Grow or die? Grow and Die?

AUSTERITY IS NO GROWTH

AUSTERITY IS SUSTAINABLE.

AUSTERITY IS THE FUTURE

An argument for the creation of a ‘steady state economy’.

[a] At this time of financial troubles in the EU, the debates between the ministers have shown that many politicians continue to think of money as cash, and think that those who save cash, are able to invest their cash in projects and should be rewarded. Too many people still think that countries and people in debt are wrong-doers and must be punished. For example, the Greeks must be punished for their profligacy!

It is forgotten that most, if not all, countries have a ‘national debt’ and governments borrow to pay off the debt, and to fund all new projects. For example, the USA has a multi-trillion national debt, for which it has to pay $500+ billion interest a year. The truth of the matter is that there is not enough cash in circulation to fund any multi-million projects. Cash savings are not used by banks to fund projects. Banks fund these projects by loans. They create new loan money to fund all projects. In other words, we are all in debt -entrepreneurs, consumers, taxpayers, rich and poor, governments and corporations.

[b] Money is interest bearing debt. The debt drives corporations and governments to exploit communities and land and commodities in order to generate profits to pay off the debt or obtain new debts! New projects, local, national or international, cost a lot of money. The 1226 global billionaires, who may be able to pay cash for new projects, are also debt-ridden. It is the case that those identified as among the rich have the greatest debts, as well as assets. For most of us, in the countries of the G20, project money has to be borrowed, with interest. So to borrow 100 or 1000 or 1 million or 10 million dollars/pounds/euros will cost interest of up to 10% per year. Your wealth is your debt!

[c]Capitalism is a system that enables individuals, corporations, and governments, to gain access to capital so that they can finance projects. Lending and borrowing money are key elements of capitalism. All loans, under the present system, are new money, creating more money as part of the principal and interest paid.

It is important to realize that 1000 @ 10% for 20 years generates 6727.50 in total, including 5727.50 interest. The interest paid is the profit for the lender. A small business may want to borrow 100,000 for 20 years: @ 8%. This would generate 466,095.71 including 366,095.71 interest. Other operations may want to borrow 1 million. The lender may charge 8% over 20 years, and generate 4,660,095. These charges are generous profit on the loan and underlines that the real beneficiaries of all loans are the banks and their banksters.

[d] We are caught in a ‘loan trap’. Under the present loan system, if we are to pay back the principal, and the interest, there must be ‘financial growth’. All projects must generate profits and be valued in terms of their profitability, and operated so as to make money. They have to be ‘monetised’.

Growth and profits generate the ‘surplus’ which facilitates payment of debts, wages, pensions, interest, dividends, bonuses, expansion, development. ‘No growth’ is regarded as recession, with debt and deficit, unemployment, bankruptcy. Slow growth means that there is not enough wealth, after the debts have been paid. High interest rates initiate high profits and growth. ‘No growth’ is only a problem in a society where money is interest bearing debt.

[e] Sustainability eliminates growth. We cannot go on borrowing money, and creating debt, so as to exploit the earth in search of wealth by the consumption of nature’s products. At some point, there will be only debt and no resources, and banks will collapse. The finance system will disintegrate.

We cannot go on indefinitely making cars and trucks; engines, machinery, using fuel oil; mining raw materials such as metals, iron ore, coal; consuming trees, fish, crops, land, water; with increasing human population; destroying species; polluting the biosphere.

We live on a finite planet, and we believe that development and growth is infinite. We refuse to accept that all economic activity is finite. ‘No growth’ is the way to sustainability.

[f] The demand for growth must stop. It is unsustainable. ‘Growth’ from Queen Elizabeth the 1st to Queen Elizabeth the 2nd has led to the destruction of the environment along with the impoverishment of over 6 billion others, and the enrichment of a plutocracy of 1226 multi-billionaires. As an example, we have reached ‘peak oil’ but are obsessed by the search for new fields, destroying forests, villages, indigenous tribes, polluting water sources and marine life, and open farmlands and extensive grasslands.

We must develop new sources of energy which utilise natural processes such as sunshine, wind power, ocean currents, tidal waves. And of course reduce our consumption of energy. Walk and cycle. Design our houses and work places so as to conserve energy.

[g] Austerity is the future. Although at the moment ‘Austerity’ is regarded as a ‘bad word’ because it means cutting costs. It should be seen as a way to save money and repay debts. What is more, given that all countries are in debt, ‘austerity’ is the only viable economic strategy for the future. As such it may be regarded as part of ‘a steady state economy’.

We must start planning for a low growth/ no growth economy, which is not based on money as ‘interest bearing debt’, and where ‘income’ is not used to service debts, but to pay for social services. It is necessary for us to step out of fractional reserve banking, and develop full reserve banking.

[h] May 2012. Many countries are struggling with the implications of ‘growth’ or ‘austerity’. Many countries are puzzling over the wisdom of ‘new debt’, because they are convinced that ‘no loans = no new money = no growth = recession’. And they are correct, because the economic system depends entirely upon money as interest bearing debt. Once we return to Full Reserve Banking, the whole situation changes. We no longer spend money to repay interest on loans. We spend money to pay for services and projects.

An ‘austere economy’ will not be debt ridden. It will look for conservation. It will limit pollution. It will encourage local farming, and reduce export and import of products. The money collected by governments as taxes would be used to fund their projects. The spending programmes will be backed by full reserves, and, of course, will take longer to generate funds .We will no longer create money out of nothing.

We have to admit that the vested interests of plutocrats, of governments, of bankers, and hedge funds, investment funds, of entrepreneurs, and corporations, will almost certainly lead them to refuse to reform banking and economic systems.

So if bank loans continue, would it not be fairer if the interest rates were less: 1000@1% for 20 years generates 1220.19, including 220,019 interest? If the interest charge was 1% for 1 million, the return would be 1,220,190 or 220,190 interest? If not interest, perhaps it would be better if there was a fixed charge on the loan.

The story of modern banking is a story of digital transfers. Every day, banks and finance houses are involved in transactions [stocks and shares, commodities, currencies, personal, corporate and sovereign loans, pension payments]. The transactions involve many trillions of digital money, and are carried out according to formulae, and contracts, by traders bidding, selling and transferring ‘on-line’. These transactions could be based on cash money, rather than loan money, created out of nothing. But the volumes of money will be limited. The rates of growth will be limited.

Can there be economic growth and sustainable development? It seems that everyone is talking about ‘sustainable development’ but no one advocates an end to ‘growth’. No one wants to realize that ‘sustainable development’ is only possible when we eliminate ‘growth’.

Acknowledgements to the writings of

Hermann Daly, Steady State Economics;

Centre for the Advancement of Steady State Economics;

Charles Eistenstein, Happiness Summit; Post Growth Institute;

S. Brown et al, Journal of Economic Psychology;

Positive Money, Full Reserve Banking;

J. Kelvyn Richards

www.kelvynrichards.com A Discourse: Social Ecology