For quite a long time, a partial bank reserve and a network of banks subordinate to it dominated all over the world. All the money from gold that provided the loan funds was destroyed. And the very essence of money has changed significantly. Now real money is someone else’s debt. If earlier, dollars made from paper were debt receipts, thanks to them the investor had the right to demand their value in terms of gold or silver, but today dollars, whether digital or paper, can be exchanged for other exactly the same money.

Private banks used to issue loans with banknotes of the same banks, so the borrower had the opportunity to refuse such a payment. This rule is still valid. Credit funds of non-state banks can be cashed in the currency of any state. It can be all that can be considered money. The law, which was created by state authorities, states that borrowers are required to consider such banknotes as a debt payment and to accept them without question. Otherwise, court proceedings are possible.

Many people ask the question: if money is created by banks with the help of the country’s authorities.

How much money is really exists?How much money is really exists?

Previously, the availability of existing money was actually limited to the amount that could be used as money. To create money from precious metals, it was first necessary to extract these metals. But now everything is completely different. It turns out that someone’s new debt is money, and they are created for it. As soon as a person took a loan from a bank, new money immediately appeared.

I think all this is normal. A businessman buys a truck on credit and his loan is secured by a real asset – a car, the money was created by the bank for the property. But he must return the bank more than he took, taking into account the loan interest. Mortgage interest leads to inflation, and inflation steals some of the results of our labor through the depreciation of money. It would be possible to give this businessman an interest-free loan secured by a truck, approximately 80% of its value, and he could contribute 20% himself and then all the profit would have remained with the businessman, and so the bank takes part of the results of his work, only by that the bank makes money.

Funny picture, isn’t it.

Each time a bank gives a loan, a new collateral obligation is created, a new bank account, that is, new money.

Graham F. Towers

Bank of Canada Manager

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17 thoughts on “What is money in the modern world”

  1. Not exactly.

    New money is created at the moment a new loan is created which is true and you do get short term increase in money supply. But then you have an equal contraction of the money supply and velocity of money from paying off he debts.

    Let’s look at it this way. Borrow $1000. Over the next 10 years pay back $100. At time 0 you had $1000 extra on top of your normal amount of money but for the next 10 years you reduce the total money you have by $100. No different from savings really. Just having the money now instead of later. The bank is a conduit for the money and you pay a fee(the interest rate) to it. That’s money is someone’s income so it gets recycled through the economy a little.

    So although you had initial inflation, you have deflation later on.

    Which is a problem when people stop borrowing at the same rate. Because say a steady supply of credit goes down, but people are still deleveraging then you have a deflationary environment.

    Once you understand that loans are forced savings and interest rates are just a fee you pay banks. You realise quickly that lower interest rates end up being deflationary long term if the credit doesn’t go to investment.

    1. I see that all the money in the economy is on credit, right?
      And those who create money – earn much more than the people who create the economy, agree?
      Inflation is very large and makes us poor.

  2. Inflation is what pays for government spending and gives jobs to many in both the public and private sector. It does not make you poor unless you are debt-free and keep all your assets in a savings account (in which case you kind of deserve it for such mismanagement of your finances).

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  4. I don’t understand what you’re trying to achieve.

    You’re against inflation, despite America having a low inflation rate as well as economic growth since the crisis. Inflation is not large, and it does not make us poor. It assists in paying off debts. Inflation is created by many different ways such as demand-pull inflation, cost-push inflation. Deflation and hyper inflation have been avoided, yet you’re complaining about a consistently low inflation rate?

    You claim the banks make money on inflation, but that makes no sense. Borrowers often benefit from inflation depending on the economy at the time.

    1. The reason for inflation is the loan interest. Yes, it is sometimes beneficial to borrowers. But inflation always eats up some of the profits of the person who creates the new product.

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