I was rereading an article this week on Madoff, the guy who ripped of major worldwide investors. His actions have been denounced as a Ponzi scheme. What I find interesting, ironic even, is how it seems to me those duped investors don’t realize (or don’t want us to realize) that our entire monetary system is basically a Ponzi scheme, a pyramid game. It’s just that Madoff’s client portfolio is small enough for all to recognize the tell-tale signs in hindsight. It apparently looked enough like the ‘real thing’ for investors to fall for it initially however. And I am sure it did, as there is no real difference in the long run.
It was the same when some financial analyst in NYC pointed out that the economy in Second Life was a Ponzi-scheme, and therefore a fraud. Where, as different people pointed out, it was just as real as the ‘real’ economy, just small enough and with clear enough boundaries to recognize the true nature of that economy. I thought it ironic.
All of our money is created out of thin air through lending (fiat currency it’s called). So every dollar, euro, pound sterling, the works is, created as debt. The snag is that the interest that is to be paid on that debt is not created at the time of the debt. There need to be people defaulting on their loans so other people can use that money to pay interest. (If you lend 10 villagers 10 coins to be paid back after a year, with 10% interest per year, at the end of the year 9 villagers can make their payment, if one villager loses all his money except one coin. And that is the only way to do it.) One way to keep a closed system like this going is if people take out more loans so they and others can meet interest payments on their other loans. This is actually feeding the monster, make the system bigger, too big to fail in fact. The growth paradigm of our economies, and the ensuing panic when grow only diminishes (i.e. we’re not getting poorer, but getting richer slower than before) stems from this. Using new investments (in this case loans) to keep the system running for incumbent ‘players’ is exactly the heart of what a Ponzi-scheme is.
Another way is to accept a layer of the population that makes the succes (i.e. interest payments) of others possible by going or being broke. We in the west have delegated that role to Africa and large parts of Asia. We call it the North-South divide, and not surprisingly debt to the North is the South’s biggest problem.
A third way of extending the lifetime of the system is ‘cheating’ by adding ‘free’ resources from outside the system (let’s call them oil, metals, minerals, and other natural resources. They form a back door into an otherwise closed system). I used to do that in Civilization and Age of Empires by hacking the saved games or use cheat codes to add more resources. However our natural resources aren’t unending either, and form a closed system by themselves.
Of course we have employed all three methods to keep our global Ponzi-scheme going (encourage each and everyone, especially US citizens, to take out ever more credit, accept a large part of the global population being broke with no hope for their nations to get out of debt, and keep up the supply of ‘free’ resources by force if necessary).
I don’t find it at all surprising that our financial system is in such turmoil right at the same time that all three of those methods are starting to falter. Taking out more loans is faltering with the housing bubble bursting (people no longer being suckered into debt based on the ‘always increasing value’ of their homes), part of the ‘South’ is increasingly successfully aspiring to get out of abject poverty (more than two billion people in China and India alone, a third of the world population, thus upending the pyramid that is a Ponzi-scheme) and scientists tell us not only the availability of oil is peaking, but also a whole range of other metals (e.g. uranium), minerals (e.g. phosphates) and other resources (wood) are peaking or in alarming decline.
Our monetary system may seem like an open system locally, but on a global economy scale it is a completely closed system, as is our world itself: it is a basic design feature of our currencies to be closed system in the sense that there is never enough money to repay all debt, except by taking up more debt. There is no real way out but to change the design features of the system. My grandparents lived in a largely money-less society, relying on a networked gift economy to live their day to day lives. It seems worthwile to look what made that system work, and what the system lacked. It seems worthwile to look at cooperatives and mutuals more (the only banks and insurers not in trouble here in NL are the coops and mutuals). It seems worthwile to look at the system features of alternate currency models (that even if not legal tender can help local resilience enormously, as shown in Argentina in recent years and Germany in the 1920’s and ’30’s) It seems especially worthwile to me to look at what we can do to put our densely knitted global networks (social media as root of a ‘personal’ globalization wave through networked structures, after the corporate globalization through hierarchical/national structures) into action (as we already discussed here in 2003) in a way that benefits our local context. Because that, us being highly networked, is the new element in the mix. Action is this year’s theme for Reboot, not a coincidence. In the mid-term it seems worthwile to look if we can do for production what we did with social media for sharing/publishing, i.e. bringing industry level production means into the hands of individuals. It may prove to be another element needed in the mix to create local autarchy on the substrate of global connectedness.
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