It is very important to understand this point: the total debt can never be paid off, for it represents money that does not exist. Louis Even explained it so brilliantly and simply in his fable, The Money Myth Exploded. In the fable, Martin lends money at a rate of 8%, but any rate – even 1% – would create an impossibility to pay back the entire loan, principal and interest.
Let us suppose the five shipwrecked people on the island decide to borrow from Martin a total of $100, at 6% interest. At the end of the year, they must pay Martin the interest of 6%, that is to say, $6. 100 minus 6 = 94, so there is $94 left in circulation on the island. But the $100 debt remains. The $100 loan is therefore renewed for another year, and another $6 of interest is due at the end of the second year. 94 minus 6, leaves $88 in circulation. If they continue to pay $6 in interest each year, by the seventeenth year, there will be no more money left in circulation on the island. But the debt will still be $100, and Martin will be authorized to seize all the properties of the island's inhabitants.
Production has increased on the island but not the money supply. It is not products that the banker wants but money. The island's inhabitants were making products, but not money. Only the banker has the right to create money. So, it seems that it was not wise for our five fellows to pay the interest yearly.
Even borrowing the interest won't solve anything but will only delay the final bankruptcy. Let us suppose that at the end of the first year, the five fellows decide not to pay the interest, but to borrow it from Martin, thereby increasing the loan principal to $106. "No problem," says Martin, "the interest on the additional $6 is only 36 cents; it is peanuts in comparison with the $106 loan!" So the debt at the end of the second year is: $106 plus the interest at 6% of $106, $6.36, for a total debt of $112.36 after two years. At the end of the fifth year, the debt is $133.82 and the interest is $7.57. "It is not so bad," thought the five guys, "the interest has only increased by $1.57 in five years. We can handle that."
But after 50 years, the situation is quite different. The debt is $1,842.02 and the interest due on the debt is $104.26. At no time can the debt be paid off with the money that exists in circulation, not even at the end of the first year: there is only $100 in circulation, and a debt of $106 remains. And at the end of the fiftieth year, all the money in circulation ($100) won't even pay the interest due on the debt: $104.26.
The Banker demands to be paid not only the principal that he created and interest that he did not create but also that that nobody else created either. It is impossible to pay back money that does not exist, because the debts pile up. The public debt is made up of money that does not exist (that has never been created) and that governments nevertheless have committed themselves to paying back, even if human beings are to die because of it.
The sudden increase in debt after a certain number of years can be explained by an effect of what is called compound interest. Contrary to simple interest, which is paid only on the original borrowed capital, compound interest is paid on both the principal plus the accumulated unpaid interest.
The debts of all countries follow the same pattern and are increasing in the same way. Canada's public debt, for example, was only $3 billion in 1920 and $4 billion in 1942 but jumped to $13 billion in 1947 (after World War II). It was $24 billion in 1975 but almost increased ten times in 1986, reaching $224 billion. It is now over $560 billion.
The federal debt is only the peak of the iceberg: the Federal Government is not the only one to borrow in Canada; there are also the provinces, corporations and individuals. It is just like on the island: one of five people may be able to pay back his loan but not the five together. If the Federal Government manages to reduce its debt, it is only at the expense of other borrowers – the provinces and municipalities.
Under the present debt-money system, if the debt were to be paid off to the bankers, there would be no money left in circulation, creating a depression infinitely worse than any of the past. For example, Mr. Gilbert Vik of Cathlamet, Washington, wrote a few years ago, this very interesting letter:
"For every person in our country, there is $20,000 of money in existence. Sounds good! But there is $64,000 of debt! Apply your $20,000 to the debt, and that money will cease to exist, leaving you without any money and $44,000 of debt. Your options are to forfeit your assets or borrow more money to attempt to pay. You cannot borrow yourself out of debt!
"Since the method of money creation is itself the cause of the ever-increasing debt, it is not possible to correct the problem using any method that deals with money after it has been created.
"Working harder will not correct it. Working longer hours will not correct it. Having a job for everyone in the family will not correct it. Neither raising nor lowering wages will correct it. Full employment will not correct it. Less spending will not correct it. More spending will not correct it. (And the list goes on...)
"The only thing that will correct it is the one thing that is sacrosanct in the media, in education, in politics, and, yes, even in our social circles. The only thing that will correct it is to strip private companies (banks) of their power to create money as debt at interest, and to adopt a method of money creation whereby the United States Treasury creates money as credit!
"This issue is the key issue to the financial future of our nation and world! This chicanery is practiced throughout the world! We must turn an entrenched, centuries old financial establishment on its ear! Read about it. Study it. Understand it. Talk about it. Then raise some hell!" The best way to do all that is to get people around you to subscribe to the "Michael" Journal!