Bank Question : LUSENET : TimeBomb 2000 (Y2000) : One Thread

A question for some of you banking experts out there. If, indeed, the bank system were to experience major difficulties, what will happen with mortgages? For example, I live in an area of high real estate prices. They went up 16% this year alone. While we have lived in our house for several years but refinanced the end of last year (before we became Y2k literate) and now have a hefty mortgage. If there is major Y2K disruption, I believe the market will crash, major industries in our area will definitely have problems which in turn will affect housing prices. If the value of our house and land were to drop below the level of our mortgage, what would you do. I am talking from say $225,000 down to $150,000. Do you keep paying on the dead horse? Will mortgage bankers negotiate ( do they really want all those houses?) If they loose all their records in a "glitch", what happens then? Are you on your own best behavior to admit to your debt? Just something we have been mulling over...

-- Valkyrie (, March 12, 1999


These are good questions Valkyrie, some of the most rational Ive seen here

Since nothing similar has ever happened, we can only hypothesize as best we can . One thing is for cetain If Y2k turns into a low level event (magnitude 1-4 of on the scale being used here) and your mortgage company survives , Its a safe bet theyll have your records, the paperwork is always stored somewhere. Closing documents, deed etc You wont be on your best behavior. As far as the value of your mortgage goes, the type of price depression your talking about would almost certainly be accompanied by double digit inflation. Assuming your employed, your debt would literaly shrink along with the dollar as your cost of living increases went up. I find this an unlikely sceario however. If Y2k turns out to be a significant issue (5 through 10 on the scale), and your mortgage company somehow miraculously survives and there is still an economy to speak of, the value of an inhabitable dwelling, is not going down. If theres any plantable land on it so much the better. So cheer up and dont worry so much about the value of your property . What i will add tho , is that its been suggested elsewhere on this forum that you bag paying your debt at this point and focus all your resources on supplies and other essential. This is an incredibly bad idea, its based on the premise that your martgage company wont survive and that is by no means a given.

Once again, Just my opinion


-- nyc (, March 13, 1999.

Hummmmm. Good question. First, if the economy stumbles in a way that is entirely possible, you may be more worried about meals than your mortgage.

Second: If the econom crumbles enough to affect real estate prices/valuations, then this will obviously affect the net worth of the bank insofar as collateral values are concerned. If most of your neighbors can't meet their payments either, you are pretty safe because the bank will be more than willing to work out partial payment deals in that case scenario if for no other reason than to keep your house off their REO list (Real Estate Owned).

The major danger to your continuance in your happy home would be if you run out of money before you run out of bank. All the crisis scenarios in the world will not help if it all takes place AFTER your repo.

A friend of mine gave me an interesting scenario. He intends to mae sure his house payment is up to date, file for bankruptcy in the first part of December with a February or March court date. Key to his plan is to mark revalidation of his mortgage on the bankruptcy papers. The Federal Court overseeing bankruptcy cases is very poor at best and I'm reasonably confident not Y2K compliant. Hey, they can't find stuff now when everything works. By doing this, my friend places his mortgage under the Bankruptcy Act and it is in limbo until the Court rules that the validation is accurate and true. No payments during this time and no way for them to repo. If the court never comes back into business, WHO OWNS THE HOUSE? He says possession is 9/10 of the law. Interesting thought. Good Luck.

PS: You might want to read some of the answers I got on a somewhat similar post Wed. "Domino example" Excellent answers and good thoughts.

-- Lobo (, March 13, 1999.

Well I dont agree with Lobo on the bankruptcy scheme, its a bit too risky INMHO, it depends on Y2k failures in the court system.

But his post did bring up an intersting point. Running out of money before running out of bank,

If you dont plan properly thats a very real possibility. You might want to focus on employment after the new year and assess your income flow for the year 2000. Secondly Theres another point that need a bit of clarification. Whats your window for staying in your home. Did you plan to sell it at some time in the near future, or is this going to be home for a while. This will help you ascertain how "Dead" of a horse it will become. If you have no immediate (5-10 years) plans for selling, the market value becomes fairly irrelavant from a Y2k perspective.


-- nyc (, March 13, 1999.

nyc. You made some good points. No, I don't have a lot of faith in the bankruptcy scheme either. My luck would be they would decide to have my court date on 12/31/99.

Most of the real property that changed hands in the Depression was as a result of taxes, not foreclosures. Approximately 40% of the title changes in WVA in the 30's was from an individual to the county. (Source: WVa-1930-40, The fleecing of the public). If all property values fall and few can make their mortgage payments, the banks and mortgage companies have little choice except to accept reduced payments. If they repo all the defaulted properties, they go bankrupt themselves because of cash flow problems--they still owe the taxes. They will be amenable to reason if the debtor can last long enough to reach that point.

-- Lobo (, March 13, 1999.

Thanks for your answers guys, really appreciate the input. We had planned to retire and move out of the area 2002-2003 after our son finished school. The taxes here are so high - 1/3 the amount of our mortgage payment per month. We have 5 acres so Y2K wise we are in good shape as far as gardens, fruit trees,woods, and animal forage. Right now, we have about $110,000 in equity (at current prices) and that is what I am concerned about loosing. My husband is a police officer so income should continue if the government stays in tact and of course, our retirement comes from the state and the Fed (military retirement which is supposed to kick in next year - odds?) I thought we had planned fairly well till now.

-- Valkyrie (, March 13, 1999.

Lobo !

LOL , I know what you mean , my luck runs that way too, we'd probably be in court together :D

You know Valkyrie, its sounds to me that you and hubby are ok, youve planned well and your income is secure. I think one of the things that bothers me the most about this is the fear that all this talk wells up in hardworking people like yourselves. A lot of which comes from people who seem to have no problem pulling up stakes and altering thier entire lives. ( go ahead people, flame me, you know its true tho). I think tho Valerie you might also want to look at any retirement investments you may as they might benefit from a rethinking of investment strategy, because I do believe that some economic changes will occur.


-- nyc (, March 13, 1999.

If Y2K is a 10 like I happen to believe, there will be millions of deaths in the big cities. Millions of homes will sit empty in this country. That will cause the real estate market to crash to rock bottom. Then you can kiss your equity good buy!

-- Freddie the Freeloader (, March 13, 1999.

Well as we can see, Freddie is having trouble sleeping and its pretty obvious he wants you to as well :D

Rant on Freddie !!!!! Heres a hint.... if Y2k is like a 10 she wont have a mortgage anymore get it!?!?


-- nyc (, March 13, 1999.

Freddie...if y2k is a 10, equity is the LAST thing I'll be worrying about!! Especially in January!!

Got atches?

-- Lobo (, March 13, 1999.

Freddie...if y2k is a 10, equity is the LAST thing I'll be worrying about!! Especially in January!!

Got matches?

-- Lobo (, March 13, 1999.

Lobo -

Now - matches I got and a dozen Bics to flick besides.

Got candles and beans?

-- Valkyrie (, March 13, 1999.


I am currently working in financial IT, though I am not an expert. From my experience, it would be very difficult for a bank to 'lose' a customer's record. Banks do nightly backups, and even if there were to be a power outage they can carry on from where they left off, any transactions in progress would get rolled back. Also, customer accounts are never actually deleted from the system, they just get closed, but the details still stay on the system.

Another thing, everything on the system has to balance as well, i.e. a credit from one account has to match with a debit to another account. For example, if you paid from a savings account to a mortgage account there would be a debit to the savings account and a matching credit to the mortgage account. Any imbalance would show up and the bank would have to investigate.

Well, you did ask about glitches :-)

-- (, March 13, 1999.

someone, And if the the date/time sensitive transaction logging feature of the OS backup/restore process gets bit by the bug what then? How many banks do you think have really tested by performing a 12/31/1999 backup, rolling the clock forward to 2000, running the application and performed backouts? Or backward restored across the millinium and rolled the transactions forward?

MoVe Immediate

-- MVI (, March 13, 1999.

Banks buy and sell mortgages all the time.

If y2k is about a 5 - 7, causing a depression, and banks are in a liquidity crunch, they'd probably love a payoff on your mortgage. From another bank, or from you.

If house prices have crashed, they're not going to get much by foreclosing and selling to someone else. You're in the house, you're still the best prospect for a workout. Win-win.

Think they might accept 50k on a 150k mortgage? Or 20k cash to write it down to a 50k balance? Who knows? -- we've never gone this route before.

This reflects -- and maybe compensates you a bit -- for your loss of house value, and perhaps equity. (How big did you say that new home equity loan of yours was? Of course, watch out as always for the potential scam loan companies who offer "debt consolidations" and "125% of value" loans.)

Of course, by giving up a big chunk of your available cash, you're betting on a 5 not going to a 10 and you being hungry later. But once a post-5 recovery begins, banks may not feel like bargaining much. Guess well, and get to the front of the workout line before Jane Bryant Quinn starts writing columns about it.

Got liquidity?

-- jor-el (, March 13, 1999.

Nyc, your thought given to this subject is well considered, but it is flawed. You stated that should a scale of 1-4 be achieved that there would be a concurrent inflation rate of 10% or greater. I conceed that initialy there would be such inflationary pressures felt in local areas of the economy (food and medicine), but the history of such events prove contrary to your assesment of inflation in general. In fact, DEFLATION is the norm. Almost any item or commodity is priced at what consumers are willing to pay for it in the aggregate. Real estate prices in this heated economy have gone beyond what a value investor would say is "fair". Now, should the economy decline for a prolonged period with unemployment rising and I belive you will see a flood of defaults and "for sale" homes on the market. A home that was once assesed at 200k could quickly find it self reassesed at 140k under your 1-4 scale. What you have now experienced sir, is deflation.

-- pm (, March 13, 1999.

I did not make this statement....

Nyc, your thought given to this subject is well considered, but it is flawed. You stated that should a scale of 1-4 be achieved that there would be a concurrent inflation rate of 10% or greater.

Pleas dont misquote me, read it again.


-- nyc (, March 13, 1999.

There are actually several different questions being asked here, and it would help to separate them in order to arrive at a plan. Concerning the bank's likely course of action if faced with a defaulted loan, consider this true story. My father-in-law's father was a fairly well to do farmer in Iowa, and owned properties in two other states. In 1928, he paid off $60,000 on a $100,000 mortgage, leaving $40,000 left owed. During the next growing season, he planted his farm in popcorn, but when the stock crashed and the economy worsened, he was unable to sell his crop. The local bank, which he had dealt with for years, didn't hesitate to foreclose because even with real estate prices slashed, his properties could still cover the outstanding debt. His family was left with nothing! You really don't owe your home until you make that last payment and can have a "mortgage burning" ceremony. Considering the uncertainty of what y2k will bring, it would be better to be fully mortgaged (can you say 125%) then to be only partially in debt. Banks are not going to lose your records, so don't think you can be overlooked. The other major question is the old deflation or inflation debate. Personally, if y2k turns out to be as bad as I think it will, deflation will prevail and all prices, especialy real estate, will plumment in terms of dollars, but not necessarily in terms of purchasing power. However, banks deal only in terms of dollars fixed on a contract. While a house could lose 50% of its price in terms of dollars (but still remain a valuable asset in terms of utility), the bank will still hold you responsible for the agreed upon mortgage terms irregardless of outside events. My sister-in-law moved to Texas not to long after the price of crude oil collasped, and told stories of people who simply walked away from their houses when they lost their jobs. They would turn over the house keys to the bank and move on. The banks did not make deals with the owners; they took the houses back and resold them. I do wonder how the bankruptcy courts will deal with cases involving mortgages. With unsecured debt, there was the so-called cram-down provision where creditors were forced to accept payment for debt based on actual market value, not the purchase price. However, this is a legal question, and Congress (and the individual states) can and do change the bankruptcy laws, and I hope a qualified attorney can address this point. My advise would be, if you take y2k seriously, would be to sell now.

-- Sure M. Worried (, March 13, 1999.

Valkyrie. From some of the above posts,your options seem to rest in one of two (and two only 0 directions. 1. You can stay in the home, save your money, then when the mortgage company declares you delinquent, walk away!

2. Get a 125% mortgage, hold the money, make the payments until you can't, take your equity money from the 125 ans walk away!

In regards to the Texas massacre, The banks were not interested in negotiating at that time because most of the home loans were backed by Fannie Mae. The banks didn't have a darn thing to lose so why talk? The situation we are describing above has nothing to do with a regional real estate crunch or a few S&L's going under. We are discussing the probability of ALL banks in the US being in the same situation because of a severe recession promolgated by the effects of y2k on the world economy. Do not think that Citibank is immune to making deals or Wells Fargo. In the recession of 1973-74, Tampa's economy was crappy. I was in deep financial trouble (first wife and all that) and about to lose my house. I went to my creditor and found out I was part of about 14% of their outstanding loans that was in trouble. The bank (a major player at that time) was willing to refinance the loan and settle for 0.64 on the dollar. It damn well CAN be done because I've done it!

My contention is this: If you owe them a dollar, they've got you; If you owe them a million, you've got THEM. People have always been told to invest in RE. "God's not making anymore of it". There are very, very few bankers and financiers that have any experience with deflation, the drop in real estate values and people's inability to pay.

If y2k is a 10, you will not have to worry about equity. You might consider refinancing with a 125 and keeping the balance handy (not in the back yard). Since it is that significant equity wise, you would be able to make many, many house payments....if that is what you would choose. Personally, if it comes down to that, I'll probably walk--take my money and move up in life (depending on the definition of'life' after y2k).

-- Lobo (, March 13, 1999.


perhaps I have misunderstood your question, but the actual transaction logging is not time sensitive.

Without getting into specifics, it would be of the form:

Transaction start

Update file 1 (in memory)

Update file 2 (in memory)

Update file 3 (in memory)


Transaction commit (to disk)

What I meant was, if there was a power outage after updating file 1, say, then files 1,2 and 3 wouldn't get updated. It wouldn't be possible for file 1 to get updated on its own.

This is done, generally, so that if an error should occur during any of the updates, the whole transaction set can be rolled back.

-- (, March 13, 1999.

someone, my point is this: have these functions been tested across the millinium boundaries. You are assuming that all will be well after the rollover because all is well now. Backups, backouts, restores etc. are date/time sensitive. Will they work? More importantly, will they work if the apps don't?

MoVe Immediate

-- MVI (, March 13, 1999.

As far as I'm concerned, the question is unanswerable. Your mortage is denominated in "dollars." "Dollars" have no value other than what is perceived by a populace -- there is nothing concrete/physical backing them. To the extent they have perceived value it is due to "full faith and credit" of the U.S. government, backed by the government's increasing monopoly on force. The number of "dollars" in circulation and available as ephemeral electronic bookkeeping entries can change dramatically in a short time (Y2K could be such a cause of change). To simplify -- if a loaf of bread now costs $2, and the money supply is doubled (inflation), it will cost $4. If it is halved (deflation), it will cost $1.

There is at present a humonguous credit/debt bubble that could collapse at any moment. That would cause deflation. Say you are now making $50,000 a year and you owe $200,000 (4x your income). With deflation, say you're making $10,000 a year and still owe $200,000 (They aren't going to "index" your principle are they? :) ) You now owe 20x your income; likely a bit of a financial stretch.

This is why a lot of the gurus recommend selling now and maybe buying back later.

On the other hand, the government could inflate. As the electronic money disappears, the tendency would be deflation. But, since a dollar bill has no intrinsic value, as they came into the banks, they could be overprinted with a higher denomination (as in post wwI Germany), or replaced with "New Banana Republic of America Dollars" as in Brazil, Argentina, Israel, etc.

-- a (, March 13, 1999.

MVI, We copied an entire day of transactions to a backup tape. We transported this tape to our off site testing facility with an AS/400 running an OS exactly like our bank environment. Personnel copied the information to thirteen additional tapes - each tape was advanced so that the transactions actually occurred on 12-31-99, 01-01-00, 01- 03-99, 01-31-00, 02-01-00, 02-28-00, 03-01-99, etc. Then, the tapes were processed, backed up, information printed and compared to the baseline (actual transaction date) for accuracy. In addition, new transactions were entered onto the system while in an advanced date mode. These transactions were also processed to ensure the system's ability to not only advance existing data, but also record and manipulate new data entered after 12-31-99. Several other tests were completed using this data (I'm not a techie so I can't go into more detail - sorry!). This one testing process was completed at a cost of about $25,000 to my small institution. I can't speak for other institutions, but we are taking the Y2K problem VERY seriously. By the way, many other factors lead to property devaluation. This is a risk we have delt with since the beginning of the first bank. Just a comment from one banker. Thanks.

-- y2kproject coordinator (abank@smalltown.usa), March 19, 1999.


Permit me to raise a few issues here.

"Dollars" have no value other than what is perceived by a populace -- there is nothing concrete/physical backing them. To the extent they have perceived value it is due to "full faith and credit" of the U.S. government"

Not really. We perceive dollars as having value because merchants trade us neat stuff for them. So long as this is true, we don't need any government involvement at all. I'm assuming that you would prefer trading dollars for some other intrinsically worthless medium of exchange like gold. Fine. But that gold will only have value so long as merchants trade us neat stuff for it. The idea that one medium of exchange should be 'backed' by another is at best artificial.

To see this, here's a thought experiment. Everything has an intrinsic value and a trade value. These values are *mutually exclusive*, since if you trade something away, you can't use it. In general, if you use it up, you no longer have it to trade. You should see that both dollars and gold are entirely trade value -- you can't eat either one. Yes, gold does have some industrial uses, and you can make better jewelry out of it. But the market for jewelry is pretty limited.

Beyond that, we're talking about pure trade value -- a pure medium of exchange. Which one you prefer depends on which one you think is more practical for day-to-day convenience.

"backed by the government's increasing monopoly on force."

Strange statement here. I guess I'd need your definitions of 'monopoly' and 'force'. I fail to see any such trend using any definitions I can find.

"The number of "dollars" in circulation and available as ephemeral electronic bookkeeping entries can change dramatically in a short time (Y2K could be such a cause of change)."

True enough. If the aliens really wanted to conquer us, all they'd need to do is subject the Earth to a huge magnetic flux for a short time, erasing all of our tapes and disks. Y2K is unlikely to be so dramatic.

"To simplify -- if a loaf of bread now costs $2, and the money supply is doubled (inflation), it will cost $4. If it is halved (deflation), it will cost $1."

This wonderfully self-evident statement unfortunately has one drawback -- it fails the reality test! But after only a little analysis, we can debug it easily. To hold a constant value, the *ratio* between the money supply and the value of all goods, services and assets in an economy must be constant. If the economy experiences a long boom (fueled perhaps by technologal advances) and doubles in size, the money supply must also double for the value of a dollar to remain constant.

This is one of those little details that the goldbugs never recognize. An economy can grow much faster than our gold supply, and can shrink rapidly while the gold supply remains pretty constant. Dollars can be created or destroyed to maintain that constant ratio. Gold cannot. In practice, due to feedback mechanisms I'm sure you can derive, the effect is to pin the size of the economy to the fixed supply of gold.

"There is at present a humonguous credit/debt bubble that could collapse at any moment."

Well, what's a 'bubble'? The value the market represents does *not* reflect the value of the economy, it represents our expectations of the *future* value of the economy. Greenspan's comments about 'irrational exuberence' were describing his opinion that we have bid up the value of our economic assets beyond any reasonable hope of achieving such a value in the future. The 'bubble' is the gap between our hopes for the future, and the actual future. It exists only when our hopes are inflated and unrealistic. Which I believe they are.

"That would cause deflation. Say you are now making $50,000 a year and you owe $200,000 (4x your income). With deflation, say you're making $10,000 a year and still owe $200,000 (They aren't going to "index" your principle are they? :) ) You now owe 20x your income; likely a bit of a financial stretch."

Only if we make certain assumptions. If my income fell 80% due to personal misfortune, you're right. If an ebb tide lowered all boats, and *everybody's* income fell 80%, then your scenario is highly suspect. In this case, the money supply has out-shrunk the economy by a factor of 5. The banks would have to choose between repossessing all houses (for example) which they could not sell, or revaluing the loans to match the new relative dollar value. In this case, the rule of thumb is, don't be one of the early defaulters! Wait for the situation to clarify, so that you can rectify your dollar equity while you still own the assets.

"This is why a lot of the gurus recommend selling now and maybe buying back later. "

Well, that amounts to almost the same thing. I'm willing to make a few artifically high payments (if I can!) to retain possession, since what I'm buying with that money is a *lot* of convenience.

"On the other hand, the government could inflate. As the electronic money disappears, the tendency would be deflation. But, since a dollar bill has no intrinsic value, as they came into the banks, they could be overprinted with a higher denomination (as in post wwI Germany), or replaced with "New Banana Republic of America Dollars" as in Brazil, Argentina, Israel, etc."

True that creating currency is *not* the same thing as creating value. But the goal is to get the economy moving again -- to put people back to work creating real value. Even if the government calculated the amount of money remaining after the crash, and replaced all those dollars with an amount of gold proportional to the gold they have stored, that doesn't get people back to work. One of the purposes of inflating the money supply is to get people to *spend* their money before its value wastes away. The idea is, if they are buying, producers will produce. To produce, they must hire employees, who then continue to buy products with their incomes.

But this strategy is shortsighted, and the economic activity generated is shallow. Rapid inflation does goose spending, but it militates against investment and borrowing. Credit dries up. Real economic recovery depends on stability, public confidence, and genuine productivity. Games with the money supply damage all of these.

What's really hurting Japan now, and what prolonged the Great Depression, was a public frugality and unwillingness to spend. It made sense for the individual, but killed the economy. Breaking these habits, we've learned, is damn hard. The best answers I've seen lie in game theory. But that's for another day...

-- Flint (, March 19, 1999.


Today's US dollar = debt. No dollars are created that are not represented by debt principal. Only principal dollars are created. Interest dollars are not created. All the public and private interest that the economy pays must come from only principal dollars that the banks create out of nothing. Everyone competes for principal dollars in order to pay back both principal and interest dollars. The system is a pyramid scheme. There will never be enough dollars to repay all outstanding loans because all loans require interest plus principal. The structure of this system requires continuous debt expansion. The minute loan expansion slows or, God forbid, ceases, defaults begin.

Under a loan default, collateral defaults to the bank. The bank loses its interest income, but now it has your house. The bank has your house because they were "allowed" to create the debt money principal out of nothing and lend it to you so that you could occupy the house and pay them interest. In effect, except for minor administrative costs, the bank gets your house for nothing. They bank can sell your house for 10 cents on the dollar and still come out ahead. They would rather not sell your house for 10 cents on the dollar. They would rather you and everyone else paid interest. They would rather you didn't default, as it tends to destabilize the interest payments of other borrowers. But if everyone is defaulting, and no one is paying interest, then the banks will do what they do to survive as surely as the parasite abandons the dying host.

Precious metals are not debt, they are an objective store of wealth. So are unencumbered lumber, wheat, raw land, and many other things, for all these things have value. Precious metals were used as a store of wealth because they were rare, malleable, elemental, and portable. We don't need to use precious metals, per se, as a monetary unit. Anything that represented wealth and that would be extremely difficult to counterfeit could be used as a monetary unit. A new supply of this monetary unit would then be added annually, commensurate with the desired long term growth rate of the economy. If too much supply were added, it would result in a slight inflation. If too little supply were added, a slight deflation would be the result. For convenience, this monetary unit could be represented with paper currency with full convertibility.

This may sound like the previous gold standard we were on, but it is not. The problem has been, not with the gold standard, but with fractional banking, though no banker and few economists would ever admit this or even know it. The early monetary history of the US was a constant battle between a strict wealth-based gold standard and a pernicious desire to conduct debt-based fractional reserve banking simultaneously. by 1913, after several back and forth bouts, wealth-based money was dealt a deadly blow with the unConstitutional establishment of the Federal Reserve System. The issue was finalized in the banks favor when the US went off the gold standard in the 30's and was sealed for good with the abandonment of silver content of our coinage following Kennedy's assassination in 1964.

In order for a new, fair, and stable monetary system to be introduced, all forms of fractional banking must be abandoned. The entire business of fractional banking is the installment of a monetary system based solely on debt creation, and, as explained previously, that system is inherently unstable. It may not be apparent now, within the US, at the top of an incredible, unprecedented debt expansion, but it will be plain at the bottom of this cycle. Watch where all the collateralized real assets wind up over the next two decades or so.

The issue is not paper money vs. gold. That argument is a dead end, a red herring, a distraction. The issue is debt based money vs. wealth/value based money. Debt based money is confiscatory for those societies that comply with its use. Eventually, every real asset in the world will belong to the banks, and more directly, the owners of those banks. We are well along our way to that unhappy day.

Oh yeah, The Great Depression was caused by design. Global liquidity was withdrawn for some reason, i.e., debt expansion ceased, and the whole planet went scrambling for interest dollars which didn't exist to service the principal and interest payments on the existing loans. You see, the expansions and contractions allow for the consolidation of power and control of real assets, the ability to rewrite and abolish laws, and the opportunity to extend new loans and favorable terms (for the banks) at the start of the next up cycle. Some people seem to like doing these things...

-- Nathan (, March 19, 1999.


With all due respect, this is mostly bafflegab. My monetary units are convertible to real wealth, and always have been. I buy food and clothing and shelter, entertainment and spare time, comfort and convenience. These are real wealth.

Yes, interest implies growth. If growth stops or reverses, the system suffers a lot. Leverage works both ways. We've made a tradeoff in the direction of big swings, as being preferable to near-stagnation. Some people don't like that tradeoff, others do. So?

I have no fear of bank owners ending up owning all the assets in the world. What would they do with them? Do you suppose there are bankers who look with envy at banana republics were a handful of people live like kings (with foreign-made crowns and thrones) while the population grubs in the dirt and starves? Such a division of wealth isn't internally sustainable at current levels - eventually the kings themselves must be reduced in material ways.

What our economy produces is real wealth. The computer I'm using couldn't have been built at any price 20 years ago, and could only have been afforded by big companies 10 years ago. The store shelves overflow with a boggling array of affordable goods. The US has more TV sets than people. The age of the average vehicle on the road is going down, and the drivers are talking on cell phones. Look around, you can't deny it.

And we managed this with debt? Oh, how awful. You suggest we should return to real wealth, where we all subsist by our own sweat? But what we make, however poorly, is real? Well, at least the bankers wouldn't end up owning all the houses, eh?

-- Flint (, March 19, 1999.


Sorry about the gafflebab, let's give it another go.

I did not mean to imply the our debt money cannot be converted into real wealth. Value based money can be converted into real assets, too. That's not the point. The point is that the current monetary unit "itself" is not real wealth -- it is real debt.

How can you equate a non-debt monetary system with stagnation? You are, however, quite correct in that the debt-based money system exaggerates the swings immensely. This is by design. Wealth-based money provides for all the growth prudent, sustainable, and necessary -- providing the banks aren't allowed free reign to screw it up. America grew from a fledgling country in 1780 to the envy of the world by the early 1900's, despite a hugely expensive and destructive Civil War and the on and off again attempts by the European money interests to establish fractional banking on American soil. The wealth-based monetary system served us well...very well. The prosperity of the debt-based system is fleeting. The debt-based system only "appears" to work on the upswing.

What would the banks' owners do with all the assets in the world? I dunno, ask them. How about having their subjects work mindlessly from cradle to grave for the purpose of paying rent for the rest of their natural lives and then discarded as paupers, with no personal freedoms, property rights, or freedoms to speak or change the system to which they and their children now find themselves bound. Can't happen, think again. I don't know where you get your fairy-tale concept of ruler and ruled, but my recollection is that, sooner rather than later, the system is evil, totalitarian, brutal, and dynastically long-lived.

Except for the very, every few, those reaping the lion share of interest payments and collateral defaults, what our economy currently produces is real debt, eternal tribute to that debt, rising prices, and long-term confiscation of wealth in the name of debt service. This is mathematics. In the period that this country ran under a gold standard, I believe America produced more patents per capita than the entire world did during the entire period prior to America's founding. Your point that the invention of the computer or the cell phone is somehow related to the beneficence of the debt-based monetary system is, regrettably, specious.

You view a wealth-based monetary system as a ticket to poverty. On what historical or empirical basis do you arrive at this pat assumption? You see a wealth based monetary system as evil, yet borrowing ourselves to "prosperity", with all its costly drag in terms of personal debt service, persistently high taxes servicing public debt and funding dislocating social programs, continual loss of freedoms to make damn sure we pay those taxes and fund those programs, wrenching boom and bust cycles, planned obsolescence with its unsustainable throw-away mentality, over-investment into unproductive and counter-productive areas, and continuous manipulations of all our public and private institutions in order to sustain the debt-money charade somehow preferable??

-- Nathan (, March 19, 1999.

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