What the Heck is a Bail-Out? – a very brief, simplified exposition of how debt-based financial systems lead to collapse and ruin

Paul Grignon, “What the Heck is a Bail-Out?”

Part of a body of work investigating the role of money in modern society and how banks came to exercise so much psychological and financial power over the world, this 9-minute film is a quick introduction to the debt-based monetary system that operates in most countries and especially in Western countries. Using cartoon-styled animation with some action, centring around one character, Grignon explains how current Western financial systems have brought economies to the brink of collapse and ruin by accumulating huge amounts of debt. In doing so, he destroys a number of common myths and perceptions about how modern banks operate.

Grignon begins by explaining the concept of legal tender and banks’ obligations to the public with regard to holding sufficient legal tender to pay out depositors. From banks’ point of view, depositor accounts are money they owe us so they are listed as part of bank liabilities. (And cheques and other money transfers are bank promises to supply legal tender on demand by depositors.) On the other hand, loans that banks make are their assets. Since at any time when a balance of accounts is undertaken, assets should equal liabilities plus proprietorship, it follows banks might be eager to maximise their assets and minimise their liabilities.

Since in practice depositors do not often demand the money in their accounts, and usually demand small amounts, banks can lend the same amount of money again and again (under a system known as fractional reserve banking) without having the legal tender to back up the amounts. The result is that much money in circulation is only backed by a promise to pay out legal tender and since we don’t know when depositors might have to recall ALL their money, banks cover current debts with new debts. For those having trouble understanding this, imagine taking out a second mortgage on your house to cover the outstanding debt of your first mortgage plus interest, then take out a third mortgage to cover your second mortgage plus the interest the SECOND mortgage incurs! Once this notion is grasped, one can see an endless chain of more debt covering previous debts plus all the interest these incur.

Viewers quickly see how debt creation drives money circulation and banks’ business: if banks aren’t lending money, they risk losing business and face closure. With an endless and escalating chain of debt creation, the situation is soon reached where banks have issued enormous amounts of debt, often to borrowers who can ill afford to pay back the debt, and entire financial economies now stand to collapse with deleterious effects to the real economies that produce and supply goods and services, people’s living standards and even people’s ability to plan for their long-term futures. As I write this, I am mindful of news I have seen that the government of Greece has sold off or is selling off important institutions and infrastructure and is closing down universities in violation of the Greek constitution that guarantees free publicly-funded education.

In a 9-minute video, the full complexity of the current state of Western financial systems can’t be conveyed: in particular the history of how governments allowed banks to take over economies and rule them and entire nations with their rapacious ethics is absent. The film ends with Grignon urging viewers to visit his Money As Debt website to view the “Money As Debt” film trilogy.

This mini-documentary is an informative if very simplified sketch of how societies have come to be dominated by the activities and sociopathic thinking and behaviour of banks.

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