Like
exponentially-multiplying grains of rice on a chess board,
is the global economic system
destined for collapse?
Rice Grains, Compound Interest, and the Never-Ending Economic
Crisis (News, Switzerland)
"By now it should have hit home, even in the minds of
politicians, that the looming and likely unavoidably bursting bubble of the
money-based economy, the almost total collapse of the global economy that has
kept us holding our breath for years, and the ever-growing discrepancy between
the haves and burgeoning have-nots, must be considered proof of the flaws in
the system. ... There are virtually no systems out there in the real world that
show exponential growth: only bacterial cultures and unbridled atomic chain
reactions come to mind. The first ends in collapse once the food supply is consumed,
and the other in a nuclear explosion."
Although the "all-clear"
for economic recovery is being sounded at regular intervals, there is still considerable
skepticism with regard to the global economy, and quite a few people have the
feeling that the huge collapse is sure to happen eventually. Unfortunately,
they may be right, because our economic system has a monumental structural
flaw.
Are
you familiar with the story of the chess player who asked his king, as a prize
for winning, for a grain of rice - one grain on the first square, two on the
second, four on the third, and so on, always double the amount, up to the
sixty-fourth square? The king laughed and wondered why the chess player was asking
for so little. The smart reader knows why: Fulfilling this wish was impossible,
because the amount of rice that would have accrued by the last square would
have been so enormous that the king wouldn't have been able to find enough in
all the world. He would have had to place 9,223,372,036,854,775,808 grains of
rice on the last square alone. Even today, it would be impossible to collect 9 sextillion grains of rice (with the total number of grains needed being over 18 sextillion grains, or 1.8 trillion tons at 10 grains per gram).
The
story illustrates two things: The enormous power of exponential functions, and
our inability to comprehend them intuitively. But what does this have to do
with the economic crisis? The word is: interest. We are accustomed to the idea
that money yields interest, that interest determines the debt crisis, and that
interest determines our daily lives, usually without our even noticing.
Interest on capital goods and infrastructure make up a large part of the cost
of most goods, with estimates as high as 20 to 50 percent.
In
addition (for those who still haven’t understood), interest accounts for most
of the transfer of wealth from the bottom to the top, since a majority of
earnings from interest collect primarily in the accounts of the upper ten or
even less percent of the world's wealthiest people. So for those who believe
that the 0.125 percent in their current account is a bit of compensation for
their thrift … they would be mistaken. Even those who possess good, high interest bearing investments
are probably paying more in hidden interest for their daily expenses than he or
she will ever earn with the money they've invested.
However,
that’s just an unpleasant detail relating to interest. The other is that
interest rates, like the doubling of grains of rice, represent an
exponential function, i.e.: that money multiplies independent of our economy
through compound interest. Although everything, since we live in a real world, is
based on a real economy, its volume is exceeded many times over by the volume
of the surreal branches of the economy - the foreign exchange and derivatives
markets. Profits are reaped that don't correspond with real value, and there
are obligations that couldn't possibly be paid through labor or the production
of real goods.
Posted By Worldmeets.US
It
is inherent in the system that so-called systemic bubbles must arise again and
again, and which must also burst. Before the major crisis 85 years ago [the
Great Depression], a number of economic theories were developed that aspired to
free the economy from the shackles of interest. "Free money" and "free
land" were the buzzwords, and anyone looking for the "miracle of Wörgl"
would find it.
Despite
the ever-recurring crises in our monetary system, alternative systems of this
type have been labeled "financially esoteric" and considered impractical.
After all, since the beginning of the money-based economy, hasn’t interest been
part of the system which has spurred societal innovation? Societies in which
interest was banned, usually for religious reasons, suffered from a general
stagnation, not just economically, but also in the area of social development.
By
now, however, it should have hit home, even in the minds of politicians, that
the looming and likely unavoidably bursting bubble of the money-based economy,
the almost total collapse of the global economy that has kept us holding our
breath for years, and the ever-growing discrepancy between the haves and burgeoning
have-nots, must be considered proof of the flaws in the system.
Nowhere,
however, among the powerful, do we see even a hint of a change in thinking, or
doubts in the system, because such a change would damage those who support them
with such generous [campaign] donations. If - and the European elections should
prove interesting in this regard - voters increasingly migrate to primarily
right-wing protest parties, we shouldn’t be surprised. For they are almost the last
ones standing - crude, to be sure, and they employ arguments usually completely
beside the point - to express any doubt about our ailing system. At this point,
a completely skewed, usually racist, and self-pitying dissent, suffices to
spread a sense of revolutionary thought. Awful.
So
it will probably happen again - the fantastical monetary inflation of financial
markets like a bubble on steroids will probably have to be destroyed again - literally
by an explosion, since the discrepancy between reality and the market has
simply become too big. To prevent this with "debt cuts" is also just
a desperate attempt to a controlled emptying of the bladder.
It
is perhaps useful in this context to remember that there are virtually no
systems out there in the real world that show exponential growth: only
bacterial cultures and unbridled atomic chain reactions come to mind. The first
ends in collapse once the food supply is consumed, and the other in a nuclear
explosion (whether as a bomb or a defective reactor). Both, by the way, are quite
adequate symbols for the current economic system.
Perhaps
it would be wise for our political and economic leaders to sit down with a
chess board and a bag of rice. Most likely, though, as soon as the rice bag is
empty, they would acquire an option on 1.8 trillion tons of rice, because we
know that in the markets, everything is possible, no matter how impossible it
may be.
