Money as Debt(google Video, 47 minutes) is an interesting documentary about the source of money in our modern financial system. While I don’t agree with everything it says, I think it’s really important to listen to and learn about the wide range of populist economic critiques which are coming out today.

I’ve been following a lot of this for the last decade, and it ranges from very insightful to a little wacky. Zietgeist would be a good example of the latter. While I agree wholeheartedly that we need to critically evaluate things like our money system, religions and the official story of 9/11, there are a lot of risks of being labelled as a part of the lunatic fringe. And as someone who’s worked with a lot of conspiracy theorists before, I can tell you there’s some good reasons people shy away from them. Worse yet, I’m troubled by the underlying message of many of these groups that we just need to get “back to America, how it was supposed to be”. There are very basic problems with both the basic legal framework of Canada and the US and our constitutions. Getting rid of the Federal Reserve won’t change that, and neither will granting government more powers to police banks (which they keep giving up). We need a much more fundamental, radical change.

That being said, our current systems of banking, money and credit are incredibly flawed. Between the radicals and the conspiracy folks, the warnings about an apocalyptic failure of the mortgage-backed security markets and imminent peak in oil supplies were coming out within days of the towers falling. As the film demonstrates, and as most people have no trouble believing, banks are just creating the money they lend us on paper and inside computers. There is no real-world basis to over 90% of it, other than the banks themselves. To put people through this meat-grinder in order to own a home (or by proxy, renting one) is a complete and total scam. If the banks are simply creating the money we use to own our homes, then why must we pay it back two, three or more times over in typical mortgages? Worse yet, why does it usually cost more to rent a home or appartment than its mortgage would cost (paying back double money which was invented out of thin air), when renters usually have less money than owners, and don’t get any equity out of it?

The problem with too much money is that it generates inflation – the more money is around, the less it’s worth. And that’s why new money must be carefully monitored – unless it comes with real-world value (such as financing homebuilding), it only increases the money supply. This puzzled me for a very long time – how could so much money be created, but not simply tank in value like the Zimbabwe currency crisis? Then it hit me – every time we borrow money – cars, credit cards, mortgages, student loans etc – we’re working to pay them off. And as we work, we create fantastic amounts of value (much more than we’re paid for) that helps the other side of the equation stay balanced – at least to a degree.

This also brings into serious question the “ownership” of enormous majorities of our homes, busiensses and public spaces. If the money which bought them is not legitimate, then why are we still paying for them? Doesn’t living or working someone for years on end give us rights that trump arbitrary access to made up money?