Grip of Death

[minh]

Was having a discussion with David about this on the blog comments yesterday, and was wondering if anyone else had read it, or was familiar with some of the themes?

The Grip of Death

In short, the book is about how the current system of coining money (creating it as a debt, with interest attached) has significant unwanted side-effects on our lives. It also presents a practical solution to the problem.

There's a reasonably detailed synopsis here.

[Sell Everything]

I've got to say, I agree with David on this - it seems like the book has taken a sidestep from basic economics.

Most debt creation is a simple reflection of financial innovation. For example, say I lend you £10 and in return, you lend me £10 (seems ridiculous, I know, but bear with me...) Are either of us worse off? No. The interest I charge on my loan can pay the interest I will owe. And we haven't created any value added (GDP is unchanged). Yet, both aggregate wealth and debt have risen by £20. Consequently, debt relative to the size of the economy has increased.

We can take this further. I don't know Minh from Adam, so what's to say he'll pay back the £10 he owes me? Nothing. But if he doesn't pay me back, the economy isn't necassarily worse off - he wins, I lose out. What I'm trying to get across is that the rise in debt and subsequent defaults we've seen in recent years might not have the big macroeconomic impact everyone assumes it will. In the long term, defaults will only matter to the extent that it affects confidence and causes lenders to be be excessively risk averse.

[minh]

Ok, that's fine as far as lending between individuals or companies is concerned. But what about when you borrow £10 from a bank? The bank never had that £10 to lend in the first place, but now it exists as money, with an obligation to be repaid plus interest. That is how 97% of the money in the economy has been created. Because the bank demands to be paid back the debt plus interest, but the money to pay the interest is never actually created anywhere, you arrive at the imbalance that we have today.

[minh]

David wrote:

Minh, I wish you'd get off this one - it really does not make any sense and, given that most of your contributions to the site have shown a lot of knowledge, I'm rather surprised. Have a look at my book Free Lunch, which explains in very simple terms how we moved from a world without credit to a world with credit.

Alright, I'll do a deal with you. I'll read your book if you read this one.

[sandid]

Or there's Stephen King's article in The Independent yesterday -

Stephen King: When banking is in crisis, no one wants to be parted from their cash
The hoarding of money points to a banking system in crisis ... Without money, our economies will simply grind to a halt
Published: 26 November 2007

I don't know if the 'grind to a halt' is a pun intended.