Understanding The Financial Crisis
By Benjamin Gisin (www.touchthesoil.com)
In the economy, the financial crisis expresses itself as a
tightening of cash flows for businesses, governments, non-profits
and individuals. This chilling wave of less-than-adequate cash flows
raises national stress levels as we wonder how we’ll survive — and
amidst colossal bailouts whose cost is pushed on government and
ultimately a burden to taxpayers.
This financial crisis, like past and future ones, are a logical
expression of an unsustainable financial world that breeds conflicts
of interest and unbridled profiteering. There are certainly people
more responsible than others for the crisis. However, we have all
(unconscious in most cases) supported and used this system destined
to arrive at this juncture sooner or later.
The Federal Reserve (Fed) publishes the Flow of Funds Report (www.federalreserve.gov/releases/z1/Current/)
that illustrates who owes who. The September report discloses
debtors owe creditors $51 trillion in the United States. Since 1985,
debt has grown twice as fast as GDP. The sub-prime lending crisis
gave an already indebted economy the shakes by reducing the
financing activity needed to sustain the economy in response to
non-performing debt — the depression revisited.
The problem starts with what we use as instruments of exchange, most
notably bank accounts and currency — debt obligations of banks and
the Fed respectively. Bank accounts are backed by people in debt to
banks. Currency is backed by the national debt. By Webster’s
definition, these instruments are not money. Our financial system is
that of debt obligations backing other debt obligations with no
money in between.
Here is where the legal marriage of the economy to the debt products
of the financial system has brought us:
1) The financial industry is unable to find a sufficient number of
borrowers to qualify for credit to invoke and distribute the debt
instruments (bank accounts and currency) to maintain the economy and
service all investments.
2) The sub-prime lending crises, war spending and commodity (oil)
speculation are like rams hitting a financial landscape already
weakened from its natural debt growth.
3) The official solution is to find the biggest borrower (the U.S.
Government) to take on additional debt to accomplish three things:
1) Underpin investments gone sour — bonds/loans to non-performing
borrowers. 2) Re-capitalize huge enterprises — AIG Insurance. 3)
Economic stimulation to get people to spend — tax rebates.
4) The financial industry’s products — bank accounts and currency
(what people perceive as money) — are faltering as instruments of
exchange. The financial system is a dog that knows only one trick —
use debt as money and debt to back the debt used as money. On
3/31/08, bank accounts (debt of banks) stood at $7.4 trillion. On
12/31/07, currency (debt of the Fed) stood at $792 billion. There’s
an insufficient amount of circulating debt servicing $51 trillion in
5) The chosen solution for the financial crisis is to use the
public, via the federal government, as the borrower of last resort.
Is maintaining the financial system in the long run, as the
uncontested king in providing our instruments of exchange, being
done at the expense of the economy?
6) Using debt obligations as instruments of exchange is so archaic
it has required volumes of laws to mandate people to use it. Now the
financial system needs more public debt to keep it going. Is the
financial crisis exposing the financial industry as an unsustainable
7) The original blueprint for creating bank accounts (deposits) and
currency as instruments of exchange was for profit making through
debt. Can we grasp that what we use as money is steadily failing as
an instrument of exchange?
Our dilemma is attempting to borrow ourselves into prosperity. We’ve
done it in the past when the economy was less saturated with debt.
It is a sobering awareness to discover there is no money per se,
only the debt instruments we have become accustomed (anesthetized)
to using in commerce.
Having the economy married to the financial industry is not unlike
being on the Titanic. Only, it’s not about life boats. It’s about
splitting from a partner intoxicated with debt and getting on the
road to recovery with more progressive partners.
Many progressive concepts already exist or are in the process of
coming into expression:
1) Economic reciprocity. (www.barternews.com)
2) Volunteering that can be applied to helping ourselves
3) Non-debt forms of exchange. (www.monetary.org)
4) Re-inventing money with local currencies and other reciprocity.
The human family will survive this crisis and may start thinking
outside the financial paradigm. It is in our hearts to evolve to a
system sensitive to human frailty and our oneness. We’ve just
received an invitation to do so.