Introducing the Age of Collapse

William Krehm

We have entered an age of collapse. Not only does our financial system go on shedding value, massively and continuously, but the very ideology underlying the process is crumbling. As is just about everything that is supposed to keep society in one piece: right up to the accountancy of private firms and of government itself-even basic morality. Once you start trifling with any of these, the others are fatally infected and society is left naked and defenceless. Let no one treat this overwhelming crisis as just another little mishap that can leave intact the belief sys¬tems that brought us to this pass. The very technology on which so much hope was pinned has sprouted a cloven hoof. Meeting this challenge, calls for marshalling society's full resources. Nothing less will do.

However, how stone-deaf our government is to such warnings emerges in a front-page spread of The Globe and Mail (2/11, “Plunging Economy pressures Ottawa” by Heather Scoffield):

“Signs of a Canadian recession mounted yesterday, with the Canadian dollar falling to another historic low and Ottawa coming under greater pressure to spend more and tax less for a quick recovery.

A survey by Bay St. economists pegged business conditions at a 10-year low in September, with a third of manufacturers cutting back production, and a quarter of them expecting layoffs.

It is now clear that without any further policy interventions by the government, the economic outlook will continue to deteriorate,' said another group of almost 100 economists who wrote to Prime Minister Jean Chretien, Finance Minister Paul Martin and Bank of Canada Governor David Dodge.

The group, which includes many academics but no Bay St. economists, says that Liberals' policy of relying mainly on the Bank of Canada's lower interest rates to spur the economy won't work. They argue Ottawa needs to take major steps to keep Ca¬nadians employed, even if it means running a small deficit.”

Why a “small deficit?” Is individual survival on the greased pole of academic advancement elbowing out concern for society itself? “The economists were not able to agree on how much the government should spend, but the letter suggests replicating the US stimulus package worth about 1 % of the country's economic output.”

But such figures are not to be determined by the power situation in our universities or our brokerage houses, but by the cavernous hole that the gambles of our financial system have ripped in our money supply.

For the only money that has existed since the early 1970s is debt, And the debt of our central government is the only legal tender that creditors must accept in payment of debt denominated in the local currency.

Running an economy on just credit requires an immense amount of restraint and control. That was the case even in the remote times when the world was on the gold standard and gold provided a rickety footbridge to reality. But regulation becomes even more essential when near-money (i.e., interest-bearing debt) has pushed out from circulation most non-interest-bearing money. For when debt money bears interest, its value moves in a direction opposite to that of interest rates.

Interest-free money is created when the central bank holds government debt, because in that case over 95% of the central bank's earnings goes back to the government as dividends, for in Canada the federal government is the sole shareholder of the central bank. The results is a virtual interest-free loan to the government backed by the re¬sources of the nation. But that is actually so whether the central bank is owned by the central government–as in Canada or the UK–or by private banks as in the US. The reason for that is that the money supply in the modern world descends historically from the monarch's monopoly in the coin¬ing precious metals. Gold and silver coins also produced no interest by the mere fact of their existence as does debt.