Will we run out of money before we run out of oil? Its a serious question…
Writing in yesterdays Irish Times economist Morgan Kelly warns that as Ireland’s credit rating falls there may come a point when the government will be unable to sell bonds and thus borrow money. If that happens the amount of money in circulation will shrink drastically. Public sector pay wages will fall, consumers will stop spending, borrowers will try to clear outstanding debts, more businesses will fail - all leading to further and further contraction in the money supply. Where will it end? Should we plan to ditch the euro and bring back a national currency? As radical as this might sound the answer could be yes.
For many, the root cause of our problem is the way money comes into existance. Today money is not created by governments but loaned into existence by private banks. The banks do not lend out their depositors money but create it as a book keeping entry out of a promise to repay. Whilst we would think that if all loans were repaid there would be lots more money available the truth is that there would be no money!
There is another problem too. Because loans are interest bearing more money must be paid back than was originally borrowed. This locks society into the need for perpetual growth. Each year the economy must grow in order to create the demand for new loans to pay back the old ones and maintain the money supply. If this does not happen a deflation occurs and foreclosures ensue. The “boom-bust” cycle of the economy which we take for granted like the weather is actual a feature of our debt-based money system.
Transition town groups have largely focused on Peak Oil but perhaps Peak Money is what we will experience. The decline in demand for oil and gas due to the economic meltdown may outpace the decline due to geological depletion. In years to come when the industrial economy is on its knees we may look back and say “Peak oil? - Nah. We just stop using it.” A friend in Clonmel’s transition group quipped recently that to get an idea of what lies ahead for Ireland we should all watch the Power of Community again but as we do so substitute the word “Money” for “Oil”.
1. David Korowizc, Economic Growth & Its Future
2. Ellen Brown, Web of Debt
3. Paddy Allen, Global recession - where did all the money go?
4. Morgan Kelly, Bank guarantee likely to deal a crippling blow to the economy
5. Richard Dowthwaite, The Ecology of Money