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Economics 101

What they don't teach you in school

Why every country is bankrupt

For many people, economics is too complex a subject to fully comprehend. Hence we fail to even make an effort to understand it. Not that we don't care to learn about it, it's just, well, even if we did understand what difference would it make?

"Ye shall know the truth, and the truth shall make you angry." - Aldous Huxley

The consequence is that we leave it up to the experts to handle. But what do the experts really know when they can't even agree?

There is an economics joke that goes, "If you line up all the economists in the world end to end, they still couldn't reach a conclusion."

The reality is that economics, as taught in the schools, is a recital of the same flawed principles from the same flawed textbooks. That's why we call them toxic textbooks.

This essay on Economics 101 is much too long to cover in one piece. Hence, it is broken up into the following short sections to make for easier reading and comprehension:

  1. The Truth about Money
  2. Money goes around in circles
  3. Money is created out of nothing
  4. All Money is Debt
  5. Our monetary system is dependent on Perpetual Growth
  6. Wealth means Surplus
  7. In search of rent, profit, interest, return on investment
  8. Banks and governments are crooks and criminals
  9. Growth is Not Sustainable
  10. The Politics of Money
  11. Money is Power
  12. There is a Solution
  13. Summary
  14. Conclusion

Read it in its entirety or jump from section to section as you wish to choose.

1. The truth about money

We take so many things for granted and money is just another one of such things. When do we ever stop to ask the question, "Where does money come from?"

Of course, we may answer "We get paid money for doing a job", or, "Money comes from the bank". We all know that having money is essential for living and surviving in our modern society. We get a job in order to earn money and make a living, to buy us food and shelter. Without money, our lives would be very miserable and difficult indeed.

Yet, our preconception of money is so far from the truth that it is shocking when we do learn the truth. It would serve us and all of humanity well if we took the time to learn the truth about money.


2. Money goes around in circles

It is not difficult to grasp the idea that money moves in circles. A perfect analogy is the circulation of water. We know that water falls to the ground as rain. Water flows in the streams and rivers and collects in ponds, lakes and oceans. The water we consume for domestic and industrial use goes back into the rivers, lakes and oceans. Through evaporation, water returns to the atmosphere and the water cycle repeats itself as rain.

Money flows in a similar fashion. Money goes around in circles.Take taxation as an example. Taxes collected by the government are used to pay for salaries to workers who provide services to the public, the very same people who pay taxes.

The standard textbook functions of money are:

  1. a medium
  2. a measure
  3. a store

We will come back to this in the following sections.

When we consider money as a store of value, we are likely to associate money with wealth. We assume that money gives us financial wealth. In reality, money does not create wealth. When we consider that money goes around in circles, we are able to understand that financial undertakings such as lotteries, charitable donations and taxation do not create wealth. In reality, these monetary transactions result in a redistribution of wealth. All we are doing is shifting money from one person or group of persons to another. No net wealth is created.

Perhaps we need to redefine the meaning of financial wealth.

True wealth is the symbiotic relationship we have with others. Having monetary wealth would serve us no good if there is no one who is willing to provide us with goods and services in exchange for our money. By using our money to exchange goods and services among ourselves we increase our wealth provided that the exchange creates a genuine increase of productivity.

The reality is that the fundamental purpose of money is only the first of the three items listed above. Money is a medium of exchange.


3. Money is created out of nothing

This is one aspect of money you may find hard to grasp and it comes as a shock to learn the truth.

"The process of money creation is so simple, the mind is repulsed." - John Kenneth Galbraith

When we approach the bank for a loan to purchase a car, house or build a new factory, we may think that the bank would lend us money that others had deposited in their accounts. Not so.

A bank loan is a book-keeping entry on a computerized record. When you take out a loan, a number gets added to your bank account and a counter-balancing number gets added to the bank's records. Done. Money is created. That's all folks.

As money goes around in circles, hopefully, you will use that loan to earn a living (or someone else will). The money may be used to purchase a house, which provides a living for a house builder who buys goods and services which eventually pays your salary and you can repay your loan.

Eventually, somewhere down the line, your loan is repaid and the numbers are erased from the bank's computer records.

But there is one catch. The bank requires interest payment on the loan. Where did the money to pay the interest come from? The answer is simple. More loans have to be taken out by someone else to pay for the interest.


4. All money is DEBT

All money created is a debt which will never be repaid. We have to understand that there is nothing sacred about money. Money is a piece of paper. It is a promise, an agreement or a contract. It is a printed statement of an I.O.U. When I write a paper check for some goods or service that you provided me, I am creating money. The check is an agreement, a promise from me, that I will provide you with goods and services in exchange for what you have given me.

Similarly, when I have money, it is a U-O-ME, that is, this represents an agreement or a promise to an entitlement to goods and services in the future.

Every time a loan is issued by the bank, additional loans must be issued to cover interest payments. Even though the principal amount on the loan might be repaid, the interest is covered by more loans being created. Hence the end result is loans are created to repay the interest on past loans and will never be repaid.

As of July 1, 2012, total US national debt is $15.7 trillion while the global debt is $40 trillion, which will never be repaid. The only way out of this predicament is to cancel all debt. This may sound rather radical but it has been done in other cultures and societies in the past.

5. Our monetary system is dependent on perpetual GROWTH

All money created is a debt to be repaid which will never be repaid. Does this sound like a contradiction? The mechanism of loan issuance, interest payments and money creation means that the global monetary system must keep on growing. Growth is essential and imperative otherwise the system collapses.

The entire monetary system is a pyramid or Ponzi scheme.

Like any chain letter, pyramid or Ponzi scheme, those who initiated the game or got in and out early, are the ones most likely to benefit and they do so handsomely. Everyone else loses.


6. Wealth means Surplus

True wealth ought to mean surplus. A wood cutter might chop and store enough firewood to last him through the winter. He might choose to harvest more than what he anticipates he would need and thus create a surplus in case it is needed.

A farmer might grow more food than what he needs to feed his family. He might work a bit harder and put away a surplus in storage.

When we save our money for our retirement years we hope that it represents a surplus to be used when we are no longer working or capable of working. Money saved for the future is an entitlement to goods and services from future workers. There is currently no underlying surplus created by savings. Money as a store of value is simply a dillusion.

True wealth ought to be backed by a surplus but that is simply not the case.

To make matters worse, the continuous growth of the money supply means that the value of our savings is eroding away. This is called inflation.


7. In search of Rent, Profit, Interest, Return on Investment

Yet, the capitalist's goal is to increase his/her monetary wealth through rent, profit, interest or return on investment. We can increase the money supply and increase everyone's monetary holdings. But where is the surplus?

If interest creates an expansionary monetary system, isn't interest and profit essential for a successful economy? The current capitalist system places financial profit above everything else. Every resource, every aspect of our natural world, and even human time and labour is being monetized and liquidated for the express purpose of monetary gain. This leads to gross environmental degradation and human suffering which puts the whole human existence in jeopardy.

Rent, profit, interest and return on investment all amount to the same thing, the relentless necessity to increase the money supply. Increasing the money supply provides the elite with the mechanism to increase their share of financial wealth which amounts to a greater share of the spoils of society. Not only is this evident in the widening gap between the rich and the poor but also in the balance of power between the 1% and 99%.

The fundamental right to make a profit benefits a few at the expense of the masses.

Welcome to modern day slavery.

"Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs." - Thomas Jefferson to Thomas Cooper, 1814.


8. Banks and governments are crooks and criminals

Bernard Madoff made off with billions of dollars of investors' money and got sentenced to 150 years in prison for running a Ponzie scheme. In a Ponzie scheme, early investors get paid off from deposits of later investors. The scam can go on only so long until enough people want to cash in their chips. There is never enough money to pay back everyone. And yet, banks do it all the time. Banks will lend out ten times more than deposits. If every investor or depositor wanted to reclaim their savings there would be a run on the bank and the bank would have to close its doors and declare bankruptcy. Except what happens is the banks get bailed out by the government who then passes the buck and burden on to the taxpayer. And yet the government allows banks to operate this Ponzie scheme with impunity.

We all know that it is a criminal offence to counterfeit money. If caught, you get thrown into the slammer for doing it. And yet, governments print money as freely as they wish. Again, the working class gets screwed.


9. Growth is not sustainable

Every nation, government and conventional economist clamors for growth. Why? Because without growth the system collapses.

The entire world and all of humanity is now facing three crises simultaneously. The global crises of failing economics, environmental destruction and social injustice are inextricably linked. You cannot separate one from the other.

There might have been a time in the past when the global population was small and the earth's resources plentiful. Those times are history. Today things are much different.

Banks and financial institutions create money from nothing. In order to perpetuate the continuous growth of the money supply, new loans must be created. More money must be pumped into the system and we create this demand for money by our pursuit of wanton consumerism. In order to feed this demand for consumer goods we have to exploit the earth's natural resources. What resource companies are in fact doing is liquidating the earth's non-renewable resources for short-term profit. At the same time we are rapidly destroying the very same environment that we depend on and are endangering every living species on the planet.


10. The politics of money

"Give me control of a nation's money supply, and I care not who makes its laws." - Mayer Amschel Rothschild.

The power to create money has been usurped by the banks and financial institutions. The 1% who owns the world's corporations and financial wealth has the power to finance, run and control governments and create the industrial/corporate/financial/environmental laws to their benefit. Money created by the banks out of nothing flows back to the very same corporations and elite that own the banks.

Moreover, the ruling elite controls and directs the government and security forces to suppress any opposition to their self-serving interests. Hence we now have what is known as the MICC, the Military-Industrial-Congressional-Complex.

The ruling elites are in control of nation states across the globe. The oligarchy running the United States selects and dictates who shall rule nations across the globe. We see this across the Middle East , Asia and Latin America. Now (2014) we see this in the Ukraine. This is freedom and democracy, USA style. The MICC of America has only one goal, global empire.

11. Money is Power

Money is a human fabrication. Laws, guns and money are creations of humanity for the purpose of social organization. The very same people who create money control industry, military and government for their own benefit.

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson

Why we are the 99%

Jobs, jobs, jobs. We are all concerned about our jobs. But think about it. Every time we go to work we do so to make someone else richer. Wouldn't it be better if our time and labor were expended to benefit ourselves, our families, friends and neighbours?

We must make certain that the work we do brings societal benefits and improves our health, lives and well-beings. Wanton consumerism makes us slaves to corporations, destroys the environment, creates social injustice and widens the gap between the rich and the poor.

We are the 99% and must fight back.

Unemployment is devastating the working class across the globe. Neo-liberal governments continue to impose austerity measures while they bail out the banks. This is inflicting insult upon injury. These so-called economic experts are doing the exact opposite to what is needed.

Banks too big to fail are the cause the financial crisis in the first place. Yet they are being bailed out with tax payers money. The crooks and criminals are being bailed out on the backs of the working class. This is bailing out the capitalist with socialism.


12. What is the solution?

The New Economy

"Our public credit is good, but the abundance of paper has produced a spirit of gambling in the funds, which has laid up our ships at the wharves as too slow instruments of profit, and has even disarmed the hand of the tailor of his needle and thimble. They say the evil will cure itself. I wish it may; but I have rarely seen a gamester cured, even by the disasters of his vocation." - Thomas Jefferson to Gouverneur Morris, 1791.

What we need is to get the working class working and being productive. We do this, not to make corporations and the elite richer but to improve the human condition of the 99%. We need to improve access to better education, health care and social services, not wanton consumerism that destroys the environment and jeopardizes all living species.

We need to provide jobs that are for the betterment and well-being of all, not for short-term profit for the 1%. The ruling elite like to think that trickle-down economics is the right thing. If it is right for them it must be right for everyone else or so they say. When the only motivation is monetary gain and profit everyone loses in the long run.


Money is a medium of exchange.

We might falsely use money as a measure. Since money has no absolute value, the price of any commodity measured against a dollar is not absolute. What is a bushel of apples worth? You might exchange a bushel of apples for a bag of potatoes or a dozen eggs. But how many dollars, pounds, euros, yens or yuans are these worth?

Classical economics teach that the price of any commodity is to be determined by market forces, supply and demand. Left on its own accord, prices will be controlled by the "invisible hand". Money can be regarded as any other commodity in this respect and thus the value of any currency will be determined by supply and demand.


13. Summary

The classic textbook functions of money are:

  1. a medium of exchange
  2. a unit of account
  3. a store of value

Money as a unit of account is only temporary. Because of inflation/deflation, speculation, price fixing, greed and corruption, the price of any commodity is a moving target. The ideal concept of the "invisible hand" has been replaced with the "greedy and corrupt hand".

We know that there is no value stored in our savings. At best, our money diminishes in value daily. Instead, money is debt and burden on the backs of future workers.

The only valid function of money that remains is that of a medium of exchange. We should acknowledge this and use money for this purpose alone.

We need to get the working class back to work, not for short term corporate profits fueled by wanton consumerism but for the purpose of genuine exchange of goods and services that serve for the betterment of all society.

14. Conclusion

The best thing we can do with our money is to exercise our democratic privilege to choose wisely when and where we spend our money. Use money to trade among ourselves. Boycott the controlling banks/corporations/MICC.

There is no need to put the blame on someone else or wait for government to act.

We can do it NOW!

We, the 99% can and must fight back!

  • Move your money
  • Pay no interest
  • Buy Local
  • Create local cooperatives and social enterprises
  • Create alternative currency
  • Conserve the planet's resources
  • Live a full and simple life

"Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone." - John Maynard Keynes

"If you want to get along, go along." - Sam Rayburn

"It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair

"For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still." - John Maynard Keynes

@Adoregon 2012-07-15 09:57
Jeez, Naomi, I thought you understood capitalism is a con that never gives a sucker an even break. I'm so pleased you have been disillusioned.

The American Dream
is a pyramid scheme
That'll make you smile
If you're a pig on top of the pile.


You can learn more about money at

On a lighter note

Economics 101

For those of you baffled by the global economic meltdown, the following summary of basic economic theory should be helpful. Some of it may seem familiar and you may feel you've heard it all before, but note that fascinating new information has been added, reflecting the latest analysis of recent economic trends ...

Thanks to my friend Tommy Tavenner for passing this on ...

21 Economic Models ... explained with cows

The 2008 update

You have 2 cows.
You give one to your neighbour.

You have 2 cows.
The State takes both and gives you some milk.

You have 2 cows.
The State takes both and sells you some milk.

You have 2 cows.
The State takes both and shoots you.

You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the
milk away...

You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

You have two giraffes.
The government requires you to take harmonica lessons.

You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyze why the cow has dropped dead.

You have two cows.
You sell three of them to your publicly listed company, using letters
of credit opened by your brother-in-law at the bank, then execute a
debt/equity swap with an associated general offer so that you get all
four cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to
a Cayman Island Company secretly owned by the majority shareholder who
sells the rights to all seven cows back to your listed company. The
annual report says the company owns eight cows, with an option on one
more. You sell one cow to buy a new president of the United States ,
leaving you with nine cows. No balance sheet provided with the
release. The public then buys your bull.

You have two cows.
You go on strike, organize a riot, and block the roads, because you
want three cows.

You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow
and produce twenty times the milk. You then create a clever cow
cartoon image called 'Cowkimon' and market it worldwide.

You have two cows.
You re-engineer them so they live for 100 years, eat once a month, and
milk themselves.

You have two cows, but you don't know where they are.
You decide to have lunch.

You have two cows.
You count them and learn you have five cows.
You count them again and learn you have 42 cows.
You count them again and learn you have 2 cows.
You stop counting cows and open another bottle of vodka.

You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

You have two cows.
You worship them.

You have two cows.
Both are mad.

Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb you and invade your country.
You still have no cows, but at least now you are part of Democracy....

You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

02012.08.15 - 02013.10.27




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