The secret of creating money.

Summary

Banks create money through loans, with interest, leading to a cycle of scarcity due to the uncreated interest.

Abstract

The text describes the process of money creation by banks, which happens when they give out loans as the principal amount, creating new money, often in digital form. This money needs to be repaid with interest, which is not created by banks. This leads to an infinite loop of scarcity in the system as everyone competes to earn money to repay the debt. The interest rate isn't necessary to maintain the value of money because it creates inflation instead of preventing it. The consequence is that someone will fail to repay the loan, and the bank can claim the collateral used to secure the loan, such as a house, regardless of the person's ability to manage their business or life. The system is designed in such a way that there will never be enough money available to pay back all outstanding debt.

Bullet points

Money is created through bank loans, where a bank creates new money, often in digital form.
The loan requires repayment with interest, but the interest itself is not created.
The interest rate makes money scarce because individuals must compete to make up the difference between the principle and interest.
The system creates an infinite loop of scarcity in the economy, leading to someone failing to repay the loan.
The bank can claim any collateral used to secure the loan, such as a house, regardless of the individual's management skills.
Inflation is created because of interest rates, and interest is not necessary for maintaining the value of money.
There is never enough money in circulation to repay all debt, perpetuating an endless cycle of scarcity.

How is money created?

It is madness how people are running after it either they realise it or not, either they want to or don’t want to.

The process of the creation of money is so simple that people can’t believe it or won’t believe it. Accepting this fact below would mean that majority of the people have been scammed for their entire lives.

It’s created by the banks, run by regular people like you and me, by giving out loans, as principle, and there you go, money is created, today usually in a digital form in an account.

So what? Everybody knows that, but…

But it has to be paid back with interest, but the interest isn’t created by the banks. So this little missing part of the equation has now created an infinite loop of scarcity in the system.

Here is a simple example with a person named X:

Let’s say X goes to a bank to get a loan of 100.000 units of currency.

Bank then creates this money by entering this amount to X’s account and calls this loan — principle. And that’s how new 100.000 units of fresh money is created. (Bank might also ask a collateral — X’s house for example, just in case, should X fail to pay the interest and principle back).

But X has to pay this amount back with interest. To keep it simple, let’s say X has to pay back after one year 110.000 units. That interest isn’t created though. Now X has to go out to the world and compete with others to make that extra 10.000 units.

That is how the money is kept scarce. There is always less money that is necessary, because the interest that X has to pay back has to come from some other loan that was made to someone else.

This situation creates an infinite loop, because there’s never enough money to pay back all the debt owed and somebody will lose the game. Bankrupt. Bank takes the house. And it is nothing to do with that somebody’s competence of running their business or living their life.

If you are going to think that interest is necessary because of the inflation, no it’s not. Interest itself is creating the inflation, not the other way around.

That’s it. I’m out (actually I’m in, we’re still living in Corona time).

You are welcome. Comment away.

Photo by Anne Nygård on Unsplash

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