Credit cards are a blessing while you’re spending. Credit cards are hell when it’s time to pay. From what I hear the average American family owes over $10,000 on their credit cards. As if that weren’t bad enough, the average homeowner has a mortgage. That’s still more debt. The U.S. economy is experiencing problems due to foreclosures on homes. It seems that people have been borrowing in the expectation that they would have an increase in income and that their homes would increase in value. When those expectations were dashed by the loss of jobs and the bursting of the real estate bubble, those mortgages became impossible for the owners to pay off. As a result, there are many homes whose market value is less than the money still owed on them.
Wouldn’t it be nice to just have that debt go away? Wouldn’t it be pleasant to contemplate a future in which you didn’t owe anyone any money at all? If you have a crushing amount of debt today in our physical object money (POM) economy, you know that you are stuck. Your reputation is shot. Your chances of taking care of your family are just about nil. You have trouble getting more credit. But at the transition to a non-POM economy, your debt simply disappears. It’s gone. It doesn’t exist any more. There is no credit and no debt in a non-POM economy.
How can that be? How is it that at the transition to a non-POM economy one’s debts simply are no more?
It’s simple, really. You see, non-POM is not transferable from one person to another nor from one group to another nor from one organization to another. So even if you retained your debt you could not pay it off. There would be no way for you to give any of your money to any other person nor to any organization. Whether your debt is to a friend, to a business, or even to the federal government, it simply cannot be paid. So the debt is no more.
If you have a home it cannot be foreclosed. Since in non-POM there are no taxes of any kind, you cannot lose that home for failure to pay taxes. Your assets are safe. They cannot be taken for failure to pay any debt you may have had on them.
Of course this lack of debt also means that you can never borrow money but then you will never need to borrow money in a non-POM society.
But what about the debts of organizations? Let’s say that corporation XYZ owes corporation ABC a million dollars before the transition from POM to non-POM. What happens to that debt? At the transition corporations cease having money. A corporation is not a person and only a person can have money. Therefore the whole issue simply ceases to exist. Though we today treat corporations in the law as persons in many respects, we secretly know that they are not really people. If a corporation ceases to have money, that is no person’s loss. So if corporations cannot have money there is no way for them to give each other money.
That brings us to the largest debt of all, the national debt. The government also is not a person. A government cannot have money either. It cannot accept money nor pay money. The national debt will also cease to exist at the transition.
Supply and Demand in a non-POM economy
A POM economy runs on demand, dollar-backed demand. If people with money enter the market and buy, prices are driven up and that motivates sellers to produce more items for sale. When there is too little demand, prices fall and sellers, lacking motivation, provide fewer items for sale. But that means that if few people have money to spend there is little demand and therefore, little production takes place. In other words, even though there are lots of people who want to work and who are skilled at what they do and even though there are plenty of raw materials to work with and even though people really want the things they can produce, the supply of money, a figment of the human imagination, limits and reduces the amount of goods produced. I know it sounds insane but it’s true.
Those people with POM to spend are usually also producers of goods and services. Their supply of money comes from other people spending. But the flow of money to the buyers of goods is not always steady and regular. There are all sorts of irregularities in the supply of money that is available for spending. For example, let’s say that there is bad weather and the crops fail on a large part of the farms in a region. That reduces farm income. The farmers cannot repay their loans so some banks fail. The people who had money deposited in those banks lose their money. Thus we have a large number of people who spend less which results in lower prices for goods and less incentive to produce more goods. Therefore, the sellers of those goods lay off their employees who produce, distribute, and sell those goods. (This actually happened in the late 1920s and 1930s in the United States and was a major factor in producing the Great Depression.)
This is the way recessions and depressions are caused. In a POM economy there is a way to prevent the supply of money from being reduced with a resulting reduction in demand. That way is through the use of credit, loans and debt. The borrowing of money (artificially) increases the supply of money because with a loan both the borrower and the lender each own money that only the lender owned before the loan. Therefore, the central banks of industrialized nations make loans less expensive when people seem to be reluctant to buy due to recessions or depressions. They encourage an increase in the supply of money so that there will be more demand. (Of course if the only people who can get those loans already have plenty of money and don’t increase their consumer spending, the increase in the money supply just results in inflation with no increase in jobs.)
How does a non-POM economy operate without debt? How can a non-physical object money prevent recessions and depressions without there being any debt?
The key is to remember that in a non-POM economy, the supply of money depends only upon the supply of goods and services designated as luxuries. If more luxuries are produced there is more money available to pay for net benefits. Therefore, from the point of view of the producer, an increase in production will almost always result in an increase in income. This is a relationship between producers of goods and the Payers who credit their accounts. Note that the customer’s buying does not control the supply of money. The money that the customer spends ceases to exist and the supply of luxuries for sale is reduced by the same amount since the customer now owns that luxury. Thus there is always money available to buy the existing luxuries and always luxuries available to sell for the existing money. The supply of money and things that money can buy is always in perfect (for all practical purposes) balance. Money does not exist independently of the supply of goods and services for sale with a non-POM. Therefore, there is no need for credit or debt to help provide motivation for production. If you produce there will always be money for you to earn.