Environmental Impact of the Debt-Money System

The implications of this passage couldn’t be more important:

… In the [debt-based money] model here primary balance ratio is initially set to be one and balanced budget is assumed to the effect that government expenditure is set to be equal to tax revenues, and no deficit arises. Why, then, does the government continue to accumulate debt? Government deficit is precisely defined as

Deficit = Tax Revenues – Expenditure – Debt Redemption – Interest (8)

Therefore, even if balanced budget is maintained, government still has to keep paying its debt redemption and interest. This is why it has to keep borrowing and accumulating its debt; that is to say, it is not balanced in an expanded sense of budget. Initial GDP in the model is attained to be 300, while government debt is initially set to be 200. Hence, the initial debt-GDP ratio is around 0.667 year. Yet, the ratio continues to increase to 1.473 year at the year 50 in the model as illustrated by the line 1 in the right diagram of Figure 8. This implies the government debt becomes 1.473 years as high as the annual level of GDP. Remarks: Even if a debt crisis due to the runaway accumulation of debt fails to be observed in the near future, still there exists some ethical reasons to stop accumulating debts. First, it continues to create unfair income distribution in favor of creditors, that is, bankers and financial elite, causing inefficient allocation of resources and economic performances, and eventually social turmoils among the poor. Secondly, obligatory payment of interest forces the indebted producers to drive incessant [forced] economic growth to the limit of environmental carrying capacity, which eventually leads to the collapse of environment. In short, a debt money system is unsustainable as a macroeconomic system. …

Workings of A Public Money System of Open Macroeconomies
Kaoru Yamaguchi


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