Vol.2 No.37, 16 December 2002

The Grip of Death Revisited

Dear SANE Viewer

Three years ago, the SANE Network invited Michael Rowbotham, author of the book The Grip of Death, to South Africa. In his book the author offers an extremely important insight into the monetary system of countries which have fallen into line with the 'Washington Consensus' approach to managing the monetary system of their free market, globalised economies. This system depends on a monetary system in which nearly all money is created by banks either as loans to governments to fund deficit spending, or by loans made to the private sector.

In various issues of SANE Views we have argued how this process distorts the economy - in fact it creates a 'Grip of Death' on people and on the national economy. It is useful to repeat the argument not in our own words, but by quoting directly from Rowbotham's book. We have not selected the passages below ourselves, but have used directly the selection made and sent to us by Boudewijn Wegerif who is currently visiting South Africa. We trust that for many of our readers this will clarify SANE's arguments for monetary reform.

Aart Roukens de Lange
Editor, SANE Views

Excerpt from THE GRIP OF DEATH by Michael Rowbotham
(Jon Carpenter Publishing - Charlbury, Oxfordshire, England - ISBN 1 897766 40 8)

All national governments are, by constitution, by proclamation or in theory, responsible for the provision of their nation's currency. The economy is constantly groaning under debt and crying out for money; the contribution by government in the form of notes and coins has fallen from 20 % to 3 % of the money stock [in the UK] over the last three decades; every pound in existence is now covered by a pound of debt; consumers and industry are up to their eyeballs in mortgages and overdrafts; the government itself desperately needs money to fund its public sector commitments. So what does the government do? Does it create money? It does not! To obtain the revenues it needs, the government borrows money and creates more debt.

To obtain the additional revenues it needs, and upon which the economy is completely reliant, the government sells IOUs, which increase in value with time. And when the time comes for them to be cashed, the government sells even more IOUs and uses the money to pay off the old ones. The government operates an absurd system of debt-stocks, which constitutes a meaningless and utterly unrepayable debt to the future. This provides the government with a small amount of money now on the condition that they repay a much larger amount in ten or fifteen year's time. The government then proceeds to flood the market with these meaningless promises to pay, which can only be redeemed by the issue of yet more promises. The government draws on money ALREADY created as a debt, and relied upon for future payments non insurance claims and the pensions of the elderly, and also allows banks and other lending institutions to purchase their bonds, conceding to these private institutions the right and power to create additional money, which is then loaned to the government at interest. Meanwhile, we must all work harder and harder, and the economy must become ever more productive and efficient to try to compete with other nations operating under the same lunatic strictures, whilst the national debt inflates like a balloon. To say this system is crazy is an understatement. The situation defies description, and it beggars belief that no one involved in its operation takes a long hard look at what they are doing and just bursts out laughing at the innate insanity of the whole process. And this is going on worldwide!

However, whilst the administration of these national debts may be portrayed as a joke, the effect is certainly anything but humorous. By presenting the national debt as a measure of economic failure, by trying constantly to reduce expenditure and raise as much as they dare by taxation, our governments tell us that we must face up to the 'harsh realities' of economic life. These harsh realities include cutting funding to local councils, under-funding the education and health services, levying crippling business rates, imposing VAT [Value Added Tax] on domestic fuel and virtually everything else, selling off public sector assets, reducing the defence budget [Nothing wrong with that! - BW], cutting student grants, restricting child allowances, cutting single parent benefits and so on ad nauseum.

These policies are certainly harsh, but they have nothing to do with reality at all. These 'realities' are restrictions imposed by the inadequacies of the financial system and the determination of government to reduce the budget deficit at every possible opportunity, in defiance of the blatant fact that modern economies are utterly dependent on their deficits. Chapter 5 drew attention to the cutting and centralisation of public services, as if an economy as wealthy as ours cannot afford the luxury of post offices, hospitals and schools in places where people actually live, and where they want these services, and often where they already exist. There is only one sense in which we cannot 'afford' these local amenities, and that is in the uncompromising and meaningless mathematics of money created as debt.

Of course we have the resources to feed and clothe our students. We managed to give them a grant for decades when the economy was not so diverse and productive as it is now. There is no earthly reason why, as we enter the twenty-first century [written in 1998], graduating students should leave college with a millstone of debt round their necks. Of course we can afford to feed and care for the elderly. There may be a growing number of elderly, but there is a surplus workforce in a wealthy economy. However, it is not at least surprising that we cannot afford these things in monetary terms, because the financial system is founded upon debt and that debt produces a chronic shortage of money throughout the economy.


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