For years, people have been calling for the world to forgive third world debt.

The amount of effort that poverty stricken countries make just to pay interest on their debt while people are starving and living in misery is shameful. Corrupt governments stole big portions of what was borrowed instead of investing it in infrastructure and now these countries must spend generations of labor to pay off the debt instead of growing and developing. Imagine if Washington did for the third world what it did for Wall Street, it would actually seem very Christian. Hopefully one day our government we will care about peoples suffering more than it cares about investment bankers, but that day is probably a long way off. Look how the harbinger of hope and change, Mr. Obama, has been enveloped in the Wall Streets orgy of greed. However, there is another debt bomb ticking away and its ready to go off in the first world. By 2010, total debt of the US Federal Government will finally reach one year of GDP, about 15 trillion dollars. Japan is well beyond that already and European countries like Greece, Spain, Ireland and Iceland are close to financial chaos due to overwhelming amounts of debt. I lived in Argentina in 2001, before Argentina defaulted on its debt. It was so obvious that there was no alternative but to pull the plug, but much suffering had to go on before the obvious was recognized and the default finally occurred. Total world wealth is somewhere around $160 trillion, and total world debt, public and private, is about the same amount, $150 trillion. Current world GDP is about $60 trillion. More and more, the debt is beginning to drag us down into a dark whole of endless interest payments and more new debt to service old debt. There are two options. Spend a decade in an austerity program, sacrificing development to pay off most of the debt, while at the same time making big structural changes to our financial system in order to stop the easy flow of credit to people, governments and business. This is a very sound, honest thing to do; hence, it will never happen. No person, government or corporation is willing to succumb to that kind of pain, and for good reason, do we really need to? One day in the near future, we will wake to our coffee and media outlets and get a very strange surprise. We will have a new world reserve currency, made up of a basket of currencies and commodities, say oil, gold, the Dollar, the Euro, the Yen etc.. This must be done completely in secret, by the world financial elites, or massive speculation beforehand would wreak havoc on financial markets. Some very interesting deals will be struck, fortunes made and lost, but what is certain is that the incredible amounts of dollar denominated debt that China, Japan, and Europe hold will be converted into the new currency. No longer will Barack Obamas finger on the printers start button be giving the Chinese, Japanese and Europeans fits. The smoky room scenario is the most likely, but it is not the only possibility. With the internets organizational capacity, a worldwide movement could begin to insist on a different solution. What is needed is a forum for intellectuals and citizens of the world to

discuss and organize our future and not depend on secret deals cut behind closed doors. If there was any doubt about Obama being our savior his shotgun marriage to Wall Street should dispel any doubts. We, the citizens of the world, must organize ourselves, as simply citizens of the world, and create the political organization and power to make the needed changes. What could another solution look like? First, lets define what money is, how it is created, and what debt is. Money is the equivalent of human labor, whether that labor is getting a hair cut, getting crude oil out of the ground, writing a book, building a table or making bread. Interest payments are simply the cost of using money, rent on money. But how is that money created? Is all our work and efforts calculated, an estimate made, then money printed and put in to circulation to represent that effort? No. Money is created in two ways, fractional reserve banking and quantitative easing. The Federal Reserve, in the case of America, and reserve banks in general, lend money to financial institutions, i.e. banks and the banks take the money and loan it out keeping about 10% on deposit and loaning out 90%. So if someone deposits $1,000 in Bank of America, BofA keeps $100 and lends out $900, which is eventually deposited somewhere else, where $90 is kept on deposit, and $810 is loaned. At the end of the cycle, the $1,000 deposit becomes $10,000. There is also the concept that the economist Herman Daly discusses which the absurdity of compound interest is. Simply put, if someone borrows $20,000 to buy a new car, they exchange the money for its equivalent in a machine. But as the years go by, the debt multiplies, while the car depreciates. Why? Nothing else in nature multiplies like that, except money. Gold doesnt, oil doesnt, and computers dont? There is an intrinsic absurdity in compound interest that is rarely addressed. As I mentioned before, total world yearly GDP is $60 trillion, total world debt is about $150 trillion, and world wealth is about $160 trillion. If we assume, and it is a big assumption, that the debt lent and borrowed is evenly divided, if upon creating a new currency we simply payback 50% of what is owed in the new currency and cancel all debts public and private, current liquidity levels would stay more or less the same, and we should have no inflation. Banks and other financial institutions would have to be re-stocked with currency, enough to keep them, or at least some of them, open. There would be an important loss of equity in financial institutions, but the world would be free of debt, and a new World Reserve Bank would manage future lending to banks, but now the banks would only lend what they have on reserve, fractional banking would end. The extra liquidity in the market would have to be compensated with very high initial interest rates, and taxes would be placed on all commodities, an Eco Tax, to promote sustainability and new energy sources. The big trick would be keep the interest rates and new taxes at the right levels so that inflation is kept under control. This would obviously be extremely difficult to calculate, but that is why we have super geeks and super computers.

Big bummer if all you did was lend money, but then again, at least you are getting 50% back in a new stable currency, and you are helping the world. There is no pound of flesh for Shylock, but then again, no hyperinflation either. For developing countries, this would mean an instant increase in living standards and quality of life. New infrastructure projects, schools, hospitals etc, must be part of the swap. In exchange for no debt, out goes cronyism and corruption. For the first world, the deal must be a significant decrease in military spending, and big sustainability projects to tackle the coming challenges of a world consuming more than it can possibly produce. We must first get our financial house in order before we can take on the challenge of creating a sustainable world. The cycle of debt and consumption has turned into a modern slavery that now begins as soon as many young folks step on a college campus, and ends with a reverse mortgage when there is nothing left but equity in their house. Debt is slavery to consumption, multinationals, banks, and spiritually bankrupt advertising, media, and Hollywood culture. Its time to lose the chains.

Is rally just putting inflation into Dowcompare loss of dollar to rise in dow..inflation worries.. The government were asleep on the job and had no real comprehension of the emerging problem. But they should have as they were regulating the system of sorts. As the FSA was paid by the bankers this was a redundant system. For with total world debt being well in excess of $100 trillion (personal, corporate, institutional and government) now and the USs and UKs total debt hovering towards $53 trillion and 10.5-times GDP respectfully, there is no wonder that we are at the start of a global recession. With such colossal figures of debt, amassed significantly over the last century and in total being between two and three years of total global economic output, we have many years to come of austerity and economic downturn to look forward to. Even worst is if we borrow even more like our politicians are doing and where we eventually end up like Zimbabwe, with hunger, lawlessness and socio-economic collapse? For the root problem is debt and common sense dictates that if we continue to borrow and borrow, eventually money becomes worthless. Therefore our politicians would be better using their time, efforts and power to start afresh and accept that the next decade is a period of fundamental change in how the development of the world proceeds. If not, they will definitely oversee the destruction of far more of what we see today than the 10-years of pain required to re-engineering the world order and crucial sustainable change. Indeed, in twenty-five years time if we do not change our development processes (capitalism, super-capitalism, globalization et al), we will look back and see that the financial crisis was just a mere storm in a teacup in comparison to what problems we

shall have in 2033. The vision is of nightmarish proportions with substantially dwindling natural resources to sustain human life and climate change meeting head on with 8. 5 billion mouths to feed. We have definitely to change for our own good to the economics of sustainability-need and to the preservation of the human experience itsel The real problem is that the United States depends on foreign investors -- not on domestic savings -- to fund the annual deficit and the cumulative debt. About $1.5 trillion, or about a third of the nations $3.9 trillion public debt, is now held by individuals and institutions overseas. In 2003, $125 trillion globally. Personal wealth

Economy
GDP (GWP) (gross world product): (purchasing power parity exchange rates) - $59.38 trillion 2005 est.), $51.48 trillion (2004), $23 trillion (2002) GDP (GWP) (gross world product):[4] (market exchange rates) - $60.69 trillion (2008) GDP - real growth rate: 3.2% (2008), 3.1% p.a. (2000-07), 2.4% p.a. (1990-99), 3.1% p.a. (1980-89) GDP - per capita: purchasing power parity - $9,300 (2005 est.), $8,200 (92) (2003), $7,900 (2002) GDP - composition by sector: agriculture: 4% industry: 32% services: 64% (2004 est.) Inflation rate (consumer prices): developed countries 1% to 4% typically; developing countries 5% to 60% typically; national inflation rates vary widely in individual cases, from declining prices in Japan to hyperinflation in several Third World countries (2003) Derivatives outstanding notional amount: $273 trillion (end of June 2004), $84 trillion (end-June 1998) ([3]) Global debt issuance: $5.187 trillion (2004), $4.938 trillion (2003), $3.938 trillion (2002) (Thomson Financial League Tables) Global equity issuance: $505 billion (2004), $388 billion (2003), $319 billion (2002) (Thomson Financial League Tables) 160 Trillion world

US 70 Trillion

Total us Debt is about 60 Trillion dollars

North America 5.17 27.1 34.39 23.88 33.67 Central/South America 8.52 6.51 4.34 8.49 6.44 Europe 9.62 26.42 29.19 22.8 27.06 Africa 10.66 1.52 0.54 2.36 1.01 Middle East 9.88 5.07 3.13 5.69 4.1 Asia 52.18 29.4 25.61 31.07 24.1 Other 3.14 3.7 2.56 5.4 3.38 980 909.0 33.3 1990 3,206.3 55.9 2000 5,628.7 58.0 2001 5,769.9 57.4 2002 6,198.4 59.7 2003 6,760.0 62.6 2004 7,354.7 63.9 2005 7,905.3 64.6 2006 8,451.4 65.0 2007 8,950.7 65.6 2008 9,985.8 70.2 2009 (est.) 12,867.5 90.4 2010 (est.) 14,456.3 98.1 910 2.6 n/a 1920 25.9 n/a 1930 16.2 n/a 1940 43.0 52.4 1950 257.4 94.1 1960 290.5 56.1 1970 380.9 37.6 1980 909.0 33.3 1990 3,206.3 55.9 2000 5,628.7 58.0 2001 5,769.9 57.4 2002 6,198.4 59.7 2003 6,760.0 62.6 2004 7,354.7 63.9 2005 7,905.3 64.6 2006 8,451.4 65.0 2007 8,950.7 65.6 2008 9,985.8 70.2 2009 (est.) 12,867.5 90.4 2010 (est.) 14,456.3 98.1 WASHINGTON - THE net worth of US households fell by nearly 18 per cent or US$11.2 trillion (S$1.84 trillion) in 2008 as the world's biggest economy grappled with a prolonged recession, the Federal Reserve said Thursday. Household net worth - the difference between the value of assets and liabilities - was an estimated US$51.47 trillion at the end of the fourth quarter of 2008, down US$5.1 trillion from the preceding quarter, the US central bank said. For 2008 as a whole, household net worth fell US$11.2 trillion from US$62.68 trillion in the previous year, according to the Fed's latest 'Flow of Funds Accounts' quarterly report. The 2008 figure is the lowest since 2004, when household wealth was at US$51.87 trillion, the report said. The United States is facing its worst recession since the Great Depression after a home mortgage meltdown triggered financial turmoil that slammed the brakes on growth. The recession began in December 2007 and based on the most recent government estimate, US gross domestic product contracted at an eye-popping 6.2 per cent annual pace in the fourth quarter of 2008.

Some analysts say the downturn may be even worse in the first quarter of 2009. The Fed also said that at the end of 2008, the level of outstanding domestic nonfinancial debt was US$33.5 trillion, including household debt valued at US$13.8 trillion and total government debt of US$8.6 trillion. Household debt contracted at an annual rate of two per cent in the fourth quarter of 2008, following two quarters of very weak growth, the report said. -- AFP

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The Crisis: Debt and Real Wealth

By Herman E. Daly The current financial debacle is really not a liquidity crisis as it is often euphemistically called. It is a crisis of overgrowth of financial assets relative to growth of real wealth pretty much the opposite of too little liquidity. Financial assets have grown by a large multiple of the real economypaper exchanging for paper is now 20 times greater than exchanges of paper for real commodities. It should be no surprise that the relative value of the vastly more abundant financial assets has fallen in terms of real assets. Real wealth is concrete; financial assets are abstractionsexisting real wealth carries a lien on it in the amount of future debt. The value of present real wealth is no longer sufficient to serve

as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth. No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit, or because banks are not lending to each other as commentators often say. Can the economy grow fast enough in real terms to redeem the massive increase in debt? In a word, no. As Frederick Soddy (1926 Nobel Laureate chemist and underground economist) pointed out long ago, you cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest] against the natural law of the spontaneous decrement of wealth [entropy]. The population of negative pigs (debt) can grow without limit since it is merely a number; the population of positive pigs (real wealth) faces severe physical constraints. The dawning realization that Soddys common sense was right, even though no one publicly admits it, is what underlies the crisis. The problem is not too little liquidity, but too many negative pigs growing too fast relative to the limited number of positive pigs whose growth is constrained by their digestive tracts, their gestation period, and places to put pigpens. Also there are too many twolegged Wall Street pigs, but that is another matter. Growth in US real wealth is restrained by increasing scarcity of natural resources, both at the source end (oil depletion), and the sink end (absorptive capacity of the atmosphere for CO2). Further, spatial displacement of old stuff to make room for new stuff is increasingly costly as the world becomes more full, and increasing inequality of distribution of income prevents most people from buying much of the new stuffexcept on credit (more debt). Marginal costs of growth now likely exceed marginal benefits, so that real physical growth makes us poorer, not richer (the cost of feeding and caring for the extra pigs is greater than the extra benefit). To keep up the illusion that growth is making us richer we deferred costs by issuing financial assets almost without limit, conveniently forgetting that these socalled assets are, for society as a whole, debts to be paid back out of future real growth. That future real growth is very doubtful and consequently claims on it are devalued, regardless of liquidity. What allowed symbolic financial assets to become so disconnected from underlying real assets? First, there is the fact that we have fiat money, not commodity money. For all its disadvantages, commodity money (gold) was at least tethered to reality by a real cost of production. Second, our fractional reserve banking system allows pyramiding of bank money (demand deposits) on top of the fiat governmentissued currency. Third, buying stocks and derivatives on margin allows a further pyramiding of financial assets on top the already multiplied money supply. In addition, credit card debt expands the supply of quasimoney as do other financial innovations that were designed to circumvent the publicinterest regulation of commercial banks and the money supply. I would not advocate a return to commodity money, but would certainly advocate 100% reserve requirements for banks (approached gradually), as well as an end to the practice of buying stocks on the margin. All banks should be financial intermediaries that lend depositors money, not engines for creating money out of nothing and lending it at interest. If every dollar invested represented a dollar previously saved we would restore

the classical economists balance between investment and abstinence. Fewer stupid or crooked investments would be tolerated if abstinence had to precede investment. Of course the growth economists will howl that this would slow the growth of GDP. So be it growth has become uneconomic at the present margin as we currently measure it. The agglomerating of mortgages of differing quality into opaque and shuffled bundles should be outlawed. One of the basic assumptions of an efficient market with a meaningful price is a homogeneous product. For example, we have the market and corresponding price for number 2 cornnot a market and price for miscellaneous randomly aggregated grains. Only people who have no understanding of markets, or who are consciously perpetrating fraud, could have either sold or bought these negative pigs inapoke. Yet the aggregating mathematical wizards of Wall Street did it, and now seem surprised at their inability to correctly price these idiotic assets. And very important in all this is our balance of trade deficit that has allowed us to consume as if we were really growing instead of accumulating debt. So far our surplus trading partners have been willing to lend the dollars they earned back to us by buying treasury billsmore debt guaranteed by liens on yettoexist wealth. Of course they also buy real assets and their future earning capacity. Our brilliant economic gurus meanwhile continue to preach deregulation of both the financial sector and of international commerce (i.e. "free trade"). Some of us have for a long time been saying that this behavior was unwise, unsustainable, unpatriotic, and probably criminal. Maybe we were right. The next shoe to drop will be repudiation of unredeemable debt either directly by bankruptcy and confiscation, or indirectly by inflation.