Money flight happens to all of us. It flies from the borrowers (like Greece) to the rich depositors (like Germany) who only lend it. It flies from sub-prime borrowers to Goldman Sachs. It flies from the poor to the rich all the time.

It seems to me that everyone recognizes national imbalances of trade, but not the imbalance of trade between borrowers and depositors in the system as a whole. This imbalance of trade is an advertised feature of banking and the CORE DESIGN of the banking system itself.

The current system actively works AGAINST the successful completion of credit cycles. And therefore, like the bus in the movie Speed, the system has to blow up whenever aggregate debt growth slows down.

Paul,

(1) Thanks for the comment
(2) I largely agree with you (though things like internationa liquidity and the like and money flight (Greece) might sometiems complicate things.

Merijn

At one point the authors note that money can be created as debt and then leave the premises, never to return. How is the debt to be paid if the money created as that debt never comes back to be earned? Germany has worthless Greek credits and little need for Greek stuff, the Greeks have unpayable debt and German goods. This is treated as if it were only a Eurozone national imbalance-of-trade problem, which it most certainly is.

But this analysis of “endogenous money” fails to note that the same problem is inherent to any system in which money enters circulation as debt and debts are payable only in money. Income disparity (imbalance-of-trade) causes money created as one debt to only be available as another debt, not as earnings (balance-of-trade). This sets up a Perpetual Debt, a borrow from Peter to pay Paul and vice versa dependence on new money creation loans NEVER DECREASING.

Every acceleration of debt creation results in mathematically caused defaults proportionate to the level of Perpetual Debt whenever money creation debt growth slows down.

In my view, this is the very simple reason for the crash economists failed to see coming.

If the private sector doesn’t borrow enough new money into existence to stave off an avalanche of mathematically caused defaults, the national taxpayer must go into debt to do so.

Claudio Borio at the BIS calls for an explanatory model that fulfills certain requirements.
I sent him the same answer which fulfills all but one of his requirements.

http://paulgrignon.netfirms.com/MoneyasDebt/Answer_to_C.Borio_21122012.pdf

This is my full illustrated explanation:
http://paulgrignon.netfirms.com/MoneyasDebt/twicelentanimated.html

9-minute movie on YouTube:
http://www.youtube.com/watch?v=Kwen2OoXLs0