Debt-Based Money Is The Problem

Note:  I am thinking this may be a good post for the front of the site, but am looking for your feedback here in the enrolled area before ‘going live’ with it.  Can you spot any weaknesses in it?  Have I made my case?  Is anything unclear? 

Recently there has been a very engaging discussion going on over in the forums [LINK] that puts forth the argument that there is no logical reason why a system founded on debt-based money must grow exponentially.

Clearly such a claim cuts right to the very heart of the Crash Course and all of its implications, so I decided to, once again, wade into these messy waters before too much more confusion is sown.

Poster Darbikrash said, “the material and thesis proposed by poster “diarmidiw” clearly show major holes in the debt based currency construct as outlined in the Crash Course,” while member Farmer Brown said in response, “It is a logical and mathematical fact that money/debt growth is NOT required for debt-based money to work.“

So I need to address this before it goes much further.

It is absolutely true that money/debt growth is required for our debt based money system to work, at least if we include just a few elements from how the real world actually operates.

Here is the main thesis put forward by Diarmid Weir in the initiating forum post.

The concern about the repayment of debt interest is actually based on a confusion of stocks and flows of money. The money issued in a loan contract is a stock, which can support a theoretically unlimited flow of transactions, including interest payments, over time.

Since the money collected by a bank as interest flows out again in the form of wages, dividends and payment for physical capital, it can return to borrowers and form part of the final repayment. No further loan is necessarily required.

Of course the money stock does grow exponentially, because transactions are increasing exponentially, but this doesn’t in itself mean that debt can never be repaid.

First, I find the notion of breaking money down into “stocks” and “flows” to be confusing rather than helpful.  Money is utterly and completely fungible at all times.  Principal money can (and usually does) “flow” and interest payments can (and often do) become “stocks.”  So I really do not see how segregating money in this way serves to clarify anything.