Today's Monetary System

Today's Monetary System

Today's money is almost all created with an equal amount of debt by commercial banks, it is money-debt. It comes into being when somebody goes to this bank and borrows money, at that moment the money is created and the debt as well.

The banks are allowed to do that but required to hold at least x % of their loan book as reserves. The value of x may vary between 10 ..8 .. 5 .. 3 .. 1 .. 0 %, depending on where we look at. What counts as reserve may be money borrowed from the Central Bank, the depositor's money or the shareholder's equity.

All this debt asks for interests. Over time, two generations after WW II,  the interests have accumulated with the debt to 2,5 times the money issued. (cf Simon Thorpe's Blog)

This debt can only be serviced, its interest only be paid by borrowing more money from the banking system, which again increases the debt.

And so on.

Can we pay back our debt?

as it is being repaid to the bank; just as it was created when we borrowed it.

Since there is much more debt than money, we can never pay back all the debt.

The money with which we are paying back debt comes from the real economy, from money that is circulating, and that we earn.By paying it back to reduce our debt, we take it out of circulation and destroy needed economic activity and jobs.

If nobody wants to take on more debt, but everybody wants to reduce his debts, money is destroyed its circulation reduced on such a grand scale that economic activity is severely reduced due to a lack of money in circulation.

And the more we are paying back, the less we earn and the more trouble we have to pay back more.

Governments try to counterbalance by spending more money into the economy, money that they do not have but according to today's rules have to borrow, thus increasing debt even more.

So it is about time for a change in paradigms, of the way money is created.