Please read this because it took me ages.
The biggest and most profound difference between the communist and capitalist ideologies is the monetary system. Money is also the most taken for granted and unquestioned element of our lives with very few realizing that it is, or should be, optional just like everything from our religious or political preferences. But before I talk about this properly- a quick economics lesson, I’m not trying to be patronizing. Please don’t take my word for it and bear with it (it will get more interesting later).
To see at how money is created look at the central bank of America, the Federal Reserve. The American government decides it needs money so it calls up the Federal Reserve and says, “We’ve decided we need 10 billion dollars” the Federal Bank says “Sure, we’ll BUY 10 billion in government bonds from you (also known as treasury bonds)”. I suggest you look up the definition of a bond because that’s important and Wikipedia will be able to define it much better than I could, but essentially it’s a loan. Anyway, The Federal Reserve then put a value of these bonds to the sum of 10 billion dollars and puts them into their bank whilst giving to the government 10 million dollars. The government put the 10 million dollars into a bank to spend, as they will. That’s it. 10 billion dollars of new money is created.
You get how inflation works so keep that in mind- the more dollars there are in the system the more devalued the dollar becomes.
So… for every 10 billion dollars created the government has a 10 billion dollar debt to the bank. The money is created out of debt (big deal). This is a paradox however, because money can’t equal debt simply because debt is the lack of money. Either way, for now, money=debt.
Banks work on a “reserve” system. Explanation: If you put some money into a bank that money goes into their reserve. They are then able to spend a certain amount of your money on investments and what they want thereby earning back more money. They earn enough to pay you back and make a little extra. Law states that a bank must keep 10% of the money you put in in their reserve; the rest can be used as the basis for new loans.
Okay so lets say you put 10 billion dollars in the bank. A new person comes into the same bank and asks for a loan of 9 billion dollars, the loan is accepted, and he walks out 9 billion dollars richer.
Please bear with me.
The new person will most likely take the 9 billion dollars and deposit it into another bank. The process then repeats- another person comes in, takes 90% of the 9 billion dollars and deposits it in his bank account. Of course this is just an example but the same thing happens just on a more minute scale onto infinity.
But remember that every single dollar is essentially equal in terms of debt owed to the banks, or national debt. To put it differently, if every single debt in America were to be paid off there wouldn’t be a single dollar in circulation.
This is where it starts becoming interesting, due to the random circulation of money through commerce- people and their money become detached from the original debt. This creates a sort of disequilibrium where people are forced to compete for labour in order for enough money to be pulled out of the money supply to pay the Federal Reserve, and for the people to avoid a life of poverty. You’re beloved notion of ‘competition’ is born.
Everything before this has ignored the mention of ‘interest’ and that’s where capitalism really comes into its element. When the government borrows money from the Federal Reserve or when a person borrows money from a bank it almost always has to be paid back with a percentage increase than the amount that was given out.
Cool question coming up.
If all the money given to the government that is then given to the banks which is then given to the people has to be paid back with a percentage increase of all the money that exists- where does the money that will cover the amount for the interest come from?
Cool answer: Nowhere. The money owed back to the Federal Reserve will always exceed the amount of money that is available in circulation. Inflation is therefore necessary and constant because new money has to be created to pay off the interest that already exists creating a deadly cycle of money devaluation.
Mathematically this means that failures to be able to pay off loans resulting in bankruptcy are literally built into the system. We’ve talked about this and this is where capitalism’s tendencies to polarize the wealth gap occurs- there will always be poor pockets of society that get the short end of the stick. A fun statistic for you that I got a little wrong earlier today: 1% of the population owns 40 % of the planets wealth, and this is only getting bigger.
Yes capitalism works but it is so ridiculously immoral. Money is created out of debt and what do people do when they are in debt? They submit to employment to pay it off and they work hard due to fear of getting the short end of the stick. The system only benefits those at the very top of the pyramid and it just so happens the people at the very top of the pyramid are those in power. So whom are you essentially working for? The banks. Money is created in the banks and invariably ends up in the banks.
“Greed and Competition are not the result of immutable human temperament… greed and fear of scarcity are in fact being created and amplified… the direct consequences [of our capitalist system] is that we have to fight with each other in order to survive” A quote by someone famous.
The biggest and most profound difference between the communist and capitalist ideologies is the monetary system. Money is also the most taken for granted and unquestioned element of our lives with very few realizing that it is, or should be, optional just like everything from our religious or political preferences. But before I talk about this properly- a quick economics lesson, I’m not trying to be patronizing. Please don’t take my word for it and bear with it (it will get more interesting later).
To see at how money is created look at the central bank of America, the Federal Reserve. The American government decides it needs money so it calls up the Federal Reserve and says, “We’ve decided we need 10 billion dollars” the Federal Bank says “Sure, we’ll BUY 10 billion in government bonds from you (also known as treasury bonds)”. I suggest you look up the definition of a bond because that’s important and Wikipedia will be able to define it much better than I could, but essentially it’s a loan. Anyway, The Federal Reserve then put a value of these bonds to the sum of 10 billion dollars and puts them into their bank whilst giving to the government 10 million dollars. The government put the 10 million dollars into a bank to spend, as they will. That’s it. 10 billion dollars of new money is created.
You get how inflation works so keep that in mind- the more dollars there are in the system the more devalued the dollar becomes.
So… for every 10 billion dollars created the government has a 10 billion dollar debt to the bank. The money is created out of debt (big deal). This is a paradox however, because money can’t equal debt simply because debt is the lack of money. Either way, for now, money=debt.
Banks work on a “reserve” system. Explanation: If you put some money into a bank that money goes into their reserve. They are then able to spend a certain amount of your money on investments and what they want thereby earning back more money. They earn enough to pay you back and make a little extra. Law states that a bank must keep 10% of the money you put in in their reserve; the rest can be used as the basis for new loans.
Okay so lets say you put 10 billion dollars in the bank. A new person comes into the same bank and asks for a loan of 9 billion dollars, the loan is accepted, and he walks out 9 billion dollars richer.
Please bear with me.
The new person will most likely take the 9 billion dollars and deposit it into another bank. The process then repeats- another person comes in, takes 90% of the 9 billion dollars and deposits it in his bank account. Of course this is just an example but the same thing happens just on a more minute scale onto infinity.
But remember that every single dollar is essentially equal in terms of debt owed to the banks, or national debt. To put it differently, if every single debt in America were to be paid off there wouldn’t be a single dollar in circulation.
This is where it starts becoming interesting, due to the random circulation of money through commerce- people and their money become detached from the original debt. This creates a sort of disequilibrium where people are forced to compete for labour in order for enough money to be pulled out of the money supply to pay the Federal Reserve, and for the people to avoid a life of poverty. You’re beloved notion of ‘competition’ is born.
Everything before this has ignored the mention of ‘interest’ and that’s where capitalism really comes into its element. When the government borrows money from the Federal Reserve or when a person borrows money from a bank it almost always has to be paid back with a percentage increase than the amount that was given out.
Cool question coming up.
If all the money given to the government that is then given to the banks which is then given to the people has to be paid back with a percentage increase of all the money that exists- where does the money that will cover the amount for the interest come from?
Cool answer: Nowhere. The money owed back to the Federal Reserve will always exceed the amount of money that is available in circulation. Inflation is therefore necessary and constant because new money has to be created to pay off the interest that already exists creating a deadly cycle of money devaluation.
Mathematically this means that failures to be able to pay off loans resulting in bankruptcy are literally built into the system. We’ve talked about this and this is where capitalism’s tendencies to polarize the wealth gap occurs- there will always be poor pockets of society that get the short end of the stick. A fun statistic for you that I got a little wrong earlier today: 1% of the population owns 40 % of the planets wealth, and this is only getting bigger.
Yes capitalism works but it is so ridiculously immoral. Money is created out of debt and what do people do when they are in debt? They submit to employment to pay it off and they work hard due to fear of getting the short end of the stick. The system only benefits those at the very top of the pyramid and it just so happens the people at the very top of the pyramid are those in power. So whom are you essentially working for? The banks. Money is created in the banks and invariably ends up in the banks.
“Greed and Competition are not the result of immutable human temperament… greed and fear of scarcity are in fact being created and amplified… the direct consequences [of our capitalist system] is that we have to fight with each other in order to survive” A quote by someone famous.
That’s the theory behind the capitalist system but you only need to look at recent news to see the consequences of it. Britain’s total deficit is increasing £163 billion per year with a total deficit of over £900 billion, America is in very much the same situation with over 500 billion dollar increase each year and a total debt of 14 trillion dollar total. As we have already established it is an impossibility that this debt could ever be paid off because there flat out isn’t enough money in the world.
Before looking at America and Britain though look at Greece as an example of a weaker and smaller economy. Greece is essentially a microcosm of what will happen to us. In order to pay off their already huge amount of debt they needed to borrow more; increasing the amount of original debt, resulting in drastic spending cuts and taxation, ultimately leading to bankruptcy. People rioted constantly and Greece is now in an economic fallout.
Another recent news event was the downgrade of America’s credit rating to AA+ or something like that. This is significant because this credit rating is the only thing keeping America from falling apart like Greece did. What the credit rating means is an independent non-government agency decides whether debt is likely to be repaid. Their ratings define the price in which America can get debt. It’s very similar to the credit rating an average everyday person has when getting out loans or a credit card. If you’re a teenager that always forgets to pay his bills your credit rating isn’t going to be particularly good. The worse your credit rating the higher the interest that needs to be paid on said loan.
America is a rich country and so its credit rating is incredibly good, it can buy money inexpensively with extremely low or even negative interest rates. In the volatile economic situation that we’re in America’s government backed bonds are extremely appealing in their stability and consistency. The principle is that when the economy is going to shit people buy gold because even if the stock market crashes they know that gold will never lose its value. In a global scale people send their money to America because historically they are very likely to be paid back. This is why negative interest rates can happen, people want their money somewhere secure.
Anyway, this puts America in a weird situation because it can borrow money for free or sometimes even less than free. As long as this is the case it doesn’t matter whether the rating agencies think America will be able to pay off its debt or not because the entire world economy is functioning on the fact that America’s debt is the best place to put your money. However, what this change in the credit rating marks is the shift in opinion that America’s dollar is no longer the default currency of the world, and so interest rates for the amount of debt America has will increase. Debt will no longer be free and the 10% of America’s budget that will go into paying interest on debt will slowly turn into 20% to 30% to 40% and so on.
This is exactly what happened to Greece, when debt becomes more expensive the country that is in debt needs to borrow more in order to pay off the increase in debt, a vicious circle that can bring a country to its knees in a year. Now, this hasn’t ever happened to a superpower and it will be terrifying when it does; not only because it leads to the destruction of America as a country but the enormous impact on the rest of the world economy.
So my previous post on communism was wishy-washy to say the least but I just want to point out that this isn’t a philosophical discussion but a discussion that tackles a very real problem. I swear to god we are marching straight towards apocalypse and we don’t even realize it. Capitalism is not sustainable. My next post instead of a criticism of capitalism will be one on the benefits of communism. Pfff.
