APRIL/MAY 2009
Creating Community Prosperity
Crystal Arnold
Re-Localizing Capital
Jeff Golden
How Unlimited Interest Rates
Destroyed the Economy
Amy Goodman interviews
Thomas Geoghegan
Honoring the Duh-Design Principles
Shaktari Belew
Stimulating Local Agriculture
Jody Woodruf
Fresh Food From Small Spaces
R.J. Ruppenthal
Small Farm Renaissance
Chuck Burr
Where Are the Seed Growers?
Don Tipping
Try it On Everything!
The Healing Power of EFT
DVD Review by Jill V. Mangino
A Naturopathic Perspective
on Vaccination Choices
Michael H. Shuman
Safety and Protection
Peter Moore
Cosmic Calendar
Salina Rain
Creating Community Prosperity
By Crystal Arnold
Complex and overwhelming financial news has evoked feelings of panic and outrage in America. The consequences of our uninformed participation in the debt system are becoming evident. Therefore, an understanding of the fundamental design of the nation’s currency and banking system provides a catalyst for wise community action. Given the resources of Southern Oregon, leaders are offering strategic proposals that may build lasting regional resilience. Even so, how can a community prosper in a nation of debt? What does this mean, and is it actually possible? This article initiates an exploration of these questions.
As a social ecosystem, the modern economy is fragile and depends upon centralized systems for production and distribution of essentials such as food, energy, currency, and medicine. The shifting dynamics of global exchange has catalyzed massive social and economic transformation. Some local governments and citizens are exploring strategic steps that may create a sustainable society. Simultaneously, city, county, state, and federal budgets are facing deficits that challenge governments’ ability to implement changes that could build resilience. But there are innovative solutions and informed choices which may begin to cultivate prosperity within this nation in debt.
There are serious implications with the design of the current financial system. The debt-based fiat currency circulated through fractional-reserve banking creates scarcity resulting in competition. In 1787, John Adams wrote, “All the perplexities, confusion and distress in America arise not from defects in the Constitution or Confederation … [but] from a downright ignorance of the nature of coin, credit, and circulation.” The underlying dynamics of currency, especially compound interest and fractional-reserve banking, are fundamental to understanding the current economic challenges.
Most money is created through the alchemy of fractional-reserve banking, the system used to issue debt through loans to individuals and businesses. Federal regulations allow banks to lend out approximately nine times their actual capital (think “currency”) on deposit at the banks. This virtual multiplication of tangible assets is considered to be bank “credit.” This “money” has never been issued as currency, and neither has the interest that will be charged. There will never be enough credit in the system to repay all of the debt created by banks lending money that they do not have on deposit to lend. This system depends on growth, defined by ever-increasing debt and consumption. This system is destined by design to skyrocket, peak, and plummet.
Consequently, fundamental problems are emerging in the financial sector. Mathematical realities of compound interest and system dynamics are speaking louder than false promises of philosophical concepts like “free market,” “deregulation,” and “democracy.” Analysts say that we are in the early phase of “collapse dynamics.” In February, George Soros said that the turbulence is actually more severe than during the Great Depression, and compared the current situation to the demise of the Soviet Union.
In the last 30 years, an empire of debt has expanded as Americans have experienced increased access to credit rather than an increase of income. This country has accumulated debt, rather than savings. About 4.4 million jobs have been lost in the US since December 2007. The real economy (actual goods and services) is shrinking, while virtual wealth, in the form of debt with compound interest, is growing exponentially.
The following example illustrates exponential growth through compound interest: If $100 were borrowed at 1 percent compound interest per day, the balance due at the end of a year would be nearly $3,800 if there were no payments made. In the last month alone, the principle would have increased by about $1000, nearly a quarter of the final balance. Few people realize how compound interest functions—unpaid interest “compounds” into the principle; and as the principle increases so does the amount of interest accumulating. Outstanding debt continues to grow exponentially when there is not enough cash to repay the loan. Compound interest is considered to be the worst form of usury, condemned by Roman law and called a great sin in the Koran.
The consequences of this “sinful” design are apparent when looking at the housing crisis. The term “mortgage” comes from the Old French words mort, “dead,” and gage, “pledge”—implying that banks make home loans knowing that it is unlikely that people will be able to repay them! Witness tent cities expanding in California, where foreclosure rates grew last year by 327 percent. Here in Jackson County foreclosures accounted for 40 percent of all home sales during the three-month period ending on February 28, 2009. We are seeing astronomical levels of public and private debt and an inability for the system to sustain growth of the real economy to ever repay these debts.
Despite all these numbers, economics is not a physical science but a social one that is subjective and open to interpretation. The mass psychology of markets is irrational and unpredictable. There is no equation with which to predict the economic future and with our ongoing choices we are creating this collective reality together. In times of transition, a key question is: Will communities choose to develop resilience, or will they become paralyzed by the fear of global failure?
This complexity and volatility in the economy requires careful response from regional leaders. Foreclosures and job losses along with the rising cost of real goods and public services are causing financial stress. Here in Jackson County home prices have declined 16.8 percent since last year, and many residents are experiencing layoffs and foreclosures. The number of Rogue Valley food-stamp recipients has reached record levels—in January Medford showed a 13.5 percent increase over the past year. Nearly half of Grants Pass residents receive food stamps, up 20.7 percent over last year.
These are sobering figures, and Ashland, Oregon Mayor John Stromberg understands that local action is embedded in the geopolitical and financial dramas that are playing out. Given rigorous budgetary deliberations that are about to begin, Stromberg and other city officials are “looking at conscious ways to decide what is a priority to provide for citizens.” Throughout every sector of our economy, the reduced availability of capital and decreased tax revenue is intensifying existing financial stress. The following numbers for Jackson and Josephine Counties illustrate how much of regional money in circulation comes from government funds, including wages and transfer payments. According to the US Department of Commerce Bureau of Economic Analysis, personal income in our region totaled $8.4 billion in 2006. Approximately 28 percent of this came from federal transfer payments, with 56 percent of that ($1.3 billion) medical and veteran related benefits. Social security payments totaled $715 million, or 8.5 percent of the total personal income. Clearly, our elder care and medical care are heavily subsidized by the federal government and are vulnerable to reduction in public funding.
In addition to these federal transfer payments, the Oregon Economic Department (OED) estimates that there were 15,830 government employees in this region in 2008, which includes federal, state and local employment. This is nearly 15 percent of the non-farm employment. OED estimates that in 2006, 6,095 of these jobs were in the education sector. In the month of January 2009 nearly $9.7 million in public wages were paid in our region.
Given that so much of the economy is created through government spending, the degree of governmental bud-getary constraints could have significant impact on communities. How will the tenuous relationship between governments and citizens fare in this economy? To meet budgetary requirements, many governments are choosing to increase fees and more strictly enforce fines and penalties. But local governments could choose instead to undertake activities that can build resilience such as asset mapping, branding, and convening.
Asset mapping is a strategy for increasing a region’s ability to strategically plan and wisely respond to social and economic changes. These assets could include physical (land, water, and infrastructure), financial, and human. The Ashland Planning Commission recently began mapping the local human assets. They created a sustainability inventory, interviewing over 150 individuals in diverse fields, with plans to continue building this public database. With this map the community can more effectively plan to build long-term social capital while addressing short-term needs. Resilience denotes a capacity to address short-term problems in ways that generate long-term success.
Mayor Stromberg sees promise in “branding” Ashland as a sustainable destination. People could be drawn here year-round to participate in certifications, trainings and projects that showcase sustainable solutions as well as to establish startups in a supportive environment. Stromberg says, “We are looking for creative, resourceful ways to use the capital we already have, which is anything we don’t consume, but use to create value. This includes our underutilized visitor facilities, retail and commercial establishments that provide lodging, meals and entertainment.” Local businesses may benefit from a more regular flow of visitors and may design and market their products using this brand recognition. Stay informed about these developments in Ashland at Mayor Stromberg’s “State of the City” blog (http://sotc.ashland.or.us).
When local governments choose to collaborate with citizens to convene meaningful public dialogs exploring important issues—such as food, water, energy and health—local resources can be identified and empowering connections can be created between people, ideas, and relevant information.
In January 2009 about 200 people gathered in Ashland for the “Sustainable Community Leaders Dialogue.” Dominic Allamano facilitated the World Café (www.theworldcafe.com) portion of the event. He says, “One of my primary intentions with these dialogues is to build social soil—the functional interconnections and meaningful relationships that generate the fertile ground for community collaboration and healthy responsiveness to change. Through connectivity and generative dialogue we increase our creative capacity to respond together.”
As economic volatility continues to strain social systems, citizens can make the vitalizing choices to become more meaningfully engaged with each other, and in so doing create resilient regions that can respond to change in coherent and substantive ways. Making these kinds of choices now has the potential to greatly enhance a community’s ability to navigate change and realize opportunities as they arise.
Crystal Arnold has a BS in International Economics from Southern Oregon University and is creator of Money Metamorphosis which offers workshops and financial coaching for individuals and couples. She is dedicated to creating a resilient local economy and a complementary currency. Contact her at crystalconsults@gmail.com, or (541) 227-3577, or read more at http://moneymetamorphosis.us.
