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The degenerative impacts of our money system

“The way that a national economy preys on its internal colonies is by the destruction of communities”

— Wendell Berry

The creation of money with interest has two main impacts on the operation of today’s economies.

Our monetary system creates the need for economic growth by design

One of the most important lessons of the economics dimension of Gaia Education’s online course in ‘Design for Sustainability’ is to understand that the current design of our money system has an inbuilt growth imperative. Let’s go over this again: Consider that over 90 per cent of the money in circulation has been created by banks as debt. Borrowers are obliged to repay both the capital and interest. The only place more money can come from in order to pay this interest is an expansion in the money supply overall — new loans issues and debts entered into in order for the system to keep functioning.

For economic growth to take place new investments have to drive further loans (debts) to be issued and this in turn stimulates more rapid economic growth. To keep the wheel spinning, consumption has to keep growing. We have created a material culture that is addicted to the rapid exploitation of non-renewable natural resources and levels of fossil fuel consumption that are driving us beyond humanity’s safe operating space, beyond planetary boundaries and towards a future of catastrophic climate change. The spiral of degeneration and decrease in whole systems health and viability will continue, if we do not respond promptly, globally collaboratively, and decisively as one humanity.

The creation of a money system that pays differential interest to lenders and borrowers, by design creates a system that needs exponential growth in order to keep going This is because, as the size of the economy grows year on year, so the volume of required interest repayments increases, even if the interest rate remains the same. This is called the compounding of interest, or compound interest. As a result of compound interest, our money necessarily follows an exponential growth pattern: at 3% compound interest, it doubles in 24 years; at 6%, it takes 12 years; at 12%, 6 years (Martenson 2011).

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