What The Economic Crisis Really Means (Animation)

We’re proud to present a great little animation video by our friend Theo Kitchener from Australia. It’s safe to say that Theo’s vision and ideas have been substantially influenced by The Automatic Earth, not in the least when we spent quite a bit of quality time together in Melbourne earlier this year (with both Theo and many more new-found friends of TAE) and had a number of great discussions in between Nicole’s lectures in the city.

There are certainly things we would see somewhat differently, like for instance we don’t necessarily share all of Theo’s optimism, however contagious it may be – as is evident in the animation -, for a better society built more or less seamlessly on the ruins of our present one. But frankly, those differences pale in comparison with the broad extent to which our respective views do meet, and certainly with the sheer quality and artistic skillset that oozes from this wonderful little jewel.

I’d go as far as to say that even if you disagree with every single point made here, you should still find plenty to enjoy and admire. Hats off to Theo!

We were told that the global financial crisis of 2008 happened because irresponsible borrowers couldn’t afford to pay back their loans. This is true, but it was also part of a much deeper problem. The issue is that our economic system is based on the need for continuous, perpetual growth. It’s highly likely that we’re already in the beginnings of something much worse than a depression, even if bankers and governments won’t admit it yet.

Fortunately, we don’t need to hear it from them. We can tell that something is going on, we have the internet and we can share information amongst ourselves. And thankfully, if we try hard enough, we could just end up with something much much better than what we have now. I’m no expert, however I am someone who’s done several years of reading on these topics and I really want everyone else to know what’s going on, and understand the risks and the opportunities. It’s only fair.

So let’s look at how our banking system really works. It’s commonly believed that banks lend out money that they already have from invested savings. That would’ve encouraged a fairly stable system of banking. Instead, we have what’s called a fractional reserve banking system. This means that banks can loan out almost all the money that gets deposited with them. For example, when you put $100 in one bank, they lend $90 of it to someone else, who then puts that $90 in their bank.

Now there’s $190 where there used to be $100. That $90 lent out will also be deposited and $81 lent again. In this way, money ends up being multiplied between ten and a hundred times. Sounds crazy right? Less than 1% of the money in the economy is actual notes and coins, the rest are just numbers on computers, created as debt. This system rapidly increases the amount of money in the economy, which fuels economic growth, allowing most of us the ability to pay back our debts with interest. But only so long as the economy keeps on growing.

One reason it won’t is that ever since the Industrial Revolution, economic growth has been largely dependent on cheap fossil fuel supplies, which are now dwindling. When we first started drilling for oil, it was easy to find. It just spurted up out of the ground. We’ve only been drilling intensively for about 150 years, and oil is no longer easy to find. Now, we drill down crazy deep through earth and ocean using expensive and risky technology. It used to cost one barrel of oil to get about 100 barrels of oil out of the ground. These days one barrel only gets us 10 barrels back, and declining. And that means it’s not cheap anymore.

continue at The Automatic Earth:

http://theautomaticearth.com/Finance/what-the-economic-crisis-really-means-animation.html

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