[GiftEconomy] the debt-virus : "every paid back loan must be replaced by two new loans"

Tue Feb 8 08:21:20 PST 2011

*"under the current system, the more we work the faster everything we
produce and everything we own, will end up being owned by the banks. There
is nothing to be done about it, under the current system. Therefore we can
say that the system is unstable. "*
*
*
***" every paid back loan must be replaced by two new loans, leading to
exponential payments to the banks by the economy as a whole."*
*
*
*"By accumulation of interest, the whole of the economy thus ends up working
for the banks, in addition to being forced to continually expand (with
consequences for us humans in the rat race, and for the environment being
destroyed in the process). So there is really little argument that the
system is inherently unstable."
*
*
*
***"Anyone who can conceptualize the economy as a whole, as opposed to just
one single loan, can see that something doesn't add up and that reform is
urgent. "
*
more details below...

---------- Forwarded message ----------
From: Sepp Hasslberger <sepp at lastrega.com>
Date: Tue, Feb 8, 2011 at 3:13 PM
Subject: Re: [P2P-F] An update on BIBO, financial stability standards, and
the debt-virus hypothesis
To: Michel Bauwens <michelsub2004 at gmail.com>
Cc: p2p-foundation <p2p-foundation at lists.ourproject.org>

Dear Michel,

it is a largely technical discussion and I hope it can resolve, although I
have doubts that the two people doing the discussing can listen to each
other, or comprehend and find common ground.

Probably the operative word in this (the subject of contention) is a
difference between "infinite" and "unbounded".

While there is no infinite creation of debt, it certainly is unbounded,
meaning the system does not provide a limit to the debt being created. As a
matter of fact, charging interest on money created by the banks
substantially out of nothing, initiates a flow of resources towards the
banks that becomes ever greater, the more the economy grows. Since most of
our money we currently use is created by commercial banks through loans,
most of our money (except a small part that is actual cash) is expected to
pay interest. As individual loans are repaid, other loans must take their
place, so overall, our economy is perpetually in debt, and perpetually pays
a tribute to the banks creating the money, through the mechanism of
interest.

It is this mechanism that brings about instability of the economy. There can
be no growth without a corresponding growth of the tribute, which
incidentally is never being created. Only the principal is being created,
but the repayment is ALWAYS more than the principal. So under the current
system, the more we work the faster everything we produce and everything we
own, will end up being owned by the banks. There is nothing to be done about
it, under the current system. Therefore we can say that the system is
unstable.

Ardeshir argues that every individual loan gets paid back within a certain
number of years, and therefore the debt cannot grow towards infinity. He
fails to see that every paid back loan must be replaced by two new loans,
leading to exponential payments to the banks by the economy as a whole.

In Ardeshir's own paper, he has several tables of repayment of loans.
Looking at those tables (let's use the first table in his article), it is
quite clear that the money created by the loan (the balance in year 1) is
13,800. After 30 years, the total of payments made is 28,260, more than
double of the money first created. So an initial sum of money is created,
and after a period of years, twice that money is paid back to the bank,
extinguishing the original loan. The taker of the loan had to 1) pay back
the money he originally obtained, and 2) pay back another time that much,
which he had to obtain from somewhere else.

In the overall view of the economy, two things are necessary to do so.
1) Someone else has to take a loan of 13,800 just to keep the economy going
steady state (the money originally borrowed vanished out of the economy by
repayment and has thus to be replenished).
2) Someone else again has to take a loan of 14,460 so that the first person
taking the original loan could find somewhere in the economy the money to
pay the interest.

By accumulation of interest, the whole of the economy thus ends up working
for the banks, in addition to being forced to continually expand (with
consequences for us humans in the rat race, and for the environment being
destroyed in the process). So there is really little argument that the
system is inherently unstable.

Marc expresses that instability with a mathematical formula. Ardeshir says
the instability does not exist (actually his argument is a technical one
saying the instability isn't infinite). Anyone who can conceptualize the
economy as a whole, as opposed to just one single loan, can see that
something doesn't add up and that reform is urgent.

Kind regards
Sepp

*"The individual is supreme and finds the way through intuition"*

http://www.newmediaexplorer.org/sepp/
http://www.laleva.org
http://blog.hasslberger.com/
http://www.facebook.com/hasslberger
http://twitter.com/healthsupreme

.

On Feb 8, 2011, at 5:14 AM, Michel Bauwens wrote:

Dear Sepp,

because the discussion is largely technical, this is all I can do, but
perhaps you can add an extra comment?

also, if you are in contact with Marc, please give him a chance to say
something about the evolution of the bibo project since december 2009,

Michel

<http://blog.p2pfoundation.net/understanding-the-logic-of-intervallic-periods-i-e-periods-with-riots-not-revolutions/2011/02/08>

<http://blog.p2pfoundation.net/?p=13869>
[image: photo of Michel Bauwens]
Michel Bauwens
16th February 2011

In December 2009, Sepp Hasslberger introduced to us Bibo, a proposed
standard for stable currencies, that would replace the current inherently
unstable banking money system.

This article has become our most comment rich article, in particular through
a recurring debate between one of the Bibo co-authors Marc, and Ardeshir
Mehta.

Ardeshir has written an article that challenges one of the main points of
monetary reformers, i.e. that the current system leads to the infinite
creation of debt through compound interest.

You can find it
here<http://homepage.mac.com/ardeshir/DebunkingTheDebt-VirusHypothesis.html>
.

The context:

*“Currently, most if not all money is loaned into existence by banks, and is
thus based on interest-bearing debt. There is no question that neither
interest nor debt-based money are good for society, and I have written
denouncing both debt and interest elsewhere. However, there is a fairly
common thesis, based on the fact that money is loaned into existence as
interest-bearing debt, that if new loans are not continually being issued in
ever-increasing amounts, enough money will not be created to pay the
interest on existing loans; and as a result, at least some those loans will
be defaulted upon, resulting in inevitable foreclosures. “*

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