1. The Global Debt Crisis: Money, Energy, and Limits to Growth John Bradford, Ph.D.

4. Overview Summary: 1. We cannot understand today's global economic crisis without understanding our ecological and energy crises. 2. A monetary and economic system based on the expectation of infinite, exponential growth cannot work in a finite world with limited resources.

5. I. Fundamental Concepts

7. Example: The more people there are, the more people will be born.

8. The rate or percentage increase may be constant.

11. The things we call money (coins, bills, checks, beads, etc.) are secondary in importance to the relationship they express.

13. MONEY = A CLAIM ON 'WEALTH' OR HUMAN LABOR. It symbolizes a relation of CREDIT AND OBLIGATION (i.e. DEBT)

14. Fundamentals: What is Money? Summary: Money is credit . Credit is one end of a credit-debt relationship. Whoever has money is owed by society some quantity of labor or material wealth. Money is a claim on wealth, not wealth. Money represents the absence of wealth, not wealth itself! = IOU

15. Fundamentals: What is Money? Two Types of Money: 1. Public Money = universally redeemable IOU issued by the state. 2. Private Credit = IOUs which circulate as means of payment.

16. II. Economic Crisis

17. INEQUALITY

18. Wealth Concentration in the United States Top 1 percent Next 19 percent Bottom 80 percent 1983 33.8% 47.5% 18.7% 1989 37.4% 46.2% 16.5% 1992 37.2% 46.6% 16.2% 1995 38.5% 45.4% 16.1% 1998 38.1% 45.3% 16.6% 2001 33.4% 51.0% 15.6% 2004 34.3% 50.3% 15.3% 2007 34.6% 50.5% 15.0% Distribution of net worth and financial wealth Source: Domhoff 2011

19. Financial Wealth in the United States Top 1 percent Next 19 percent Bottom 80 percent 1983 42.9% 48.4% 8.7% 1989 46.9% 46.5% 6.6% 1992 45.6% 46.7% 7.7% 1995 47.2% 45.9% 7.0% 1998 47.3% 43.6% 9.1% 2001 39.7% 51.5% 8.7% 2004 42.2% 50.3% 7.5% 2007 42.7% 50.3% 7.0% Source: Domhoff 2011

20. Financial Wealth Distribution 2007 Source: Domhoff 2011

21. Income earned by the top 1% (1970-2010) Source: Picketty and Saez

22. Income earned by the top 1% (1913-2006)

23. CEO and Worker Pay CEOs' pay as a multiple of the average worker's pay, 1960-2007 Source: Domhoff 2011

25. Unemployment

26. DEBT

28. Exponential Debt Growth Taken from Monthly Review 2008: Sources: Flow of Funds Accounts of the United States,

29. Financial Debt and Profits

30. Financial Debt and Profits

31. US Total Debt to GDP

32. Household Debt to GDP

33. Financial Debt to GDP

34. Financial Borrowing

35. France

36. Germany

37. Greece

38. Iceland

39. Ireland

40. Portugal

42. Principle: To grow, banks must make more loans. Banks lend more money in order to make more money. To make more money, they ended up borrowing more money to lend, or lending borrowed money .

43. LEVERAGE = DEBT: Leverage measures the degree to which assets are funded by borrowed money.

46. Banking 101

50. Note: normally a 'loan' implies that the lender gives up the right to use the item being loaned! This is not the case here. “ Bob” the Bank Depositor Borrower You “lend” the bank $100. Bob keeps $10, but lends out the rest of the $90.

52. THE BANK'S POTENTIAL LEGAL OBLIGATIONS TO PAY ALWAYS EXCEED ITS ACTUAL ABILITY TO PAY AT ANY MOMENT. Bank Runs are an inherent risk of fractional reserve banking . “ Bob” the Bank Depositor Borrower Bank owes you $100, whenever you want it. Borrower owes bank $90 + 10% interest, in 1 year.

54. Banks sell (trade) these IOUs; lend these IOUs; and borrow against IOUs, (i.e. use IOUs as collateral). IOU Currency =

57. These Banks then can either sell these loans again, or they can borrow against them in ‘repurchase agreements’

58. Loan sales increased, but most were retained

60. IOUs circulated around as money. Banks that purchased these IOUs (e.g. MBSs) borrowed against them in short-term contracts, using them as collateral to borrow cash.

61. Like a mortgage, this is ‘securitized’ lending, because putting up collateral makes it less risky or more secure (contra the ‘Commercial Paper’ market).

63. Lenders demanded that they be paid back, or else be given more collateral, i.e. more securities.

64. This is basically a mass withdrawal on the debtors who had to find more securities or sell them to raise more money. The sale in turn caused the prices of these securities to decline even further!

67. US coins, however, are produced by the US Treasury, and do not represent debt to private banks.

69. Private banks then take this new money and create 10x this amount through fractional reserve banking. This process is called the money multiplier process .

70. How new money is created by the Federal Reserve (in US) US Treasury The Fed IOUs (Bonds) Federal Reserve prints money, from nothing, and pays Treasury. Money as Debt

71. How new money is created by the Federal Reserve (in US) Treasury Federal Reserve and other Private Banks US Treasury ‘sells’ bonds. (T-Bills) In exchange for money now, Treasury gives IOU’s, to pay back this money, plus interest. IOU Cash Whatever bonds the other banks do not purchase, the Federal Reserve purchases. The Federal Reserve can exercise a power that the Treasury cannot: it can simply print the money from nothing ! But it creates this money as debt.

76. Interest accumulates exponentially! TOTAL DEBT (Principal + Interest) Money (amount that can be used to pay off debts) <

78. The US Treasury does not exercise the legal authority to spend new, debt-free money directly into circulation, but must instead borrow from the Federal Reserve and other private investors whatever it doesn’t collect in taxes.

79. It cannot just ‘print money’ into existence! When it does this, it is actually borrowing this money from the Federal Reserve, a private bank.

80. Implications: Growth or Die 1. The current system functions like a pyramid scheme: growth is a requirement for it to function . 2. The trickle-down effect of the pyramid monetary system has not been sufficient to avoid exacerbating income inequality: interest payments have not recycled back into the general population as earned income.

81. Linking Inequality and Debt WEALTH Ownership Relative amount of MONEY POWER 1. extend credit 2. pay debts Money is not regarded as the absence of wealth. Instead, money is itself dependent on material wealth. M oney (social credit or power) is created on the basis of the anticipated value of one's material wealth. Those with more material wealth also havemore social credit.

82. Linking Inequality and Debt Money in Circulation, Spending, or Income Expected Value of Assets Expected repayment Private Credit Amount of money is dependent upon the expected willingness of others to pay .

83. Ben Bernanke's Explanation of the Crisis: “China did it!”

86. ½ of this debt is held by developing countries Source: http://www.treas.gov/tic/mfh.txt

87. MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES (2011)

88. Holders of US Treasury Securities TABLE OFS-2.—Estimated Ownership of U.S. Treasury Securities

89. Holders of US Treasury Securities

90. Holders of US Treasury Securities

91. Holders of US Treasury Securities

92. Holders of US Treasury Securities

93. Percentage of Federal Securities owned by Federal Reserve

95. Ban fractional reserve banking- banks will serve as depository institutions, as people think they do already. The function of credit and money creation will be separated.

96. II. Energy Crisis

99. A barrel of oil, which could be extracted for a dollar, would in turn generate 25,000 hours of labor. One dollar equals 25,000 hours of labor.

100. Up until the 1950s, the United States was the “Saudi Arabia of oil” in the sense that it was world’s largest exporter. Its production, however, peaked in 1970 at 10.2 million barrels a day and subsequently declined.

101. Ten years later, domestic oil production was still in decline, despite the fact that ten times more oil wells had been drilled.

102. Currently the United States uses 25 percent of the world’s oil but possesses only 2 percent of the world’s known reserves

104. Today, there are about 50 countries that are producing less oil today than in the past

105. CHEAP ENERGY IS ESSENTIAL FOR ECONOMIC GROWTH. TODAY SUPPLY IS SLOWING DOWN, WHILE DEMAND IS SPEEDING UP!

107. Once the EROEI for petroleum reaches 1 (i.e. whenever it takes one barrel of oil to produce a barrel of oil), petroleum will not be market viable , regardless of how expensive it becomes and regardless of how much petroleum remains in the ground .

108. Peak Oil

109. Global Oil Production (1960-2008)

110. United States and Saudi Arabia Oil Production (1960-2008)

111. Declining Oil Prices and Rising Output (1960-1974)

112. Rising Oil Prices and Falling Rate of Output (1987-2008)

115. Peak by 2020, and then begin a decline by 2050 (Uppsala Hydrocarbon Depletion Study Group)

116. World oil production per capita. 1960-2003. Source: Energy Energy Information Administration (EIA). Population figures from Ecological Footprint Network.

117. Oil Production for US and Saudi Arabia, 1960-2008. Source: Energy Information Administration.

118. Growth in per capita Energy Consumption. US, OECD, China. 1990-2006. Source: World Bank.

119. Energy spending vs. Income. Source: BEA NIPA tables 2.3.5 line 11 and Table 2.1 line 1.

120. Energy use vs GDP. United States. 1960-2009. Source: World Bank.

121. World GDP vs. World Energy Use. 1971-2009. Source: World Bank.

122. Global petroleum production 1960-2008. (Source: EIA)

123. Oil price average USD 1960-2008. (Source: EIA )

124. Oil Price and Quantity (1960-1974).

125. Oil Price and Quantity (1987-2008)

126. Oil Price-to-Quatity versus GDP (1960-1974)

127. Oil Price-to-Quantity versus GDP (1987-2008)

128. Oil price-to-quantity versus World per capita GDP (1960-1974)

129. Oil price-to-quantity versus World per capita GDP (1987-2008)

130. Per capita GDP and Energy Use. United States (1960-2008).

131. Global per capita GDP and energy use (1971-2008 )