Warmist believes in funny money

The guy excerpted below has fallen for the old Douglas credit fallacy.  "Social Creditors" did quite well in Canada for a while, particularly in B.C., if I remember rightly. And aside from their misunderstanding of the financial system, I think they were fairly conservative.  So it is amusing that the enthusiastic young Warmist below has rediscovered it and got it published in the Guardian.  It made my day to read it anyway.

The thing he knows nothing about is the velocity of circulation but I am not going to try to give a lesson in Economics 101 in this post.  Most amusing of all is that the "new idea" he has in the final paragraph below is exactly what happens now.  I am pretty sure that the Guardian will be embarrassed into deleting this article soon so check it out

The writer below is Jason Hickel, a young professor of anthropology at the London School of Economics, which has been Left-leaning for just about the whole of its existence.  They do however have a distinguished record in economics so will certainly be embarrassed by the ignorance below emanating from their hallowed halls

What is it about Warmism that fries the brains of even quite smart people?

How can we redesign the global economy to bring it in line with the principles of ecology? The most obvious answer is to stop using GDP to measure economic progress and replace it with a more thoughtful measure – one that accounts for the ecological and social impact of economic activity. Prominent economists like Nobel Prize winner Joseph Stiglitz have been calling for such changes for years and it’s time we listened.

But replacing GDP is only a first step. While it might help refocus economic policies on what really matters, it doesn’t address the main driver of growth: debt. Debt is the reason the economy has to grow in the first place. Because debt always comes with interest, it grows exponentially – so if a person, a business, or a country wants to pay down debt over the long term, they have to grow enough to at least match the growth of their debt. Without growth, debt piles up and eventually triggers an economic crisis.

One way to relieve the pressure for endless growth might be to cancel some of the debt – a kind of debt jubilee. But this would only provide a short-term fix; it wouldn’t get to the real root of the problem: that the global economic system runs on money that is itself debt.

This might sound a bit odd, but it’s quite simple. When you walk into a bank to take out a loan, you assume that the bank is lending you money it has in reserve – money that it stores somewhere in a vault, for example, collected from other people’s deposits. But that’s not how it works. Banks only hold reserves worth about 10% of the money they lend out. In other words, banks lend out 10 times more money than they actually have. This is known as fractional reserve banking.

So where does all that additional money come from? Banks create it out of thin air when they make loans – they loan it into existence. This accounts for about 90% of the money circulating in our economy right now. It’s not created by the government, as most people assume: it is created by commercial banks in the form of loans. In other words, almost every dollar that passes through our hands represents somebody’s debt. And every dollar of debt has to be paid back with interest. Because our money system is based on debt, it has a growth imperative baked into it. In other words, our money system is heating up the planet.

Once we realise this, the solution comes into view: we need banks to keep a bigger fraction of reserves behind the loans they make. This would go a long way toward diminishing the amount of debt sloshing around in our economy, helping reduce the pressure for economic growth.

But there’s an even more exciting solution we might consider. We could abolish debt-based currency altogether and invent a new money system completely free of intrinsic debt. Instead of letting commercial banks create money by lending it into existence, we could have the state create the money and then spend it into existence. New money would get pumped into the real economy instead of just going straight into financial speculation where it inflates huge asset bubbles that only benefit the mega-rich.


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