Debt and Money, Food and Feces
a_new_machine hopefully earned his DQ cred with the comment:
I think more accurately it's "We might be up Shit Creek. This sure looks a lot like it, but we've never been here before, so this could also be Turd River, or Excrement Lake. Either way, the boat's leaking."
This prompted papasha_mueller to ruminate on the nature of our crappy boat tour: "I just wonder - who made the hole in our boat?"
As a former professional mariner with 15 years of licensed master's experience (ever wonder about the prop usepic?), and as a blogger with a handle comparing all of my typing to the product of peristalsis, I think I am qualified to wade into this financial excrement analogy with gusto.
Let's first remember to define the parameters of our analogy. We talk about a house with a mortgage bigger than its resale value as "underwater." People who declare bankruptcy "go under" when they are unable to service their debts. So debt is the ocean, or at least the shit pretending to be fluid.
Ah, but now we should get a bit philosophical. What is shit? It is the natural product of digestion. It is what our bodies create after we ingest food. Without food, we would have not much shit. This proves more than adequate for our analogy, believe it or not, given the manner in which money is created. Remember, the money we circulate is largely bank-debt money, created by depository banks the moment a loan is signed. A bank takes either collateral or bets on the continued financial solvency of a borrower and simply creates the money the borrower borrows.
In 1934, Frederick Soddy summed it up nicely: "Money now is the NOTHING you get for SOMETHING before you can get ANYTHING." (Frederick Soddy, The Rôle of Money: What It Should Be, Contrasted With What It Has Become, GEORGE ROUTLEDGE AND SONS, LTD., 1934, p. 23.)
Soddy (in a very long-winded passage you should be very, very grateful I did not quote entirely) clarifies:
What has been termed "the moral mystery of credit", meaning credit-money, might just as well be termed the immoral mystery of debt. For there is no credit without debt any more than there is height without depth, East without West, or heat without cold. The two are related, and although it takes only one to own wealth it takes two to own a debt, because for every owner there is an ower. Money, of course, is an entirely peculiar form of the credit-debt relation, if only because whereas all other forms are entirely optional, the creditor at any rate being a free agent to enter into this relation or not, money is a credit-debt relation from which none can effectually escape.
(Soddy, ibid, p. 25.)
To continue our original analogy, "For there is no credit without debt any more than there is" food without shit.
With me so far?
Now lets bring boats and buoyancy into the mix and see what becomes of this mess. Let's continue the negative connotation of debt and let debt be the shitty stuff. Let's assume that when we borrow money (or earn someone else's borrowed money), we gather buoyancy. Let's call it anti-debt. We have these boats of various sizes, and they all leak by design. There is, after all, no such thing as a sure thing. Any mariner will tell you it's not the water-tightness of the vessel that matters; it's being able to manage the water that will inevitably come aboard. And in this case, the water is shit, and it seeps into our floating vessels through the terms of the loan that specify payments and interest. Those holes in the hull? We signed for them, Sunshine, right on the dotted lines. The leaks are as much a part of the boat as the fun parts.
We the borrowers must somehow find a way to create more anti-shit than we borrowed to prevent the bank from flooding the bilge of our boat (our business, our home, our car, our credit card, whatever) to the scuppers. Our earned money (through jobs or successful business dealings) allows us to bail some of the debt we have incurred. Money displaces debt, in the mariner parlance.
In order for displacement to continue to happen, we need more anti-shit, and to get more anti-shit the collective borrowing society must borrow more next year than the collective borrowing society borrowed last year. If the pace of borrowing (remember, the creation of both shit and anti-shit as measured by the inflation rate) slows, the anti-shit needed to displace the shit within the hull of our financial barques, tugs, canoes, dhars, et cetera, slows enough for some to wallow uncomfortably in Too Much Shit. That's called a recession.
Got that?
Sadly, as I pointed out in the post that inspired the Shit Creek commentary, I believe the conditions of the past 400 years have changed. At first, sail vessels managed to move more food from where it was grown to where there were more open mouths than at any time in history, reversing the feast and famine cycle that limited growth in population world-wide. A few hundred years later coal joined the mix, followed by oil. Each of these technological marvels allowed more debt-money to be created, which motivated more to use the technology to relieve humans and animals of labor, which allowed more humans to pursue ventures other than Keeping Oneself Alive, ventures such as The Improvement of Technology. We created a virtuous circle of improvement that functioned just fine as long as the pace of energy extraction kept the engines running, or rather kept the fuel for these engines cheap.
When the go-juice is expensive, people have to pay more for it. When they pay more for it, there is less room in the finances to take on new debt. Bankers issue as many good loans as they can; it just isn't enough.
And so the shit we borrowed years ago starts its creep up our hulls way past the limber system that, try as we may, we just can't bail fast enough simply because there isn't enough anti-shit being created to displace it.
We are well and truly up Shit Creek and swamped. Worse, we created this shitty creek because we wanted to eat. All we have to do to stop the shit storm we hath wraught . . . is to stop eating. You don't want debt? Fine. There's an easy way out.
Stop creating money.
It's a shitty little predicament, ain't it?
I think more accurately it's "We might be up Shit Creek. This sure looks a lot like it, but we've never been here before, so this could also be Turd River, or Excrement Lake. Either way, the boat's leaking."
This prompted papasha_mueller to ruminate on the nature of our crappy boat tour: "I just wonder - who made the hole in our boat?"
As a former professional mariner with 15 years of licensed master's experience (ever wonder about the prop usepic?), and as a blogger with a handle comparing all of my typing to the product of peristalsis, I think I am qualified to wade into this financial excrement analogy with gusto.
Let's first remember to define the parameters of our analogy. We talk about a house with a mortgage bigger than its resale value as "underwater." People who declare bankruptcy "go under" when they are unable to service their debts. So debt is the ocean, or at least the shit pretending to be fluid.
Ah, but now we should get a bit philosophical. What is shit? It is the natural product of digestion. It is what our bodies create after we ingest food. Without food, we would have not much shit. This proves more than adequate for our analogy, believe it or not, given the manner in which money is created. Remember, the money we circulate is largely bank-debt money, created by depository banks the moment a loan is signed. A bank takes either collateral or bets on the continued financial solvency of a borrower and simply creates the money the borrower borrows.
In 1934, Frederick Soddy summed it up nicely: "Money now is the NOTHING you get for SOMETHING before you can get ANYTHING." (Frederick Soddy, The Rôle of Money: What It Should Be, Contrasted With What It Has Become, GEORGE ROUTLEDGE AND SONS, LTD., 1934, p. 23.)
Soddy (in a very long-winded passage you should be very, very grateful I did not quote entirely) clarifies:
What has been termed "the moral mystery of credit", meaning credit-money, might just as well be termed the immoral mystery of debt. For there is no credit without debt any more than there is height without depth, East without West, or heat without cold. The two are related, and although it takes only one to own wealth it takes two to own a debt, because for every owner there is an ower. Money, of course, is an entirely peculiar form of the credit-debt relation, if only because whereas all other forms are entirely optional, the creditor at any rate being a free agent to enter into this relation or not, money is a credit-debt relation from which none can effectually escape.
(Soddy, ibid, p. 25.)
To continue our original analogy, "For there is no credit without debt any more than there is" food without shit.
With me so far?
Now lets bring boats and buoyancy into the mix and see what becomes of this mess. Let's continue the negative connotation of debt and let debt be the shitty stuff. Let's assume that when we borrow money (or earn someone else's borrowed money), we gather buoyancy. Let's call it anti-debt. We have these boats of various sizes, and they all leak by design. There is, after all, no such thing as a sure thing. Any mariner will tell you it's not the water-tightness of the vessel that matters; it's being able to manage the water that will inevitably come aboard. And in this case, the water is shit, and it seeps into our floating vessels through the terms of the loan that specify payments and interest. Those holes in the hull? We signed for them, Sunshine, right on the dotted lines. The leaks are as much a part of the boat as the fun parts.
We the borrowers must somehow find a way to create more anti-shit than we borrowed to prevent the bank from flooding the bilge of our boat (our business, our home, our car, our credit card, whatever) to the scuppers. Our earned money (through jobs or successful business dealings) allows us to bail some of the debt we have incurred. Money displaces debt, in the mariner parlance.
In order for displacement to continue to happen, we need more anti-shit, and to get more anti-shit the collective borrowing society must borrow more next year than the collective borrowing society borrowed last year. If the pace of borrowing (remember, the creation of both shit and anti-shit as measured by the inflation rate) slows, the anti-shit needed to displace the shit within the hull of our financial barques, tugs, canoes, dhars, et cetera, slows enough for some to wallow uncomfortably in Too Much Shit. That's called a recession.
Got that?
Sadly, as I pointed out in the post that inspired the Shit Creek commentary, I believe the conditions of the past 400 years have changed. At first, sail vessels managed to move more food from where it was grown to where there were more open mouths than at any time in history, reversing the feast and famine cycle that limited growth in population world-wide. A few hundred years later coal joined the mix, followed by oil. Each of these technological marvels allowed more debt-money to be created, which motivated more to use the technology to relieve humans and animals of labor, which allowed more humans to pursue ventures other than Keeping Oneself Alive, ventures such as The Improvement of Technology. We created a virtuous circle of improvement that functioned just fine as long as the pace of energy extraction kept the engines running, or rather kept the fuel for these engines cheap.
When the go-juice is expensive, people have to pay more for it. When they pay more for it, there is less room in the finances to take on new debt. Bankers issue as many good loans as they can; it just isn't enough.
And so the shit we borrowed years ago starts its creep up our hulls way past the limber system that, try as we may, we just can't bail fast enough simply because there isn't enough anti-shit being created to displace it.
We are well and truly up Shit Creek and swamped. Worse, we created this shitty creek because we wanted to eat. All we have to do to stop the shit storm we hath wraught . . . is to stop eating. You don't want debt? Fine. There's an easy way out.
Stop creating money.
It's a shitty little predicament, ain't it?