The most daunting policy paradox today is the simultaneous and parallel implementation of quantitative easing and austerity measures. The former is a pure invention and creation of money, the latter is a contraction in spending based on the premise that money is not as available as it was previously. The parallel adoption of these policies explains public discontent. An informed public is observing how banks are being bailed out and provided with fresh reserves, while hard working people are being penalized by the same banks for defaulting on their loans or mortgages. Austerity measures are adding oil to the fire.

Across the world, and especially in the UK and Europe, the policy assumptions used to address the current crisis are based on a monetary architecture that is deeply flawed. Indeed, it is so seriously flawed that the shortcomings in our architecture evoke the limitations we used to impose on ourselves when we believed without evidence that the Earth was flat. Today, our belief in the debt-based monetary architecture is as limiting and as restrictive.

Money is backed by government debt. Central banks print the banknotes and balance the entry in their liabilities with assets that are mainly government bonds. Money is created by debt and then grows through credit. Credit, through the fractional banking system, creates new money. This is achieved by creating new deposits based on debt agreements and contracts that banks sign with their clients. Thus, at the creation level and at the expansion level, money is driven by debt and credit.

We must rethink money and add a channel of money creation and injection that does not require a commensurate debt increase in the system. If we shy away from this challenge, and continue the current policy course, we will end up with an unprecedented global upheaval accompanied with a recession. Austerity measures are reducing aggregate expenditure and thus income levels, while quantitative easing is only adding fresh reserves to the banks who can hardly lend it out given their own difficulties, higher regulatory requirements, and already overleveraged economies. We need to take policy actions that add income and reduce credit, not the other way around.

The results of austerity policies have already been demonstrated in Greece. Budget cuts had a negative impact on aggregate expenditure and income, reinforcing the recession and thus reducing tax revenues and failing the very purpose of the policy. Although tax evasion seems to be a key challenge in Greece, the decline in tax revenues in 2011 is indicative of how fruitless the policy trend is because expenditure declines lead to further declines in income and thus tax revenues, increasing recessionary pressures and making effective deficit reduction almost impossible.

The upcoming recapitalization of European Banks and the Greek haircut, if they actually happen as planned, shift the debt burden, they do not eliminate the issues. Increasing the firepower of the European Financial Stability Facility (EFSF) through some form of leverage, pending details and implementation, utilizes debt and credit again, and is a long way from creating more jobs. The same reasoning applies to the recent quantitative easing announced by the Bank of England, which provides fresh capital to the banks. The issue and key systemic bottleneck remains.

To resolve the crisis effectively and fundamentally, the debt-based monetary architecture must be complemented with a channel of money creation that does not add more debt to the system and creates income without depending on bank credit.

Governments must be able to inject fresh money without adding debt. Central Banks must be able to inject new money through instruments that are not debt-based instruments.

After all, the State is the creator of money and a 'sovereign debt crisis' is an absurdity of the highest order, a system chasing its own tale. The only true challenge that a transformed and healthier financial architecture faces is our ability and willingness to think and implement a better system.

I look on with amazement at the perverse stance of the Greek Unions. Over the decades they pretty near forced the Government of Greece to capitulate to their demands of excess and ridiculously lavish benefits. As Prime Minister George Papendreau stated in August to the effect; the number one cause of Greed Debt is the Public Service and Public Service Unions. I say the Public Service Unions are protesting themselves, they are the cause of their own misfortune out of primarily greed, greed, and more greed. What do they expect the Government to do? As the old saying goes unfortunately, All is now lost. There will be a hard default probably and the future of Greece will be bleak to say the least. The entire world is in toilet because of Public Service Unions and Public Service greed and largess. I'd say People and nations better wake up, however I think it's way too late, the damage is done and the 2nd Great Depression is now on the way.