Saying that something is unsustainable simply means it cannot last. Our global monetary system is unsustainable because it has built-in flaws that mean it will someday self-destruct. We're already seeing evidence of this self-destructive tendency: the 2007-2008 global financial crisis, which is still playing out; New Zealand's housing price bubble and crippling levels of household debt; financial crisis in nations such as Greece, Argentina, and elsewhere.
The Club of Rome's 2012 publication Money and Sustainability, the Missing Link identifies five aspects of our global money system that make it incompatible with sustainability:
Together these lead to escalating debt, environmental damage, economic strain and social dislocation—regionally, nationally, and globally. The money system leaves a trail of destruction in its wake.
The gigantic credit bubble may take decades to unwind. In Greece, wages have fallen by up to 50%—much more than prices. New Zealand is vulnerable because our household debt is high and we are a trading country with long supply lines, importing 97% of our oil. We are also highly exposed to the Euro and to the Australian banking system.
Debt growth in the investment sector is exponential because any interest rate creates an exponential curve when the interest is continually added to the existing debt. This is compounding interest. Debt growth in the productive sector must also be exponential because the productive sector has to fund the investment sector debt.
As debt grows, it creates a pressure that shows up in a combination of these ways:
Pressures to create real wealth to back the expanding money supply are socially and ecologically destructive. The only ways to create real wealth are:
Increased productivity cannot keep up with the exponential growth of the money supply. We have passed the limits to growth.
Yes. Even those without debts are in some way paying for our money system. Only the richest of the rich benefit financially, and even they have to live in the world our money system is actively destroying.
By far the heaviest cost New Zealanders bear is the interest charged on business and home loans. All New Zealanders —even those who owe nothing —are subject to this charge, since all goods and services are priced to cover the interest owed by debtors. Tax levels, for example, are set to cover the interest owed on government debt.
Those on fixed incomes, such as retirees, and all those whose wages increase more slowly than inflation help pay for the collective debt burden with the rising cost of each purchase they make.
Until two centuries ago, Christians, Jews and Muslims were united in condemning usury as sinful. The Catholic Church went so far as to excommunicate usurers.
Interest serves self-interest, however, and Christians and Jews gradually learnt to overlook the sin, so that the original meaning of 'usury' as any interest charged on a loan is now generally considered archaic. It is now seen as normal for banks to charge interest.
Islamic law preserves the original meaning of usury, however, and Islamic approaches to finance show how it is possible to take a socially responsible approach to lending and investment finance. It is quite possible to reward investors without paying interest, and it is also possible to pay for banking and professional lending services by other means, for example by charging set fees instead of compounding interest. Bank fees have a negative connotation to them in our culture, but that's in part because banks are currently hitting us twice, both with fees and with compounding interest. The advantage of having fees (only) is that they do not lead to an exponential growth of the debt burden. Instead, they are simply a market payment for a service rendered, kind of like paying the plumber.
For landless Jewish goldsmiths, charging interest on loans to fellow Jews or to Christians wasn’t an option. Gentiles were the exception: when they deposited their gold with the goldsmiths they were given receipts in exchange. On realising that depositors were using the receipts as currency rather than uplifting their gold, the goldsmiths began lending more ‘receipts’ than they had gold to back them. They also began charging interest, a practice eventually legalised by Henry VIII in 1545 after he had broken ranks with the Pope.
The charging of interest on unbacked loans remains the foundation of today’s banking system. Notes and coins created interest-free by the New Zealand government amount to a mere 1.6% of our money supply. The rest of our money is created by banks as interest-bearing debt.
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