An Economic Depression, Part 2: The Nuts & Bolts

Read Part 1 Here

Many economists agree that banking is the culprit, or rather, the ability to extend or expand credit virtually at will. There are a few key elements that should be considered and really thought through before we go much further:

1. The Hebrew Economy
2. Recurring Business Cycle
3. Savings and Investment

Without going into much detail, there are a number of specific rules that comprise the Hebrew economic system that are very interesting.

There are rules on charging interest which if followed closely, allow for very limited use of “usury.” There is the Sabbath Year, the Year of Jubilee and so on. These and a number of other rules, when worked into the culture, produce a way of life that leads to prosperity and diminishes the ill effects of poor decisions.

It is commonly taught that the business cycle (boom and bust) is inevitable and occurs mysteriously. There is a saying that anything said loud enough and often enough will be believed as truth. This is certainly the case concerning the boom and bust cycle. Put simply, a healthy economy is made up of earnings, spending, saving, investing and borrowing. That’s about it.

Earnings are wages, interested earned, or any other kind of return for labor or invested savings. Spending is consumption. Savings is putting money away for a short-term consumption plan or a long-term plan of investing (which has an element of risk, see Shakespeare’s The Merchant of Venice). Borrowing is really just the reverse side of investing, but carries more risk than investing your own money.

When these elements are at a state of equilibrium in relation to each other, the boom and bust cycle is practically non-existent. Money is loaned and borrowed within proper parameters and within reason. When a person is investing money that they have scraped and saved, they will more likely assume less risk and for a shorter period of time. They will be very careful whom they loan their money to.

The borrower, on the other hand will sense that reluctance and will feel a higher sense of obligation to the lender which leads to a high pay-back rate (see micro-economics). In a culture where over 90% of the lending and borrowing is done locally or face-to-face, the default rate is much lower.

Money acquired from the bank on the other hand, seems to carry less of a burden (compare government run charity versus religious charity). Default rates in America are very high, which is indicative of a number of human failings, including corruption, disrespect for self and others and dishonesty.

We are a nation of consumer-borrowers, but this is a very recent phenomenon. My grandmother (who died 5 years ago at the age of 93) looked at borrowing as almost evil, something you only did if it was a matter of life and death.

In just two generations, we have gone from a large low middle-class, with modesty possessions and self-respect to a large middle-class with every toy imaginable, completely debt-ridden with greed and selfishness replacing self-respect.

There is magic in the concept of saving and investing. Delayed gratification is the first that comes to mind. Having everything we can imagine either by the asking or by the borrowing is likely the most damaging act of violence to a person’s soul.

I am not overstating the case. I am not talking about the basic necessities. I am talking about our culture of opulence and greed and selfishness, our lack of self-restraint and self-respect. We as a nation want NOW, what it took our grandparents 50 years to acquire. And why not, “We deserve it!”

Why is that exactly?

What is so special about us that we deserve, just for the asking (borrowing and selling ourselves cheap), anything and everything that we can visualize?

Saving is an act of self-control. It is a performance of vision and purpose. We have been sold a story, that we need and are worthy of whatever we want,in the moment we feel the urge, and a little piece of plastic will get us there (this is borrowing by the way — and yes, we do have to pay that back).

It also cankers our souls, warps our personalities and priorities and make us feel weak, enslaved and impotent, (every major religious text warns against the lender becoming the master of the borrower) which can be resolved by going out to purchase something else.

Investing (and I mean with money that you have saved) is one of the most rewarding and nerve-racking activities you will ever engage in (I have done both). It feels completely different to invest your own savings than to borrow money from the bank for the purpose. One of the fastest ways to virtually prevent a depression is to disallow bank lending.

People are brain-dead when they borrow money, especially from a bank. “But how am I to buy a house or a car if I don’t get a loan?” The same way your great grandparents did — slowly. It builds character, saves marriages and makes the nation stronger.

Read Part 1 Here