The debt
creation of money and the unsustainable financial extraction - Capitalism’s fuel is structured to run out:
A crucial factor that has fuelled capitalism is the
debt creation of money (fractional reserve banking). With its roots in the
Medicis formalising it by introducing double entry bookkeeping in banking,
whereby a deposit became a liability, rather than an asset held under trust,
and the deposited money/gold, the bank’s asset.
Towards the end of WW2, the US Dollar became the world currency, the
authors of the structure thought that it would provide stability, based on the
exchange rate regime designed by them.
However, the oil price weapon used by the Arab countries in 1973, to
counter the Western support for Israel, led to the US forcing KSA
to sell oil exclusively for dollars. This was necessary as the US had abandoned
the gold standard a couple of years earlier, which had removed
the constraints on money printing. The fifty-five years since then
demonstrates the increasing role of financialisation since then.
Data of the last fifty-five years: The global
GDP grew 10.2 times, while global debt grew 27.8 times in size. Along-with
this, the financial services extracted twice as much out of the productive side
as compared to its extraction fifty-five years ago (8% of the world GDP versus
4% fifty-five years ago).
Debt will grow into perpetuity: the way the system is structured, in
the event there is an attempt at reducing the aggregate debt, it will amount to
the reversal of creation of money, i.e., the aggregate money in circulation
will go down, creating recessionary pressures. Since we need the aggregate
money in circulation to grow in line with economic growth required to improve
the living standards of billions of downtrodden people around the globe, debt
will have to grow into perpetuity, that too at a higher pace to accommodate the
extraction of interest on debt.
The System is likely to collapse under its own weight: Based on the fifty-five-year data, the rate of extraction by the
financial investors out of the productive sectors will continue to accelerate;
thus, at some point in time the proportion of this extraction will overwhelm
the productive side of the economy and the parasite will outgrow the host, leading
to a collapse of the economic system as we know it today.