it is physically impossible for our economic system to work. yeah?
Certainly it can work. The loan is never paid off. It is refinanced. Mr. Shrub continually produces more money and continually lends it Mr. Bia. Thus,
the total amount of money in the system, as well as the total amount of debt, continually increases. Yes, the amount of the debt will always be
greater than the total amount of money. Yes, because the number of dollars continually increases, the relative value of those dollars tends to
decrease over time.
The system works so long as Mr. Bia continues to lend money, never attempts to collect on collateral, and as long as the people in the system are
willing to start ignoring zeros on their currency.
The system works, but it does have a few problems. In particular, if Mr. Shrub stops issuing new currency, the entire thing collapses. Mr. Shrub may
then attempt to collect collateral. If Mr. Shrub is unscrupulous (for example, if this was his intent the entire time) he can choose to manipulate the
money to deliberately take ownership of everything purchased on credit for which there is no longer currency available to pay for. Or he may simply
cut the money supply to freeze commerce altogther. Remember, Mr. Shrub created and in a sense "owns" those dollars even when they're not in his
possession. It's understood that they will return to him, and presumably be destroyed by him. (Though in a fiat system like this one, the destruction
of currency isn't especially important, since nobody can use currency to redeem anything of value from the issuer. In a backed currency system, it's
in the interest of the currency issuer to destroy currency, since anyone can use it to redeem whatever is being used to back the currency.)
Finally, even if Mr. Shrub is well intentioned, if interest is being charged on the loan principal (all money), the collective effect of interest over
time will eventually cause the rate
of currency devaluation to be extremely problematic. Let's say there are 100 dollars, a loaf of bread
costs one dollar. That's fine. Now let's say that ten years year later there are 200 dollars, and a loaf of bread costs two dollars. One dollar is
worth "half" what it was ten years ago, but there still isn't any problem. A loaf of bread can cost a billion dollars and that's fine, so long as
there's enough liquid currency in the system. However...it takes time for the market to adapt to change. Ten years is plenty of time for storekeepers
and wage payers to adjust their numbers to accomodate the devaluation of the currency. However...as interest starts being charged on interest over
time, the rate of the currency devaluation accelerates. 50% over ten years is probably fine, but if currency devaluates 50% in the time it takes you
to walk from the bank to the grocery store, again the system falls apart.
So yes, there are problems with the system. Personally I suspect these problems are by design. Mr. Shrub deliberately chose to do things this way in
order to effect a controlled collapse in order to take control of collateral in the forms such as land, and businesses. Mr. Bia presumably didn't
understand this, and fell for it.
While it's a fine point...I would say that the 'fiat' nature of the system is not a problem. Money being irredeemable for anything such as gold is
fine. The system is based on trust, and the perception of value, but fundamentally, if you ask me, that's not all that different from a system
backed, for example, by gold. Gold, like paper currency, is mostly only valuable because people think it has value. If nobody was willing to accept
your gold in exchange for things you wanted, it wouldn't be worth anything either.
The real problem is the interest. That's what causes the system to self destruct. If we simply printed paper money and put it into circulation
without anything backing it, and without any interest, these problems would be greatly diminished.
[edit on 21-10-2008 by LordBucket]