Q: I’ve been curious about the impact of crowdfunding. Suppose everyone in the economy gets loans or investments from crowdfunding portals – in other words, from peers, friends, family, etc. – and stops using banks. Would that solve the problems you describe in Money as Debt?
A: Where did the money come from originally? If it is legal tender cash, it is owed to the Central Bank with interest and has to be collected as taxes or run up an unsustainable Ponzi scheme government debt (as is currently bringing the system into crisis). If it is bank credit created as a loan, it is owed with interest to the bank that created it. If it is lent again, as you propose, that guarantees that it is NOT available to be earned debt-free to extinguish the debt that created it. Existing-money loans depend on money created by banks. You can NEVER pay 2 or 3 P Principal debts if only P was created by a bank. You can, however, borrow from Peter to pay Paul and vice versa, ad infinitum, to avoid default. But if the supply of new bank credit shrinks, for whatever reason, people default and lose their collateral, which I claim to prove is by simple mathematical certainty. So, in short, as terribly counter-intuitive as it seems, re-lending IS THE PROBLEM, not the solution. PAY THE POOR, SPEND, INVEST in EQUITY, GIVE MONEY AWAY… these are solutions. There would be no mathematical problem and no instability ever, if there were only ONE bank in the world and it was the ONLY source of credit. No re-lending allowed. But who wants to be in perpetual debt to one global monolithic Big Brother Bank?
Q: As I understand your explanation in Money as Debt II, lending with interest causes problems when the interest is re-lent. So I suppose that even with crowd lending instead of bank lending, we would have the same problems if people re-invested the interest. My gut tells me that equity-based crowdfunding would be better for the economy than debt-based crowdfunding, but I’m having trouble articulating the reasons.
A: Money invested in equity (ownership) is SPENT by whoever sold the equity. As long as it is spent, not lent, it is mathematically available to permanently extinguish the debt that created it. However, if it has been lent as existing money, one or more debts remain and are totally dependent on ENOUGH NEW bank credit being created ON TIME to be able to continue to “borrow from Peter to pay Paul and vice versa, ad infinitum, to avoid default. This is my simple theorem as to why this system collapses in defaults in the absence of constant growth.