The Fiscal Flaw
Debt Created Credit, Its Aspects And
Words by Graham Ferguson
The intention of this paper is to
bring to your notice the one flaw in the structure of our financial system which is
constantly overlooked as being a vital influence in social, environmental and economic
This fault is as disastrous to the
global society and its economy as a crack in a wheel would be to a Very Fast Train!
Ultimately, they will both end up running off the rails.
The fact that money begins its
life cycle as a debt, means that all money in existence is on loan. Its very existence is
dependent upon a borrower. First the system requires that the borrower, whether nation,
company or individual, be in a position where it can adequately service the loan. If the
applicant is successful the money finds its way into circulation, mainly as wages and
salaries. The borrowers aim is to recoup costs, which includes the interest
repayments, plus make a profit. The producer hopes to do this from a global market-place
where the money in circulation at any one time is already less than the amount put in as
wages, and less than the original cost of production.
Since new money can only come into
existence as a loan, by that definition, it can no longer exist when repaid. It cancels
itself out of existence. Money in circulation represents an interest bearing loan. It can
not be representative of true wealth ie, product or service. Its status is debt. Borrowed
money, already in circulation, can be re-lent ad-nauseam, but this brings no new money
into being. Not one new cent is created. Likewise no amount of production or trade, local
or international, will create one cent of new money. Unless new money is
continually borrowed, the amount in circulation on a global scale can only diminish,
because of capital repayments and the payment of accruing interest .
For a thorough understanding of
the fault in the present financial system I wish to make it quite clear that new money
lent by banks, with a charter to do so, is created at the granting of the loan. It had not
existed before that and can no longer exist after the debt is repaid. If all debts were repaid there would be NO money in circulation. Money is a product. Immediately upon creation it becomes a commodity
that may only be used at a rental fee (the interest). It bears no relationship whatsoever
to the true physical wealth (the service and productive capabilities) of any nation
whether it be socialist, communist or capitalist. Thus no nation may prosper but at the
expense of its competitors. This system makes competitors of us all, while its implicit
requirement for survival is the elimination of ones competitors!
My thesis is that the present
system requires that society act in ways contrary to the way our innate common sense and
our sense of right and wrong would dictate. Industrys overdraft borrowings,
for a cycle of production, are channelled into circulation through wages and salaries.
Interest begins to accumulate immediately the overdraft is drawn upon. The payment of this
interest leaves a deficit in the amount in circulation in the market place
even if no immediate capital repayments are required.. As a result, the local market, has
a constant money (purchasing power) deficit and is thus unable to purchase in full, its
This artificially restrictive
situation of scarcity in the local market, occasions the need for every nation to compete
on the world market (the reason why most countries must export). This is an arena in which
a finite number of countries are expected to sell to each other more than they buy from
each other. The implications for conflict here are many and obvious. This arbitrary,
scarcity provoked, artificial and unnecessary situation has no merit whatever. Instead of
resulting in the vainly hoped for and much needed, cooperative spirit, we have
competition, the need for which resides only in the realms of the fantasy world produced
by the debt created credit system.
If, as is the case at present,
society devoutly believes in and has absolute faith in the efficacy of the money
system and blames the nature of people for the mess its in, then it is creating its
own reality out of a contemporary myth. To me, the consequences of this so called
reality may well be the long dark tunnel of another dark-age. A tunnel that
human society has unfortunately, already entered and the light that it imagines is at the
end, may well be the end.
An understanding of the symptoms
at present afflicting society and its environs and some research into a method of creating
an equitable financial system, is crucial to the successful resolution of these existing
The present question of worldwide
degeneration in our social structure, and the tearing of the environmental fabric that
protects and nurtures us all, is of such magnitude that it deserves to be addressed with
urgency and objectivity. I see it then, initially as a question for science research
methodology and only secondly as a moral question. I present several observations and
examples of social and economic transactions that could only be legitimised by a flawed
and inimical economic system, with eventual fatal consequences.
I often hear and read that the
human being is inherently greedy and aggressive. As a consequence, war and conflict is
seen as the inevitable result of human nature.
Is violence, greed and general
bastardry, hate and prejudice a dominant and intrinsically unalterable feature of human
nature? Is the exploitation not only of other humans but also of our biosphere, all that
can be expected of the human being? If so, then to what purpose are the humanities, the
social sciences, the religious and spiritual leaders of past and present, preaching
humanity, tolerance, enlightenment, spirituality etc.?
My contention here is that if the
structure of our financial system were such that tolerance, compassion, cooperation and
concern for others were the atributes required for economic success, then these desirable
qualities would in fact be eagerly embraced by our much maligned species. Have the
spiritual philosophers and humanitarian leaders of history including Gandhi and Jesus
Christ, shown a complete lack of understanding of human nature? Many
descriptions of humanitys inhumane nature are presented to avoid a search
for, or the investigation of, an alternative solution to social problems.
In my opinion a valid criticism of
human nature would be our partiality for using the scapegoat of our so-called inherent
shortcomings when faced with an unpalatable situation in which we feel a little
intellectually challenged. We tend to blame our nature in order to avoid further
examination or change.
The Genesis Of Modern Conflict
I endeavour to show that the
present antisocial behaviour of many corporations, governments, small business and
individuals, are merely unfortunate survival mechanisms, and that the exploitative methods
of their mode of operation are made necessary by a harsh and impoverishing
economic system, a financial structure that is impoverishing of the physical being and
shrivelling of the spirit.
Question not, whether humanity
is capable of achieving and maintaining an enlightened civilisation but rather, is it
possible to create the social infrastructure necessary to the achievement of such a
society? At present, people are forced into conflict, on an individual as well as a group
basis. We are all compelled to compete instead of cooperate (to the
detriment of the world as a whole) in a manic struggle for survival, under an economic
system that renders ineffective those very attributes that we generally ascribe to notions
of a civil, world society.
There is an assumption that
scarcity is a fundamental principal in economics. In terms of the environmentally
sustainable, no rational physical scarcity actually exists as yet, though even that
eventuality may be waiting in the wings
The need for conflict and
competition is a fantasy and an anachronism in the modern world. These outmoded practices
are perpetuated by the absolutely unnecessary, artificial scarcity of finance. It is
restrictive and divisionary. Finance is probably the only resource over which we may have
complete and absolute control. Yet the method used in the issuing and creation of finance,
is given over to a structural flaw in the system that renders it most detrimental to human
The method we use to produce new
money, has become somewhat of a sacred ritual that places it beyond question. As
unthinkable as questioning the Bible in the middle-ages! It would seem that to criticise
our present method of creating money, is to commit the unpardonable. It is as though the
structure of the financial system were sacrosanct and to question its fallibility, an
unthinkable heresy. A heresy that only the uninformed would commit.
The world at present, accepts the
false premise that to be secure money must first be borrowed. The interest paid on all
loans worldwide must leave a shortfall of purchasing power in the world market place,
resulting in restricted access not only to necessary money but also to everything we
produce or are capable of producing. This wilfully created scarcity factor leads to
restricted access to goods and services on a massive scale. Since our instinct for self
preservation in the short term is so powerful, we are left in a chronic state of crisis
where the competitive struggle for economic survival demands exploitation of all resources
at all levels. (The rationale for western civilisation's heavy emphasis on promoting the
competitive spirit in general and in education specifically may well derive from, or be a
direct cultural effect of the 'scarcity factor'.)
A popular misconception is that
money is a reflection of real wealth or productivity. The fact is that debt-money reflects
nothing but its self. I reiterate that the prevailing arbitrary and artificial finance, is
a product that bears no relationship whatsoever to the human need for environmental or
ecological sustainability. It creates an economic climate where social, professional,
psychological and physical survival requires and dictates the employment of dangerous
exploitative human behavioural responses. These reactions have long been mistakenly
attributed to a supposedly inherent human bias toward mindless rapacious greed, instead of
to our most basic instinct, self preservation.
Under this inimical system, the
population is driven, to compete tooth and nail with each other in order just to survive.
The ridiculous but popular concept of 'the law of the jungle puts us in continual
conflict not only with each other but also with nature. Contemplate for a moment the very
evident anomaly that exists within the framework of our civil, social and economic
infrastructure. Is it not odd that in an overwhelming proportion of the worlds
sociological problems there is always one ever present component,(a shortage of funds) glaringly
obvious when pointed out, yet consistently overlooked as a possible root cause?
Overlooked in favour of gleefully laying the blame for the problems facing society, on a
human conspiracy or on human nature; seen as uncaring, selfish, exploitative etc.
While ever this underlying anomaly
remains unrecognised, uninvestigated and unexamined, it will obviously not be rectified
and will continue as the factor behind most social, economic and environmental iniquities
and injustices. This particular factor requires absolute obedience to its dictates.
Leaving us no alternative but to contest mightily with each other in order to survive
financially and economically, therefore to survive in a literal sense making people
appendages of production instead of the object of it.
The financial restriction
involved, is the one factor constantly in short supply in any worthwhile human endeavour,
it makes impossible many types of achievements of which humankind is capable. As yet the
world suffers no shortage of physical resources with which to feed, to clothe, to house
its inhabitants if this were attempted in a truly sustainable manner. My point is, the
physical limits of world finite resources is not the problem under review here. An
understanding of the cause of why we must exploit finite resources is what is under review
and is vital to any solution.
There is but one basic scarcity.
The problem of the chronic shortage of finance world wide is of paramount importance in
the resolution of present environmental problems.
There is no shortage of teachers
or academic staff, or of materials, renewable or otherwise, for school or university
buildings or of people with skills to build them. Research and development suffers
but one basic shortage, finance. There is no shortage of materials or skills to fully
equip and staff the required facilities. Exactly the same finding will result from an
examination of the fully sustainable physical resources that apply to the creation or
maintenance of other institutions, organisations, industries, whether government or
I must address the mistaken belief
that there is plenty of money 'out there' and that it is tied up in armaments,
or in advertising or in the Swiss bank accounts of corrupt dictators etc. Money for arms
and advertising is spent on the wages, salaries and dividends of the people who produce
and service these items going straight into circulation. Banks lend the funds that are
deposited with them, back into circulation. However there are never enough available
funds to satisfy the needs of a sustainable society.
The flaw in the system ensures
that there is always a shortfall, a gap between the cost of production and the purchasing
power available in the market place. Another of the inviolate requirements of this present
system is its demand for continuous economic growth, which if looked at objectively will
be seen as another absurdity and impossibility. Nothing in nature expands forever
exponentially. Already we are nearing the limits of some of the worlds finite
resources due to overuse, overpopulation and wasteful overproduction.
Our ecosystems natural
protector, the ozone layer, is already stretched to the limit, just as our ever expanding
national and international indebtedness, our debts on which interest must be paid, is
reaching the limit of our ability to service.
Taxation is an ever increasing
burden on governments and taxpayers. Taxes go toward interest payments on
government borrowings, servicing the ever increasing debt. The Australian
Government's expenditure depends on a continuous round of borrowings via the Reserve
Bank by tendering Treasury Bonds as collateral, these are recoverable when the loan is
Since Rachel Carsons
warnings in 1962 there have been only token gestures and a little lip service on the part
of industry and governments. In spite of all the talk-fests at so called summits,
virtually nothing of consequence has eventuated that might stop global warming, reverse
the thinning of the ozone layer, halt the degrading exploitation of the world's oceans and
few remaining old-growth and rainforests. The reason is because all this would be too
costly. In other words there is not enough available money. This is clearly the
direct result of the structural fault and as such requires immediate attention for
That which restricts financially
restricts physically, restricts in almost every aspect of life. An all
encompassing, effective resource and environment management, becomes an impossibility.
Industry's ability to maintain and
sustain actual resources is reduced by scarce finance, to a mere tokenism. Nations must
baulk at the financial cost to industry of cutting greenhouse and ozone depleting
emissions. If finance were geared to human capabilities there would be no problem with
putting into place the recommendations from the reports of the various 'sustainability
Without Prejudice, Without Question!
We accept this ever present
shortage of funds without questioning the financial structures method of producing
money. How is it possible that the question, why is there not enough money is
never asked, is never really investigated? Have we conditioned ourselves to believe that
capitalists are too greedy, communists not greedy enough and socialists too generous? Do
we therefore wallow in a welter of circularitys and confusions, unable to see beyond
the blaming of human nature?
Consider the plight of hospitals,
aged care, medicare or any other social welfare facility. The same finding will result;
not enough money for those facilities that one would expect of a civilised society. The
present financial system is diametrically opposed to such a civilised society. Does
anyone really assume that there is not enough resource in labour or in materials, or
machinery, skills or desire to build and maintain adequate social facilities on a
Can we honestly believe that
sustainable roadways, cycleways, public transport systems, cant be constructed
throughout the nation if the funding scarcity factor is removed? What is the factor
involved in the fundamental economic rationalists' obsession with downsizing? Do these
people experience a lack of equipment or other facilities? Does a government or an
industry lack an understanding of the hardship, heartache and psychological damage they
cause their redundant workforce? I would suggest not.
Downsizing is done in the public
and private sector in order that these organisations might survive financially. Certainly
some organisations have gone overboard and achieved enormous profits but this can be
regarded as a buffer against the boom and bust roller coaster ride that is
synonymous with modern economics. The boom is short lived and the bust is very long.
More On Competition
Under the present system, true
competition is anathema to business, real competition must be eliminated or business goes
under. Amalgamations, takeovers, multinationals and the construction of massive
corporations are a survival mechanism and their formation is the direct result of the
existing necessity to eliminate competition. The rationale is "to beat your
competition you must become bigger (amalgamate) and/or more powerful".
Unfortunately, the necessity to
eliminate competition in business, plus the need to become ever more
efficient, thrusts industry into conflict with the worker. If you would ponder
the aetiology of modern social conflict please consider the flaw in the system, the
same flaw that has occasioned the need for World Government and the unconscious
corporate civilisation of John Ralston Saul. A method for removing the fly in the
ointment needs urgent examination and in my opinion, judicious action.
The worker is compelled to compete
for jobs made scarce because of necessary fund slashing which requires that
workers be replaced by technology, or made redundant by making one worker do the work of
two. Organisations become so lean and mean that they become positively anorexic. Workers
compelled to compete with each other in the ever shrinking job market, are by definition
in conflict. This is no more in the best interests of the workers than it is to the
businesses. Workers form union organisations as protection in their conflict with
employers. Businesses become cartels, corporations etc. as protection against business
competitors and from workers claims through unions, for better wages and workplace
A cohesive society on a global
scale would obviously require cooperation. Instead we get conflict. The world is a battle
field of groups and individuals, competing for scarce finance that by the very nature of
its creation must forever be in short supply, forever less than is required to even
minimally supply humanitys needs on a worldwide (monetarily and environmentally)
Workers' unions worldwide are seen
correctly by business as an impediment to their profitability which translates
into their financial viability, their very survival. Therefore in the eyes of
business, unions must be emasculated, corrupted or otherwise eliminated. (Business has not
yet considered the ridiculous and ever present shortage of funds as a problem
that should be examined and eliminated!)
I ask that we consider the
situation where people must struggle to eliminate competitors within a system
dictating that we become ever more competitive, would this not create conflict and
confusion? Society has been educated by the demands of a financial structure to become
evermore competitive in order to control any opposition. This spurious situation of course
needs a world government to control. Culturally, the effect of this is that competition is
seen as not only legitimate but that it is an imperative for survival. Even so, economic
survival for even the most competitive of industries, always remains problematic. Hence
industry's constant state of paranoia. More efficient means less workers -
less wages - less borrowings - less money in circulation - less access to the
products of industry but more poverty.
As stated earlier, all producing
nations, whether developing or otherwise, are faced with the need to compete on the world
market, because of the shortage of purchasing power in their local market place. This puts
all exporting countries into direct conflict and in the preposterous position of each
having to export to the other, more than they import from each other, within a finite
number of markets! The wisdom of this situation is never questioned, never
examined. The solution according to conventional economic thought is that we must compete
This means, produce more at less
cost at home (with all its implications of hardship) and at the same time produce as much
as possible offshore. This cost cutting also places the blame for polluting the
environment on the third world nation instead. A perceived bonus under the present system.
This artificially induced
worldwide conflict produces the ludicrous situation of groups of nations forming trading
blocks for protection. In reality the need for protection is a fiction that need not be.
There is no rational requirement
for money to be created as a debt. Methods will have to be put in place to get new money
into circulation without creating the stigma of debt. The governments of Australia and The
United States of America are empowered by their respective constitutions to do so. For a
start, all government expenditure could legally be paid for (money put into circulation)
without the creation of debt. This task presents no great difficulty for economics in
itself, though the implementation of any new method may be onerous, as the few and very
powerful who have learned to manipulate the system for their own 'benefit', (while
destroying their environment) may pose an immense impediment to any change.
I believe there is an acceptable
and effective method with potential for success in overcoming this problem. A first step
would be to begin the gradual process of educating the population in the understanding of
the present flawed system till a critical mass worldwide can safely demand a change to
credit created finance, instead of the present finance, created as debt.
Debt created credit is a contradiction in
Cyber citizen, I presume that
there are facilities at your disposal that would be adequate for investigating, to your
own satisfaction, the flaw in the structure of our economics system, I trust that the
above summary of the present situation in the world of finance has aroused your personal
I would love to hear your response, how ever brief, to my concerns in