(10-01-2013 07:15 PM)earmuffs Wrote:
(10-01-2013 05:56 PM)Aseptic Skeptic Wrote: What are you saying?
No, when he says that money is created from nothing he means:
"We have a bad system that only allows us to create money from debt and we need to change the system"?
"It's a universal law that money can only be created from debt and nothing will ever change because we cannot change universal law"?
Either way, I'm not sure I agree, but I'm curious as to which you meant so I know what to discuss.
Person A wants to start a business but has no money.
Person A goes to the bank and borrows $100 to start his business.
To earn money the bank charge $10 interest.
This $10 doesn't represent an object, it's not tangible, it is just a number arrived at through various ways and tacked onto the $100.
What I mean is, if I go to the store and buy an apple, it'll cost me say $1. The $1 represents that apple.
With the bank, the $10 represents the cost of borrowing money.
The apple is tangible, the "borrowing money" isn't.
So basically if Person A was to do nothing with this $100, the bank just "created" $10 out of thin air.
In a world with only this $100, $10 was created from nothing (nothing tangible anyway).
This is creating money from debt.
The problem (in theory) comes from when Person B wants to buy something from Person A.
Person B has no money so must borrow some from the bank.
Say he borrows $50. The bank will then tack on $5 interest.
Person A now takes Person B's $50.
Actual money in this system is $150.
BUT $165 is owed to the bank.
Creating money from debt.
edit: Just to clarify, this is bad because (in theory) the only way to pay the debt is to borrow MORE money, thus creating MORE debt etc...
Unlike say apples where to get more money I grow more/better apples etc.. But if I stop producing apples then the money stops, where as with the creating money from debt idea, to clear the debt you need to borrow more (and hence more debt) and so the debt never goes stops/goes away.
This is absolutely correct. In the US it actually starts at the printing press. The govt issues bonds to the Federal Reserve to print money.
Federal Reserve Prints 1 billion dollars. The govt pays them with 1 billion dollars govt bond. This bond is then held or sold to other countries or people, and these people collect interest. The govt then has to issue more bonds and print more money to pay off the interest. And the cycle continues.
Thus its nearly impossible for the US to get out of debt.