The Principal And Interest On Debt Myth

There are many ways that you can divide the world into two groups. Men and women, for example—with the for­mer being about 50.2% of the pop­u­la­tion and the lat­ter 49.8%. Or those that like math and those that don’t—where there are no accu­rate fig­ures, but I’d haz­ard a guess at a 10% to 90% split.

The (almost) binary group­ing that moti­vated this post is between those who reckon that banks, debt and money are of no real con­se­quence in cap­i­tal­ism, and those who believe that the mere mechan­ics of bank­ing guar­an­tee that cap­i­tal­ism is doomed. The for­mer includes the vast major­ity of econ­o­mists, who delu­sion­ally model the macro­econ­omy as if banks, debt and money don’t exist. The lat­ter includes most of the gen­eral pub­lic, who know that banks cre­ate money when they cre­ate a loan, and think that because banks insist on inter­est on loans, the money sup­ply has to grow indefinitely.

I reckon the split in this binary divi­sion is about 0.1% in the “banks don’t mat­ter” camp, and 99.9% in the “debt can’t be paid” group. But there is also a sta­tis­ti­cally insignif­i­cant hand­ful who reckon that both groups are wrong.

I’m one of that hand­ful, and both other groups exas­per­ate the hell out of me, and my sprin­kling of like-minded colleagues—hi Stephanie, Scott, Richard [both of you] and a few oth­ers. A tweet from one the 99.9% finally pushed me over the edge on Twit­ter this weekend—see Fig­ure 1—and I promised that I’d devote my next col­umn on Forbes to debunk­ing this myth.

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