Application and acceptance of the monetary system as the cause of the crisis
Ibri | 09.01.2010 11:21
Not an economist, not a professor, not a famous politician, just a woodworker, who wants to take his responsibility in opposition to the world. An unexpected completely different view (paradigm-shift) on the economic problems. An approach in which the subject is an analysis of the language in which we communicate (the monetary system).
Application and acceptance of the monetary system as the cause of the crisis
Capitalism is a system by which a large number of people give their life meaning. It is based on a monetary system. We hardly think about the consequences this monetary system has on our social life. In his ‘Allegory of the Cave’ Plato described the problems people experience within a group when they think about things in a way that is different from the normal theory. In the last century, the famous scientific philosopher Thomas Kuhn described such a situation in a similar way; what people experience within an area of science as ‘truth’ and ‘reality’ is dependent on the relevant world view. A world view originates because people collectively accept a conceptual framework of theories (paradigm/framework of thought). For that reason science does not evolve gradually, but by leaps through changes in paradigm. So science does not describe reality, but creates its own reality.
This ‘reality’ is, after all, dependant on the relevant paradigm. A world view can change as a result of a change in paradigm. Paradigm changes can come about when an existing paradigm, accepted by people, appears unsatisfactory for solving continuing problems within an area of science. Either the problems are solved within the current paradigm, restoring the confidence in the paradigm and it remains accepted, or there will be a new paradigm.
The current crisis cannot be explained through current economic theories, but from within another conceptual framework that describes processes through a technical analysis of the monetary system implemented by us. Supporters of various conceptual frameworks may find it hard to make themselves understood to each other as it is only possible to talk of ‘truths’, ‘facts’ or ‘problems’ if there is a common paradigm. Supporters of the current economic models are trying, with the best of intentions, to explain and to avert the rampant crisis of the system going on around them. Few people seem to be questioning the chaotic behaviour of the economic reality, which can be logically explained by looking at the problem from the point of view of another paradigm; the technical working of the monetary system we have ourselves applied.
Other conceptual framework offers clarity
Current opinion is largely formed by the usual economic theories, understood to generally apply. These economic theories, which as a valid paradigm create their own realities, act as foundations on which society’s world view is built. These theories are practised in our world and maintained and traded in the media by politicians, economists and other leading policy makers. The question of blame relating to the cause of the crisis is interesting and can be answered when we understand how and why capitalism as we know it functions and develops over time, as it has done for centuries with all of the associated social development. We could define another paradigm as a conceptual framework and focus ourselves in terms of areas of research on the structure of the agreements on which this system is based, by subsequently using it as a clear starting point for further analysis. Agreements within the capitalist system are expressed through our current monetary system. The supporters of the current economic theories do not approach the economic situation from the point of view of the workings of the monetary system. They consider the use of this monetary system, in which the amount of money increases as outstanding debt increases, as an unquestionable assumption or fact. The shock, denial and resistance that may come about from reading this article is a logical reaction as a different paradigm exists within the current world view, that is to say that, through this other paradigm one lives in another world. However, changes in paradigm have always taken place. How did people, who had already gone through time-space, experience their world and truths?
Newton’s physical theories were ‘truth’ until the point at which Einstein’s theories were accepted as a new paradigm. And there is something similar going on with the current economic approach. Every 50, 60 or now even 80 years, the capitalist model experiences an enormous crisis through which the majority of all outstanding debts are reorganised. The causal link between issues cannot be clearly and easily explained from the point of view of applicable economic theories, but can be explained by examining the workings of our monetary system. So why is this not obvious? Just as the acceptance of another paradigm such as, for example, the ‘fact’ that the Earth rotates around the sun rather than the other way around is a paradigm shift (a so-called Gestalt-Switch) not necessarily based on logical, rational grounds, but in the last resort a sociological process.
A centuries-old structure of the monetary system is the cause of the crisis
(Western) people express themselves through activities primarily from within a monetary system. Almost everyone sticks to this agreement. This monetary system contributes a binding condition to our model of capitalism for the delivery or non-delivery of products or the carrying out of services. People have used this monetary system for a number of centuries, a monetary system in which amounts increase when there is an increase in outstanding debts. This structure of our monetary system is responsible for the current problems. The condition from which participants in the system derive their right of existence is the fact that one must not find oneself in liquidity problems; one must be able to sustain payments. The system can continue to operate without significant problems when this is the case for the majority of participants. This condition can only be met if the amount of money grows at a sufficient annual rate.
Evidence of the inevitable nature of such a crisis as the one in which we now find ourselves, in which the amount of money will shrink, will be indisputably be shown in the following paragraph. It will show why this crisis must undergo an almost complete reorganisation of debt before a structural recovery can be made if we continue to use the monetary system. This reorganisation of debt will be on a larger-scale than in the 1930s, an economic depression that – handled within the confines of the monetary system – was also unavoidable, could only be postponed and which had enormous social consequences. Because of the unconditional use of this monetary system by people, the current situation the world now faces is simply impossible to avoid. This approach clearly explains Japan’s problems in the 1990s, the world crisis in the 1930s as well as other world-wide crisis (1837-1850 and 1873-1895). It would be wise to wonder if there are other ways to pursue activities instead of, as participants in a capitalist system, stubbornly continuing to apply the monetary system with a pyramid structure, which results in huge social problems, but we will return to this.
After a growing amount of money comes a shrinking amount of money
In this treatise we limit ourselves to the core of the problem. After a growing amount of money comes a shrinking amount of money. Money is created by increasing debt; there now exists a loan and an available balance, while paying off the loan results in a loss of money; a ,loan and an available balance disappear. From this point it is, with a little understanding, possible to deduce the further developments using sheer logic. During the approximately four hundred years that we have had this monetary system, we have known periods during which the amount of money has grown; participants take on more debt than they pay off and periods in which the amount of money has been reduced; participants pay off more debt than they take out. To understand this, the last period of an increase in the amount of money is described. This period followed the 1930’s, a time characterised by a shrinking amount of money; participants paid off more loans than they took on. As previously stated, the world crisis could not be prevented, only postponed as will be shown based on the structure of our monetary system.
Over the last 60 years, existing loans have been on the increase and the amount of money has risen. Banks have become increasingly larger and more powerful during this period, which is a logical and inevitable development given the necessary increase in debt. During every recession over the last 60 years, the system has been able to ‘lend its way out of the recession.’ A sufficient increase of outstanding loans has meant a sufficient increase in the amount of money, the majority of all participants were able to ‘keep on paying’, prolonging the right to exist of the entire system.
At the turning point where we find ourselves since the summer of 2007, new loans are growing at insufficient rate while payments of old debts continue, or at least should continue (the last time this happened globally was at the end of the 1920’s; from mid-1928 new loans began to stagnate).The total amount of existing debt in the system is increasing at a reduced rate and the amount of money is growing insufficiently. As a result of this a large group of participants is running out of money. So participants have to sell assets (on which loans are often based) on a larger scale. As the result of which these will decline in value and the number of transactions will decrease. More important and essential for this story is the insight that the sum of new loans on these transactions also decreases, causing the increase in the amount of money in the following period to further stagnate or even becomes negative (shrinking amount of money); after all, less money is being created than in the previous period while money is disappearing due to the necessary paying off of debts. The consequence of this is an even greater increase in liquidity problems within the system. The pressure to sell assets further increases and prices will continue to fall, new loans based on these collaterals will, in turn, also fall, etc. As a result of the characteristic pyramid structure of the monetary system, the unpreventable negative spiral is inevitable. Given the current valuation of assets, the amount of outstanding loans and the relatively low interest rates, we now almost reached the technical limit of a growing amount of money. Postponement is only possible by increasing the sum of existing debt. Increases in worldwide national debt may be the last convulsive movement. The option to provide more loans of sufficient level in order to allow the amount of money to grow, as was done in earlier-post-war recession, is no longer an option; the longer we remain in a period of an increasing amount of money, the more unstable the system will become as a result of necessarily increasing loans. Consequently, the economy will not improve structurally after a substantial amount of debts have been purged. The supply of money will cease; more loans will be paid off than taken out. House prices and share prices will continue to fall structurally as a result of the increased pressure to sell, because the quantity and size of new debts continue to fall, leaving in many places a literal insufficiency of money within the economy. This gives a strengthened backward pressure as described above. The economy will continue to slow down, at a more serious rate than in the 1930’s.
The consequence of our means of expression
The use and acceptance by man of the monetary system has enormous consequences. Apart from the, by the monetary system dictated, necessary specializations, upscaling and fusions of human activities to remain viable as a participant of this capitalist model, I hardly dare to form an opinion on the social problems that have already been set in motion. With a shrinking amount of money people are, in terms of the monetary system, ‘no longer able to earn anything’; they have to ‘economise’ or activities will be discontinued due to the financier or other lenders because ‘obligations can no longer be met.’ Conflicts and frustration between people will only increase as a result of the monetary system. ‘Securities’ such as the value of property, shares and obligations, as expressed in the monetary system, come under increasing pressure. This will be experienced as a disappointment to people as participants of the capitalist system. Market parties in the food chains, education and health care also express themselves (in a necessary way) in terms of our monetary system. People should continue to eat, but for as long as the monetary system sets the binding terms for this, it will become a problem. Moreover, the integrity of the monetary system will be under increasing pressure, the national debt will increase (inc. state support to financial institutions and stimulating measures), whereas in the real economy the number of loans continue to decrease as a result of falling collaterals and the amount of money will continue to decrease. We as human beings, while reasoning, acting and searching within the monetary system, cannot find a socially acceptable solution. It is important to consider this alternative approach to the problems and to remain aware of the causes of the current situation, because as long as the agreements formed in the monetary system continue to apply, the economic problems, food crisis, political instability, social unrest and further worldwide conflicts will only continue to increase. We do not want it, but as long as we as people continue to express ourselves through our applied monetary system, it will happen.
Summary
The fundamental cause of the current gigantic crisis is found in the fact that we as people accept the monetary system that we apply. The current problems can be traced back directly to the workings of this monetary system. Finger-pointing at sub-prime lending, derivative, banks, mortgage advisers or other market parties is fundamentally unfounded. Some of this participants have in some cases accelerated the supply of money culminating in the change by enriching themselves, through their position and power. However, it would have been impossible for them to avoid it. If the lending behaviour of the participants in the capitalist system had been reigned in at an earlier stage thus stagnating the supply of money, then such a crisis may have patently manifested itself sooner. Governments are also unable, within the rules of the monetary system, to take measures that offer structural, socially acceptable solutions, regardless of their wish to do so. Because we have been using this monetary system with a pyramid structure for some centuries and, as human beings, accepted it we will experience - after a period of a growing amount of money - a period of a shrinking amount money or the monetary system having been found unreliable. By searching within the limits of the system, mankind is prevented from finding an alternative solution. A change, however, is inevitable and the future can no longer be measured by the standards of the current world. Hopefully mankind will be successful to banish this monetary system from his mind and with it all of the associated conditions, rules and expectations , and will be able to interpret the change as a new beginning, rather than a down fall or apocalypse. An old knowledge teaches us that times of “the acquisitor” (“If I engage in an activity or take some action then I should gain from it ”), in which people cannot, in their minds, abandon such a system, will end up in confusion, disappointment and conflict. People should be able to get rid of these self-imposed way of thinking and, once liberated from that yoke as a binding condition, be able to fully develop activities, out of enjoyment, pleasure and love for their environment and fellow human beings.
Changes to conceptual frameworks (paradigms) create resistance within society. Over the coming years, it may appear that the crisis will deepen if people as participants in a capitalist model, continue to adhere the monetary system, despite the often temporary optimism and the increasingly crazy measures people seek within the limits of the system. The monetary system sets binding terms for the development of activities, is a kind of common language used by people to communicate. Mankind will experience increasing problems, resulting from the economic crisis when he will continue to apply this monetary system and by not changing his attitude as a human being. We could still mean a lot for each other, just expressing these activities within the monetary system is becoming increasingly tougher due to the shrinking amount of money ; people are willing but it’s becoming more difficult to make themselves understood to each other as a result of this monetary system. However logically the current (for the time being financial and economic) events in the world can be explained, acceptance of this other approach is in the last resort a sociological process. Given the consequences that will arise from the acceptance and application of the monetary system in the very near future, I felt obligated to put this statement in writing as an argument, in order to take my responsibility this way as a human being standing in opposition to the world.
Capitalism is a system by which a large number of people give their life meaning. It is based on a monetary system. We hardly think about the consequences this monetary system has on our social life. In his ‘Allegory of the Cave’ Plato described the problems people experience within a group when they think about things in a way that is different from the normal theory. In the last century, the famous scientific philosopher Thomas Kuhn described such a situation in a similar way; what people experience within an area of science as ‘truth’ and ‘reality’ is dependent on the relevant world view. A world view originates because people collectively accept a conceptual framework of theories (paradigm/framework of thought). For that reason science does not evolve gradually, but by leaps through changes in paradigm. So science does not describe reality, but creates its own reality.
This ‘reality’ is, after all, dependant on the relevant paradigm. A world view can change as a result of a change in paradigm. Paradigm changes can come about when an existing paradigm, accepted by people, appears unsatisfactory for solving continuing problems within an area of science. Either the problems are solved within the current paradigm, restoring the confidence in the paradigm and it remains accepted, or there will be a new paradigm.
The current crisis cannot be explained through current economic theories, but from within another conceptual framework that describes processes through a technical analysis of the monetary system implemented by us. Supporters of various conceptual frameworks may find it hard to make themselves understood to each other as it is only possible to talk of ‘truths’, ‘facts’ or ‘problems’ if there is a common paradigm. Supporters of the current economic models are trying, with the best of intentions, to explain and to avert the rampant crisis of the system going on around them. Few people seem to be questioning the chaotic behaviour of the economic reality, which can be logically explained by looking at the problem from the point of view of another paradigm; the technical working of the monetary system we have ourselves applied.
Other conceptual framework offers clarity
Current opinion is largely formed by the usual economic theories, understood to generally apply. These economic theories, which as a valid paradigm create their own realities, act as foundations on which society’s world view is built. These theories are practised in our world and maintained and traded in the media by politicians, economists and other leading policy makers. The question of blame relating to the cause of the crisis is interesting and can be answered when we understand how and why capitalism as we know it functions and develops over time, as it has done for centuries with all of the associated social development. We could define another paradigm as a conceptual framework and focus ourselves in terms of areas of research on the structure of the agreements on which this system is based, by subsequently using it as a clear starting point for further analysis. Agreements within the capitalist system are expressed through our current monetary system. The supporters of the current economic theories do not approach the economic situation from the point of view of the workings of the monetary system. They consider the use of this monetary system, in which the amount of money increases as outstanding debt increases, as an unquestionable assumption or fact. The shock, denial and resistance that may come about from reading this article is a logical reaction as a different paradigm exists within the current world view, that is to say that, through this other paradigm one lives in another world. However, changes in paradigm have always taken place. How did people, who had already gone through time-space, experience their world and truths?
Newton’s physical theories were ‘truth’ until the point at which Einstein’s theories were accepted as a new paradigm. And there is something similar going on with the current economic approach. Every 50, 60 or now even 80 years, the capitalist model experiences an enormous crisis through which the majority of all outstanding debts are reorganised. The causal link between issues cannot be clearly and easily explained from the point of view of applicable economic theories, but can be explained by examining the workings of our monetary system. So why is this not obvious? Just as the acceptance of another paradigm such as, for example, the ‘fact’ that the Earth rotates around the sun rather than the other way around is a paradigm shift (a so-called Gestalt-Switch) not necessarily based on logical, rational grounds, but in the last resort a sociological process.
A centuries-old structure of the monetary system is the cause of the crisis
(Western) people express themselves through activities primarily from within a monetary system. Almost everyone sticks to this agreement. This monetary system contributes a binding condition to our model of capitalism for the delivery or non-delivery of products or the carrying out of services. People have used this monetary system for a number of centuries, a monetary system in which amounts increase when there is an increase in outstanding debts. This structure of our monetary system is responsible for the current problems. The condition from which participants in the system derive their right of existence is the fact that one must not find oneself in liquidity problems; one must be able to sustain payments. The system can continue to operate without significant problems when this is the case for the majority of participants. This condition can only be met if the amount of money grows at a sufficient annual rate.
Evidence of the inevitable nature of such a crisis as the one in which we now find ourselves, in which the amount of money will shrink, will be indisputably be shown in the following paragraph. It will show why this crisis must undergo an almost complete reorganisation of debt before a structural recovery can be made if we continue to use the monetary system. This reorganisation of debt will be on a larger-scale than in the 1930s, an economic depression that – handled within the confines of the monetary system – was also unavoidable, could only be postponed and which had enormous social consequences. Because of the unconditional use of this monetary system by people, the current situation the world now faces is simply impossible to avoid. This approach clearly explains Japan’s problems in the 1990s, the world crisis in the 1930s as well as other world-wide crisis (1837-1850 and 1873-1895). It would be wise to wonder if there are other ways to pursue activities instead of, as participants in a capitalist system, stubbornly continuing to apply the monetary system with a pyramid structure, which results in huge social problems, but we will return to this.
After a growing amount of money comes a shrinking amount of money
In this treatise we limit ourselves to the core of the problem. After a growing amount of money comes a shrinking amount of money. Money is created by increasing debt; there now exists a loan and an available balance, while paying off the loan results in a loss of money; a ,loan and an available balance disappear. From this point it is, with a little understanding, possible to deduce the further developments using sheer logic. During the approximately four hundred years that we have had this monetary system, we have known periods during which the amount of money has grown; participants take on more debt than they pay off and periods in which the amount of money has been reduced; participants pay off more debt than they take out. To understand this, the last period of an increase in the amount of money is described. This period followed the 1930’s, a time characterised by a shrinking amount of money; participants paid off more loans than they took on. As previously stated, the world crisis could not be prevented, only postponed as will be shown based on the structure of our monetary system.
Over the last 60 years, existing loans have been on the increase and the amount of money has risen. Banks have become increasingly larger and more powerful during this period, which is a logical and inevitable development given the necessary increase in debt. During every recession over the last 60 years, the system has been able to ‘lend its way out of the recession.’ A sufficient increase of outstanding loans has meant a sufficient increase in the amount of money, the majority of all participants were able to ‘keep on paying’, prolonging the right to exist of the entire system.
At the turning point where we find ourselves since the summer of 2007, new loans are growing at insufficient rate while payments of old debts continue, or at least should continue (the last time this happened globally was at the end of the 1920’s; from mid-1928 new loans began to stagnate).The total amount of existing debt in the system is increasing at a reduced rate and the amount of money is growing insufficiently. As a result of this a large group of participants is running out of money. So participants have to sell assets (on which loans are often based) on a larger scale. As the result of which these will decline in value and the number of transactions will decrease. More important and essential for this story is the insight that the sum of new loans on these transactions also decreases, causing the increase in the amount of money in the following period to further stagnate or even becomes negative (shrinking amount of money); after all, less money is being created than in the previous period while money is disappearing due to the necessary paying off of debts. The consequence of this is an even greater increase in liquidity problems within the system. The pressure to sell assets further increases and prices will continue to fall, new loans based on these collaterals will, in turn, also fall, etc. As a result of the characteristic pyramid structure of the monetary system, the unpreventable negative spiral is inevitable. Given the current valuation of assets, the amount of outstanding loans and the relatively low interest rates, we now almost reached the technical limit of a growing amount of money. Postponement is only possible by increasing the sum of existing debt. Increases in worldwide national debt may be the last convulsive movement. The option to provide more loans of sufficient level in order to allow the amount of money to grow, as was done in earlier-post-war recession, is no longer an option; the longer we remain in a period of an increasing amount of money, the more unstable the system will become as a result of necessarily increasing loans. Consequently, the economy will not improve structurally after a substantial amount of debts have been purged. The supply of money will cease; more loans will be paid off than taken out. House prices and share prices will continue to fall structurally as a result of the increased pressure to sell, because the quantity and size of new debts continue to fall, leaving in many places a literal insufficiency of money within the economy. This gives a strengthened backward pressure as described above. The economy will continue to slow down, at a more serious rate than in the 1930’s.
The consequence of our means of expression
The use and acceptance by man of the monetary system has enormous consequences. Apart from the, by the monetary system dictated, necessary specializations, upscaling and fusions of human activities to remain viable as a participant of this capitalist model, I hardly dare to form an opinion on the social problems that have already been set in motion. With a shrinking amount of money people are, in terms of the monetary system, ‘no longer able to earn anything’; they have to ‘economise’ or activities will be discontinued due to the financier or other lenders because ‘obligations can no longer be met.’ Conflicts and frustration between people will only increase as a result of the monetary system. ‘Securities’ such as the value of property, shares and obligations, as expressed in the monetary system, come under increasing pressure. This will be experienced as a disappointment to people as participants of the capitalist system. Market parties in the food chains, education and health care also express themselves (in a necessary way) in terms of our monetary system. People should continue to eat, but for as long as the monetary system sets the binding terms for this, it will become a problem. Moreover, the integrity of the monetary system will be under increasing pressure, the national debt will increase (inc. state support to financial institutions and stimulating measures), whereas in the real economy the number of loans continue to decrease as a result of falling collaterals and the amount of money will continue to decrease. We as human beings, while reasoning, acting and searching within the monetary system, cannot find a socially acceptable solution. It is important to consider this alternative approach to the problems and to remain aware of the causes of the current situation, because as long as the agreements formed in the monetary system continue to apply, the economic problems, food crisis, political instability, social unrest and further worldwide conflicts will only continue to increase. We do not want it, but as long as we as people continue to express ourselves through our applied monetary system, it will happen.
Summary
The fundamental cause of the current gigantic crisis is found in the fact that we as people accept the monetary system that we apply. The current problems can be traced back directly to the workings of this monetary system. Finger-pointing at sub-prime lending, derivative, banks, mortgage advisers or other market parties is fundamentally unfounded. Some of this participants have in some cases accelerated the supply of money culminating in the change by enriching themselves, through their position and power. However, it would have been impossible for them to avoid it. If the lending behaviour of the participants in the capitalist system had been reigned in at an earlier stage thus stagnating the supply of money, then such a crisis may have patently manifested itself sooner. Governments are also unable, within the rules of the monetary system, to take measures that offer structural, socially acceptable solutions, regardless of their wish to do so. Because we have been using this monetary system with a pyramid structure for some centuries and, as human beings, accepted it we will experience - after a period of a growing amount of money - a period of a shrinking amount money or the monetary system having been found unreliable. By searching within the limits of the system, mankind is prevented from finding an alternative solution. A change, however, is inevitable and the future can no longer be measured by the standards of the current world. Hopefully mankind will be successful to banish this monetary system from his mind and with it all of the associated conditions, rules and expectations , and will be able to interpret the change as a new beginning, rather than a down fall or apocalypse. An old knowledge teaches us that times of “the acquisitor” (“If I engage in an activity or take some action then I should gain from it ”), in which people cannot, in their minds, abandon such a system, will end up in confusion, disappointment and conflict. People should be able to get rid of these self-imposed way of thinking and, once liberated from that yoke as a binding condition, be able to fully develop activities, out of enjoyment, pleasure and love for their environment and fellow human beings.
Changes to conceptual frameworks (paradigms) create resistance within society. Over the coming years, it may appear that the crisis will deepen if people as participants in a capitalist model, continue to adhere the monetary system, despite the often temporary optimism and the increasingly crazy measures people seek within the limits of the system. The monetary system sets binding terms for the development of activities, is a kind of common language used by people to communicate. Mankind will experience increasing problems, resulting from the economic crisis when he will continue to apply this monetary system and by not changing his attitude as a human being. We could still mean a lot for each other, just expressing these activities within the monetary system is becoming increasingly tougher due to the shrinking amount of money ; people are willing but it’s becoming more difficult to make themselves understood to each other as a result of this monetary system. However logically the current (for the time being financial and economic) events in the world can be explained, acceptance of this other approach is in the last resort a sociological process. Given the consequences that will arise from the acceptance and application of the monetary system in the very near future, I felt obligated to put this statement in writing as an argument, in order to take my responsibility this way as a human being standing in opposition to the world.
Ibri
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