And the warning about global warming and more
such severe weather to come.
By Melvin J. Howard
We now know that you and
I don't just go out and make money when we go to work or sell something.
Instead we are just getting a transfer of already existing money from people
that have some. Unless these people or companies are a bank then they didn't
make money either - they also got a transfer of some money that already
existed. Money, you will recall, is just the other-side, the mirror image, of
debt. Money is created by the creation of a corresponding amount of debt.
Money, in its most basic and spendable (or liquid) form, is created by banks
making loans to the non-bank public.
Maybe your money started
its life as funding for a dam or mining project, and here you are with it
today. Maybe it even started off as the funding for that logging project that
caused your favourite forest to be clear-cut and which caused you so much
distress. That seems like money some of us might not like very much. Before I
even ventured into the outback I really never knew what was all the fuss about?
Global warming, carbon pollutants, clear-cutting, recycling. I didn’t care much
as long as it didn’t affect me in the City but slowly I found that it did it
effects all of us. So lets look at exactly what purposes money is being created
for and then we'll have a better idea of the history of the money we are
spending today.
If you go to the web
site of the Federal Deposit Insurance Corporation bulletin at http://www.federalreserve.gov/pubs/bulletin/2000/0600lead.pdf.
Total assets of commercial banks at year-end 2000 are $6.2 trillion dollars.
Savings Institutions have total year end 2000 assets of $1.2 trillion. Here is
an interesting way to look at this data. Adding up the total Commercial Banks
and Savings Institution Assets would give a total of $7.4 trillion in bank
assets. This is, of course, debt of the non-bank public (that’s us) owed to the
banks this is in the form of mortgage, credit card debt and so-forth. The way
that money works this should mean that the total money supply in US dollars
(that is the money that we non-banks can use in the trade for all goods and
services) should be close to this $7.4 trillion in bank assets. At the end of
2000, this is $7.2 trillion, which is only 2% off the total bank assets or debt
owed by the public to the banks.
Let's just focus on
Commercial Banks since that’s where most money (almost 85%) is being created.
This total balance sheet of the commercial banks gives us the breakdown of how
today’s available bank money was created. We see that $3.8 trillion, or 60% of
it, is created as "Loans and Leases". The rest was created for other
assets owned by the banks such as investment securities and bank real estate.
So let’s drill down into these "Loans and Leases" since they make up
most of the money that’s been created. You will see a breakdown of how this
$3.8 trillion dollars was created. Almost 50% was created for real estate
purposes, mostly mortgages for residential and commercial real estate purchases
and development. Another 30% is for commercial and industrial project purposes.
And most of the rest is loans to individuals, in the form of Credit Card and
other personal debt.
Combining this information we can see that almost half of
the money created by banks comes into existence for some kind of real estate
transaction, commercial or industrial project. We can extrapolate and say that
about half the money we use today came into existence for the purpose of some
kind of Land Alteration and its associated natural resources. This means the
replacement of natural land with some kind of human development. The US dollar
based monetary system including the G-20 nations, as we know it today is
heavily dependent for its survival on human alteration of the natural landscape
and it's resources.
Let’s go green
Nature has figured out
some excellent ways to moderate the flow of water to manage flood and drought
risk and also to clean water so that the waste of one process can get all
cleaned up and ready for another process. This all happens through water's
interaction with the land and with the ultimate Central Banker - the Central
Banker of Energy, the Sun. Humans have absolutely no control over the Energy
Central Banker. All they can control is the things that store the sun's energy
like plants and animals that eat plants, and also they can go find the sources
of other stored solar energy in the form of old squashed dead plants and
animals, called oil and coal. All these activities plus all of the human
monetary-system driven development of land effect the land on earth, not the
Energy Central Banker. So the land is what we focus on in considering the link
between the water cycle and the money cycle that forms the basis of our
economy. The way that nature manages flood and drought risk is really through
plants and soils which are, of course, the very best of friends - the soils
being largely made up of decaying leaves and trees, and the plants needing the
soils for food. The soils store lots of the rain as groundwater and they are
kept in place by tree roots. Some of this water the trees might like for later
when they get a bit thirsty, and other ground water might fall to an
underground aquifer or run off slowly into a stream in the watershed.
Having lots of plants
and rich soils in a watershed means that when there is lots of rain the ground
will soak up lots of the excess water and this will help mitigate flood risk.
When it's been a long time between rains you can rely on the groundwater in the
aquifer or the groundwater gradually seeping into a nearby stream to provide a
steady flow of water from earlier rains. This helps mitigate drought risk.
As for natures water
cleansing functions the trees keeping the soils in place prevent excessive
amounts of mud, clay, sand and salt from sliding into the stream. The soils and
the little microorganisms living in them are very fond of waste products that most
other living things would find rather unappetizing. Them and other little
critters living in or near the stream often perform water cleaning and
filtering functions that help to make the water useable for others. The trees
sweat off some water through evapo-transpiration helping to cool the stream
area so that all the critters that live there that have an important role in
the water cycle can stay at a nice temperature to do all their work. Having
such a water cycle on our planet makes a lot of sense given that gravity would
otherwise drain all the water to the salty sea and sea-water is not very
drinkable. This whole business of evaporation and rainfall to replenish all
living things that need fresh water is quite sensible and, of course, life as
we know it would not exist without an efficient water cycle. A prosperous human
society cannot exist without an efficient water cycle. There's that efficiency
word that people would have us believe that only markets can provide. There
number of ways to describe efficiency but lets just talk about efficiency in
plain language that makes sense intuitively. At the end of the day markets and
the monetary system are all about allocating energy amongst the different
participants of a society - whether that energy be in the form of labor applied
to a raw good to make it into a product, the raw good itself such as food
crops, or stored energy such as coal and oil. And we know that all our energy
comes from the sun and that only plants know how to capture and store that energy
directly. All these being the processes of Mother Nature they obey what we
humans have interpreted to be the natural laws of physics, most especially they
obey two important energy laws - the First and Second laws of Thermodynamics -
that have never ever found to be violated by any process. Water obeys these
natural laws. Money, being a purely human abstraction, does not.
The First Law of
Thermodynamics is the Law of Conservation of Energy. This says that the amount
of energy in the universe is fixed and you can’t create new energy or destroy
existing energy. When it comes to the planet Earth, we get new energy to the
earth from another source in the universe, called the Sun. Apart from all the
energy that we have stored in and on earth and the daily dose of sunlight we
have no other energy available to us. This is perhaps the primary reason humans
have seen fit to develop markets - that is, to allocate this scarce resource of
energy.
If the laws of
Thermodynamics had just stopped there, all would be right with the world! Under
the conservation of energy I could just fill my car with gas, stick a little
collector in the exhaust pipe and recycle all the energy I just used and fill
my car back up, since I know that energy will be conserved. I only ever have to
buy one tank of gas in my life. Buy one load of electricity to heat my home for
my whole life Id just recycle everything over and over. Energy companies would
go bankrupt, there would be no wars in the Middle East, and the stock market
would collapse because no-one could make money from selling energy.
OK there’s a catch. And
that’s the very important Second Law of Thermodynamics. The ENTROPY Law. The
law that sits right at the heart of the conflict between man and nature.
ENTROPY is a measure of disorder in terms of the usefulness of energy. Low
entropy means very useful energy. High entropy means quite useless energy cant
use it for another process, its not organized enough. The Second Law of
Thermodynamics says that Entropy always increases as energy is used. Therefore,
once you have used all the gas in your tank, even though the driving process
left the same amount of energy from the gas in the world, that energy has
become pretty useless so that you cant re-use it. This law then really creates
the scarcity of energy and the primary motivation for using markets to allocate
it.
Some economists tell us
that this will be done most efficiently if the conditions of a free market are
met. Presumably this means energy will be distributed more efficiently since
that ultimately is what the market is distributing. So how does the market deal
with the Entropy Law? The answer to that would be Not at all! While it is true
that the Entropy Law contributes greatly to the scarcity that gives rise to the
need for markets you will not find the Entropy Law mentioned in mainstream
economics textbooks. Modern money and capital markets, and contemporary
economics have been built up IGNORING the most fundamental laws of nature. It
is interesting to consider who runs things most efficiently - the Markets or
Mother Nature? Given that the most desirable outcome of the water cycle, even
from a human-centered point of view, is a stable, secure flow of clean water
one would have to conclude that Mother Nature arranges the most efficient
allocation of energy, for, in the natural processes there are no waste
products, and solar energy is used to its maximum. Every player in the natural
water cycle does some work in the water cycle and various related nutrient
cycles and their waste products get used as input into some other process in
these cycles. Nothing is wasted and everything fits together to form a whole
cycle that has evolved over millions of years and that we are the beneficiaries
of today. Nature's water cycle seems to have taken the Entropy law into
consideration and then optimized energy use within this boundary condition.
Enter Man
But then we Humans come
along with fears of scarcity, markets and a monetary system that ultimately
depends on alteration of the land for its survival and for the survival of the
markets. But most alterations to the natural landscape then disturb Mother
Nature's maximally energy efficient water cycle in several common ways. These
are common things that have happened all across the globe:
- First, deforestation exposes soils and causes soils,
sediment and salt to rush into the stream at the next rainfall. You end up
with salty water and/or sediment that kills off lots of the plants and
critters that had important roles in the water cycle such as water
filtration.
- Second, the loss of soil and vegetation, coupled with
impervious surface coverage such as roads, car-parks and buildings means
that water can no longer seep into the ground as is very important in
mitigating flood and drought risk. The frequency of flood and drought
increases.
- Human activity in watersheds (real estate, mining,
logging, intense farming and so forth) and the loss of filtering systems
through the loss of vegetation and soils means more and more pollutants
are entering the water sources.
- The practice of building dams either for hydropower or
for storing water in a place that doesn't have enough, and the practice of
channelling water to places that don't have much, has been responsible for
massive loss of aquatic life, flooding and drastic alteration to affected
watersheds and local water cycles.
Then we market-oriented
humans come along and say, "Now we have a water problem. Let's use some
market mechanisms to fix it." In fact a lot of the market-oriented people
go so far as to say - "Let's privatize the water - they think that this
pure market solution will fix everything can you believe this? " And they
say this perhaps forgetting that it was market forces that got us into this
problem in the first place.
All this is not to say
that us humans should not have markets for other things or should not alter the
land. Rather it is a wake up call to build a much better world and make more
efficient use of our energy. Ultimately this would mean a paradigm shift in the
way land is developed so as to retain enough natural resources for million of
years to come. If we do these functions right it would enter into the economy
at the point of credit creation, or equivalently money origination think about
it. “That’s why I am green.”
