printing money in the current monetary system

• The state: Has the right to “print” only metal coins. •

When: This happens to renew worn-out coins, and rarely to increase or decrease coins in circulation

• The typical bank: Forces the central bank to “print” money each time it •

lends money (that it does not have) under the fractional reserve rule 1-10 When: Continuously, all the time.

• The central bank: “Prints” money when it buys public bonds, other • • •

bonds, or wants to “salvage” over-debt organizations. When: Continuously or periodically. The decisions are unrevealed and secrete. Remark:It is a myth that money must not be “printed” in the monetary system as this would create inflation. Actually money “printing” is done continuously with low or high inflation. See e.g.

The Bank’s fractional-reserve rule 1-10 is the guilty “bug” of the financial system The fractional reserve rule 1-10: a) For each 10 euros that are deposited in the bank, it can lend 9 of them on interest b) For each 1 euro that exists as cash in the bank, it can demand from the central bank to “print” 10 euros , borrow it, and lend it on interest. c)


In older centuries this rule was related with the scarcity of the gold, as all cash was receipts of deposits of the metal gold. But as now money is not based on gold, this rule is essentially obsolete, and simply reflects the greedy ambitions of bankers to control society. The fractional reserve rule makes banks function with leverage=10 , which is very unstable, and at the slightest “earth-quakes” of the financial system become nonsolvent. If a significant part of the deposits are demanded by withdrawal for any reason, the bank becomes insolvent. This led to forcing the governments to lose the privilege to print money, and give it unconditionally to a small group of bankers, that become the unrevealed owners of the central bank.

The over-debt flow of money Lends 100% of the printed money Unrevealed owner-bank of the central bank on interest Lends 100% of the printed

The central bank money on interest Non-owner big

The central bank prints money when the bank x lends money under bank the fractional reserve rule

Lends money on interest

Typical bank X

Lends money on interest

Typical bank lends money With fractional-reserve rule 1-10

Any other entity In the economy, the state, enterprises, households

The free from over-debt flow of money The State The state does prints money when the bank x lends money

Typical bank X that does not use The fractional reserve rule

Invests printed money

Big Enterprise

The state gives printed money as salaries, investments, subsidies and at a small percentage lends money on interest

Deposits money

Invests money

Any other entity In the economy

In an non-over-debt monetary system, banks cannot use the fractional reserve rule •

• •

If a bank functions under the fractional reserve rule, and only the state has the privilege to print money, then the state would be forced all the time to let newly printed money flow in the society, through debt. This would continue the over-debt phenomenon. In addition the banks solvency would depend entirely on the state and politicians. The only solution therefore for the monetary system to be free from over-debt and at the sometime stable, is that banks cannot use the fractional reserve rule. This means that banks will return to their ancient role: Offer services of money depositing. When money is deposited in a bank, the bank is paid a rate, and is not paying a deposit rate. All the profits of the banks come from deposit fees. The banks cannot lend the money in deposit, and so they are absolutely naturally stable. The services of lending surplus public money, is undertaken by the state, that can lend surplus tax-money. Such a lending does not forces money-printing, is not using the fractional reserve rule, and is thus stable.

With statistical mathematical certainty the overdebt monetary system is non-solvent •

• •

With statistical mathematical certainty the debt of households, enterprises and countries (like Spain, Germany, Greece etc) will be increasing and is nonsolvent. The average percentage of liabilities of a typical European enterprise is 66% , and is already abnormal, as it signifies that business are not financial the owners of their assets although legally they seem to be. The recipes of healthy public finances although in general obviously notbad, it is totally inadequate to stop the insolvency of the increasing debts. The obvious measure of stopping to borrow money in the current monetary system, is equivalent with dying slowly financially, so as to avoid the abrupt death of the over-debt insolvency.

The politicians versus the bankers. The topdown resolution of a public-monetary system •



The current over-debt crisis shows clearly, that the minority of the big bankers have acted so far, in a socially irresponsible way, have acquired cryptooligarchic power in the society, higher than the power of the politicians that are forced to conduct a theatrical democracy. A top-down resolution of the over-debt would require that politician change the Maastricht treaty, and turn the European central bank (ECB) under public control.Only the states of the countries can have the privilege to print money, not the private sector. Then to eliminate debt, the ECB erases all debts demanded from the time of its foundation. As a chain reaction, all other banks and financial organizations (like states, the IMF, and the EFSM) erase equal amount of lending, to the erased debt to them.

The countries and communities versus the bankers: The bottom-up resolution of the parallel currencies •



Given that the power of the bankers is high over the politicians , mass-media, and society in general, it might be argued that it is not very probable, that all politicians simultaneously, would resolve over-debt , by making the monetary system, public, from private that it is now (Top-down resolution). Then a more probable resolutions would be that some of the countries (e.g. Mediterranean ) that suffer more from over-debt will resort to parallel local currency without exiting from the euro. The parallel local currency must not be a miniature of euro, but a public-monetary system free from over-debt. In this way social suffering, slow death, and unemployment are partially resolved. In some distant future, the euro itself follows the new design of the public monetary system free from over debt, and becomes one too.

The non-resolution: The moral disadvantages of the internal devaluation •

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If neither the top-down resolution (the euro becomes a public monetary system) neither the bottom-up resolution (local public currencies monetary systems free from over-debt appear) will occur, then the next phenomena will follow 1) Unemployment, 2) internal devaluation, 3) increased economic differences. 4) Decrease of productivity and growth To erase debt without changing the monetary system, may require declaring the public debt illegal according to the constitution (may require to change the constitution). And this may mean political turmoil, endangering democracy with a dictatorship. And even if after 5-10 years the extremity of unemployment and enterprises bankruptcy will seize, we will still live in a statistically non-solvent monetary system, that the only way to avoid final abrupt non-solvency would be to commit-suicide economically by freezing economic activities, productivity and growth. In particular internal devaluation means decreasing the value of human labor, compared to the value of tangible goods, which is immoral. The human intangible work involves soul participation, and by definition has higher value, essentially non-measurable by money, compared to the value of consumer tangible products. Furthermore increased economic differences make society suffer, leads to increased criminality, psychological insecurity, loss of trust, reduced collective intelligence. See e.g. the video

Over debt monet system spain  
Over debt monet system spain  

The over-debt crisis and resolutions