A long essay from Reality Sandwich that is worth reposting in full - enjoy
http://www.realitysandwich.com/money_and_crisis_civilization


Suppose you give me a million dollars with the instructions, "Invest this
profitably, and I'll pay you well." I'm a sharp dresser -- why not? So I go out
onto the street and hand out stacks of bills to random passers-by. Ten thousand
dollars each. In return, each scribbles out an IOU for $20,000, payable in five
years. I come back to you and say, "Look at these IOUs! I have generated a 20%
annual return on your investment." You are very pleased, and pay me an enormous
commission.
Now I've got a big stack of IOUs, so I use these "assets" as collateral to
borrow even more money, which I lend out to even more people, or sell them to
others like myself who do the same. I also buy insurance to cover me in case the
borrowers default -- and I pay for it with those self-same IOUs! Round and round
it goes, each new loan becoming somebody's asset on which to borrow yet more
money. We all rake in huge commissions and bonuses, as the total face value of
all the assets we've created from that initial million dollars is now fifty
times that.

Then one day, the first batch of IOUs comes due. But guess what? The person who
scribbled his name on the IOU can't pay me back right now. In fact, lots of the
borrowers can't. I try to hush up this embarrassing fact as long as possible,
but pretty soon you get suspicious. You want your million-plus dollars back --
in cash. I try to sell the IOUs and their derivatives that I hold, but everyone
else is suspicious too, and no one buys them. The insurance company tries to
cover my losses, but it can only do so by selling the IOUs I gave it!

So finally, the government steps in and buys the IOUs, bails out the insurance
company and everyone else holding the IOUs and the derivatives stacked on them.
Their total value is way more than a million dollars now. I and my fellow
entrepreneurs retire with our lucre. Everyone else pays for it.

This is the first level of what has happened in the financial industry over the
past decade. It is a huge transfer of wealth to the financial elite, to be
funded by US taxpayers, foreign corporations and governments, and ultimately the
foreign workers who subsidize US debt indirectly via the lower purchasing power
of their wages. However, to see the current crisis as merely the result of a big
con is to miss its true significance.

I think we all sense that we are nearing the end of an era. On the most
superficial level, it is the era of unregulated casino-style financial
manipulation that is ending. But the current efforts of the political elites to
fix the crisis at this level will only reveal its deeper dimensions. In fact,
the crisis goes "all the way to the bottom." It arises from the very nature of
money and property in the world today, and it will persist and continue to
intensify until money itself is transformed. A process centuries in the making
is in its final stages of unfoldment.

Money as we know it today has crisis and collapse built into its basic design.
That is because money seeks interest, bears interest, and indeed is born of
interest. To see how this works, lets go back to some finance basics. Money is
created when somebody takes out a loan from a bank (or more recently, a
disguised loan from some other kind of institution). A debt is a promise to pay
money in the future in order to buy something today; in other words, borrowing
money is a form of delayed trading. I receive something now (bought with the
money I borrowed) and agree to give something in the future (a good or service
which I will sell for the money to pay back the debt). A bank or any other
lender will ordinarily only agree to lend you money if there is a reasonable
expectation you will pay it back; in other words, if there is a reasonable
expectation you will produce goods or services of equivalent value. This
"reasonable expectation" can be guaranteed in the form of collateral, or it can
be encoded in one's credit rating.

Any time you use money, you are essentially guaranteeing "I have performed a
service or provided a good of equivalent value to the one I am buying." If the
money is borrowed money, you are saying that you will provide an equivalent
good/service in the future.

Now enter interest. What motivates a bank to lend anyone money in the first
place? It is interest. Interest drives the creation of money today. Any time
money is created through debt, a need to create even more money in the future is
also created. The amount of money must grow over time, which means that the
volume of goods and services must grow over time as well.

If the volume of money grows faster than the volume of goods and services, the
result is inflation. If it grows more slowly -- for example through a slowdown
in lending -- the result is bankruptcies, recession, or deflation. The
government can increase or decrease the supply of money in several ways. First,
it can create money by borrowing it from the central bank, or in America, from
the Federal Reserve. This money ends up as bank deposits, which in turn give
banks more margin reserves on which to extend loans. You see, a bank's capacity
to create money is limited by margin reserve requirements. Typically, a bank
must hold cash (or central bank deposits) equal to about 10% of its total
customer deposits. The other 90%, it can loan out, thus creating new money. This
money ends up back in a bank as deposits, allowing another 81% of it (90% of
90%) to be lent out again. In this way, each dollar of initial deposits ends up
as $9 of new money. Government spending of money borrowed from the central bank
acts a seed for new money creation. (Of course, this depends on banks'
willingness to lend! In a credit freeze, banks hoard excess reserves and the
repeated injections of government money have little effect.)

Another way to increase the money supply is to lower margin reserve
requirements. In practice this is rarely done, at least directly. However, in
the last decade, various kinds of non-bank lending have skirted the margin
reserve requirement, through the alphabet soup of financial instruments you've
been hearing about in the news. The result is that each dollar of original
equity has been leveraged not to nine times it original value, as in traditional
banking, but to 70 times or even more. This has allowed returns on investment
far beyond the 5% or so available from traditional banking, along with
"compensation" packages beyond the dreams of avarice.

Each new dollar that is created comes with a new dollar of debt -- more than a
dollar of debt, because of interest. The debt is eventually redeemed either with
goods and services, or with more borrowed money, which in turn can be redeemed
with yet more borrowed money... but eventually it will be used to buy goods and
services. The interest has to come from somewhere. Borrowing more money to make
the interest payments on an existing loan merely postpones the day of reckoning
by deferring the need to create new goods and services.

The whole system of interest-bearing money works fine as long as the volume of
goods and services exchanged for money keeps growing. The crisis we are seeing
today is in part because new money has been created much faster than goods and
services have, and much faster than has been historically sustainable. There are
only two ways out of such a situation: inflation and defaults. Each involve the
destruction of money. The current convulsions of the financial and political
elites basically come down to a futile attempt to prevent both. Their first
concern is to prevent the evaporation of money through massive bankruptcies,
because it is, after all, their money.

There is a much deeper crisis at work as well, a crisis in the creation of goods
and services that underlies money to begin with, and it is this crisis that gave
birth to the real estate bubble everyone blames for the current situation. To
understand it, let's get clear on what constitutes a "good" or a "service". In
economics, these terms refer to something that is exchanged for money. If I
babysit your children for free, economists don't count it as a service. It
cannot be used to pay a financial debt: I cannot go to the supermarket and say,
"I watched my neighbors kids this morning, so please give me food." But if I
open a day care center and charge you money, I have created a "service". GDP
rises and, according to economists, society has become wealthier.

The same is true if I cut down a forest and sell the timber. While it is still
standing and inaccessible, it is not a good. It only becomes "good" when I build
a logging road, hire labor, cut it down, and transport it to a buyer. I convert
a forest to timber, a commodity, and GDP goes up. Similarly, if I create a new
song and share it for free, GDP does not go up and society is not considered
wealthier, but if I copyright it and sell it, it becomes a good. Or I can find a
traditional society that uses herbs and shamanic techniques for healing, destroy
their culture and make them dependent on pharmaceutical medicine which they must
purchase, evict them from their land so they cannot be subsistence farmers and
must buy food, clear the land and hire them on a banana plantation -- and I have
made the world richer. I have brought various functions, relationships, and
natural resources into the realm of money. In The Ascent of Humanity I describe
this process in depth: the conversion of social capital, natural capital,
cultural capital, and spiritual capital into money.

Essentially, for the economy to continue growing and for the (interest-based)
money system to remain viable, more and more of nature and human relationship
must be monetized. For example, thirty years ago most meals were prepared at
home; today some two-thirds are prepared outside, in restaurants or supermarket
delis. A once unpaid function, cooking, has become a "service". And we are the
richer for it. Right?

Another major engine of economic growth over the last three decades, child care,
has also made us richer. We are now relieved of the burden of caring for our own
children. We pay experts instead, who can do it much more efficiently.

In ancient times entertainment was also a free, participatory function. Everyone
played an instrument, sang, participated in drama. Even 75 years ago in America,
every small town had its own marching band and baseball team. Now we pay for
those services. The economy has grown. Hooray.

The crisis we are facing today arises from the fact there there is almost no
more social, cultural, natural, and spiritual capital left to convert into
money. Centuries, millennia of near-continuous money creation has left us so
destitute that we have nothing left to sell. Our forests are damaged beyond
repair, our soil depleted and washed into the sea, our fisheries fished out, the
rejuvenating capacity of the earth to recycle our waste saturated. Our cultural
treasury of songs and stories, images and icons, has been looted and
copyrighted. Any clever phrase you can think of is already a trademarked slogan.
Our very human relationships and abilities have been taken away from us and sold
back, so that we are now dependent on strangers, and therefore on money, for
things few humans ever paid for until recently: food, shelter, clothing,
entertainment, child care, cooking. Life itself has become a consumer item.
Today we sell away the last vestiges of our divine bequeathment: our health, the
biosphere and genome, even our own minds. This is the process that is
culminating in our age. It is almost complete, especially in America and the
"developed" world. In the developing world there still remain people who live
substantially in gift cultures, where natural and social wealth is not yet the
subject of property. Globalization is the process of stripping away these
assets, to feed the money machine's insatiable, existential need to grow. Yet
this stripmining of other lands is running up against its limits too, both
because there is almost nothing left to take, and because of growing pockets of
effective resistance.

The result is that the supply of money -- and the corresponding volume of debt
-- has for several decades outstripped the production of goods and services that
it promises. It is deeply related to the classic problem of oversupply in
capitalist economics. The Marxian crisis of capital can be deferred into the
future as long as new, high-profit industries and markets can be developed to
compensate for the vicious circle of falling profits, falling wages, depressed
consumption, and overproduction in mature industries. The continuation of
capitalism as we know it depends on an infinite supply of these new industries,
which essentially must convert infinite new realms of social, natural, cultural,
and spiritual capital into money. The problem is, these resources are finite,
and the closer they come to exhaustion, the more painful their extraction
becomes. Therefore, contemporaneous with the financial crisis we have an
ecological crisis and a health crisis. They are intimately interlinked. We
cannot convert much more of the earth into money, or much more of our health
into money, before the basis of life itself is threatened.

Faced with the exhaustion of the non-monetized commonwealth that it consumes,
financial capital has tried to delay the inevitable by cannibalizing itself. The
dot-com bubble of the late 90s showed that the productive economy could not
longer keep up with the growth of money. Lots of excess money was running around
frantically, searching for a place where the promise of deferred goods and
services could be redeemed. So, to postpone the inevitable crash, the Fed
slashed interest rates and loosened monetary policy to allow old debts to be
repaid with new debts (rather than real goods and services). The new financial
goods and services that arose were phony, artifacts of deceptive accounting on a
vast, systemic scale.

Various pundits have observed that the Bernard Madoff Ponzi scheme was not so
different from the financial industry's pyramid of mortgaged-based derivatives
and other instruments, which themselves formed a bubble that, like Madoff's,
could only sustain itself through an unceasing, indeed exponentially-growing,
influx of new money. As such, it is a symbol of our times -- and even more than
people suppose. It is not only the Wall Street casino economy that is an
unsustainable pyramid scheme. The larger economic system, based as it is on the
eternal conversion of a finite commonwealth into money, is unsustainable as
well. It is like a bonfire that must burn higher and higher, to the exhaustion
of all available fuel. Just as fire breaks existing chemical bonds and frees
heat, so does our economy break the bonds of community, nature, and culture,
liberating free energy -- called money -- in the process. Only a fool would
think that a fire can burn ever-higher when the supply of fuel is finite. To
extend the metaphor, the recent deindustrialization and financialization of the
economy amounts to using the heat to create more fuel. According to the Second
Law of Thermodynamics, the amount created is always less than the amount
expended to create it. Obviously, the practice of borrowing new money to pay the
principal and interest of old debts cannot last very long, but that is what the
economy as a whole has done for ten years now.

Yet even abandoning this folly, we still must face the depletion of fuel
(remember, I mean not literal energy sources, but any bond of nature or culture
that can be turned into a commodity). Most of the proposals for addressing the
present economic crisis amount to finding more fuel. Whether it is drilling more
oil wells, paving over more green space, or spurring consumer spending, the goal
is to reignite economic growth; that is to expand the realm of goods and
services. It means finding new things for which we can pay. Today, unimaginably
to our forebears, we pay even for our water and our songs. What else is left to
convert into money?

A collapse is coming, unavoidably; indeed, we are in the midst of it. The first
government response, the bailout, was an attempt to uphold a tower of money that
is far beyond the total value of real goods and services it promises to redeem.
Predictably, the bailout was a miserable failure. The next response, Obama's
massive stimulus package, will fail for a different and much deeper reason. It
will fail because we are "maxed out": maxed out on nature's capacity to receive
our wastes without destroying the ecological basis of civilization; maxed out on
society's ability to withstand any more loss of community and connection; maxed
out on our forests' ability to withstand more clearcuts; maxed out on the human
body's capacity to stay viable in a depleted, toxic world. That we are also
maxed out on our credit only reflects that we have nothing left to convert into
money. Do we really need more roads and bridges? Can we sustain more of them,
and more of the industrial economy that goes along? Government stimulus programs
will at best prolong the current economic system for two or three years, with
perhaps a brief period of growth as we complete the pillage of nature, spirit,
body, and culture. When these vestiges of the commonwealth are gone, then
nothing will be able to stop a massive inflationary surge and currency collapse
on a global scale.

The present crisis is actually the final stage of what began in the 1930s.
Successive solutions to the fundamental problem of keeping pace with money that
expands with the rate of interest have been applied, and exhausted. The first
effective solution was war, a state which has been permanent since 1940.
Unfortunatly, or rather fortunately, nuclear weapons and a shift in human
consciousness have limited the solution of endless military escalation. Other
solutions -- globalization, technology-enabled development of new goods and
services to replace human functions never before commoditized, and
technology-enabled plunder of natural resources once off limits, and finally
financial auto-cannibalism -- have similarly run their course. Unless there are
realms of wealth I have not considered, and new depths of poverty, misery, and
alienation to which we might plunge, the inevitable cannot be delayed much
longer.

In the face of the impending crisis, people often ask what they can do to
protect themselves. "Buy gold? Stockpile canned goods? Build a fortified
compound in a remote area? What should I do?" I would like to suggest a
different kind of question: "What is the most beautiful thing I can do?" You
see, the gathering crisis presents a tremendous opportunity. Deflation, the
destruction of money, is only a categorical evil if the creation of money is a
categorical good. However, you can see from the examples I have given that the
creation of money has in many ways impoverished us all. Conversely, the
destruction of money has the potential to enrich us. It offers the opportunity
to reclaim parts of the lost commonwealth from the realm of money and property.

We actually see this happening every time there is an economic recession. People
can no longer pay for various goods and services, and so have to rely on friends
and neighbors instead. Where there is no money to facilitate transactions, gift
economies reemerge and new kinds of money are created. Ordinarily, though,
people and institutions fight tooth and nail to prevent that from happening. The
habitual first response to economic crisis is to make and keep more money -- to
accelerate the conversion of anything you can into money. On a systemic level,
the debt surge is generating enormous pressure to extend the commodification of
the commonwealth. We can see this happening with the calls to drill for oil in
Alaska, commence deep-sea drilling, and so on. The time is here, though, for the
reverse process to begin in earnest -- to remove things from the realm of goods
and services, and return them to the realm of gifts, reciprocity,
self-sufficiency, and community sharing. Note well: this is going to happen
anyway in the wake of a currency collapse, as people lose their jobs or become
too poor to buy things. People will help each other and real communities will
reemerge.

In the meantime, anything we do to protect some natural or social resource from
conversion into money will both hasten the collapse and mitigate its severity.
Any forest you save from development, any road you stop, any cooperative
playgroup you establish; anyone you teach to heal themselves, or to build their
own house, cook their own food, make their own clothes; any wealth you create or
add to the public domain; anything you render off-limits to the world-devouring
Machine, will help shorten the Machine's lifespan. Think of it this way: if you
already do not depend on money for some portion of life's necessities and
pleasures, then the collapse of money will pose much less of a harsh transition
for you. The same applies to the social level. Any network or community or
social institution that is not a vehicle for the conversion of life into money
will sustain and enrich life after money.

Elsewhere I have described alternative money systems, based on mutual credit and
demurrage, that do not drive the conversion of all that is good, true, and
beautiful into money. These enact a fundamentally different human identity, a
fundamentally different sense of self, from what dominates today. No more will
it be true that more for me is less for you. On a personal level, the deepest
possible revolution we can enact is a revolution in our sense of self, in our
identity. The discrete and separate self of Descartes and Adam Smith has run its
course and is becoming obsolete. We are realizing our own inseparateness, from
each other and from the totality of all life. Interest belies this union, for it
seeks growth of the separate self at the expense of something external,
something other. Probably everyone reading this essay agrees with the principles
of interconnectedness, whether from a Buddhistic or an ecological perspective.
The time has come to live it. It is time to enter the spirit of the gift, which
embodies the felt understanding of non-separation. It is becoming abundantly
obvious that less for you (in all its dimensions) is also less for me. The
ideology of perpetual gain has brought us to a state of poverty so destitute
that we are gasping for air. That ideology, and the civilization built upon it,
is what is collapsing today.

Individually and collectively, anything we do to resist or postpone the collapse
will only make it worse. Let us stop resisting the revolution in human
beingness. If we want to survive the multiple crises unfolding today, let us not
seek to survive them. That is the mindset of separation; that is resistance, a
clinging to a dying past. Instead, let us shift our perspective toward reunion,
and think in terms of what we can give. What can we each contribute to a more
beautiful world? That is our only responsibility and our only security.

More concretely, let us engage in conscious, purposeful money destruction in
place of the unconscious destruction of money that happens in a collapsing
economy. If you still have money to invest, invest it in enterprises that
explicitly seek to build community, protect nature, and preserve the cultural
commonwealth. Expect a zero or negative financial return on your investment --
that is a good sign that you are not unintentionally converting even more of the
world to money. Whether or not you have money to invest, you can also reclaim
what was sold away by taking steps out the money economy. Anything you learn to
do for yourself or for other people, without paying for it; any utilization of
recycled or discarded materials; anything you make instead of buy, give instead
of sell; any new skill or new song or new art you teach yourself or another,
will reduce the dominion of money and grow a gift economy to sustain us through
the coming transition. The world of the Gift, echoing primitive gift societies,
the web of ecology, and the spiritual teachings of the ages, is nigh upon us. It
tugs on our heartstrings and and awakens our generosity. Shall we heed its call,
before the remainder of earth's beauty is consumed?