Apocalypse (Part 4)

The Genesis of Our Looming Banking Crisis

This short mini-essay is the fourth in a five part series focusing on the imminent collapse of our banking system. That system comes to us from the Renaissance, so the suggestion is that we are in for a transition of that magnitude. There are some interesting historical symmetries to buttress the point, along with a heaping helping of optimism.

Our economy must constantly expand or abruptly collapse because of a third faction at the heart of our system of employers and employees: banks. Entrepreneurs borrow from banks and then pay those loans back with interest by hiring workers. As their money gets returned to them, the bankers loan it out again to keep their business going. They also often reinvest the interest they receive, which means the banks require a steady stream of creditworthy entrepreneurs to create or expand the economy. These are the fundamental gears turning at the core of our economy. Like a pyramid scheme, its very structure creates the need for growth.

Bankers are baked into the core of our economic system because it was they who first ignited the flame of the Renaissance. Banking houses like the Knights Templar sprang up to support a mass migration of armies and pilgrims across Christendom during the Crusades. In those days, the road to Jerusalem was rife with bandits and highwaymen. To avoid being robbed, travelers deposited their cash in new-fangled banks. In return, those banks issued letters of credit that could be redeemed for cash when they finally reached their destination. Meanwhile, the banks amassed huge profits by loaning out those deposits at compound interest rates. They stacked so much cash that when Medieval society lapsed into dysfunction following the plague, the great banking families responded by funding a revival of classical Greek and Roman literature, art, and magic. Today we call that revival the Renaissance. And it was a coming out party for the bank-centric, free-market economies we inhabit today.

But now, 600 years later, we are facing a growth crisis. The presumption of growth was never an issue when there were undiscovered continents to expand into and an industrial revolution to be had. But nothing grows forever. It’s been a truly magical run, but we are going to need either a source for new economic growth on a maxed out planet (unlikely) or a fundamental reorganization of our economic structure with its banks, entrepreneurs, growth, and compound interest. 

Stay tuned for tomorrow’s mini-essay finale, in which we will identify the wondrous source of economic growth that has been fueling our system for 600 years but has suddenly run dry on us in recent decades, setting us up for an epic banking collapse.