Night Strike wrote:Loans are vital to our economy. They provide quick cash to businesses to make large capital improvements that will increase the earning power of the business, which will provide more jobs and taxes. Most businesses don't have enough cash on hand to engage in capital projects, even if they are making a profit. You're stifling economic growth by requiring all cash to be on hand. Stocks and bonds are also considered loans, which are vital to both businesses and governments to operate.
Loans are also very important for those people who choose to go to college. They allow young people to go to college even if they don't have the full costs saved up (or don't have rich parents to provide it to them). This almost always increases the earning power of the graduate, which allows them to earn more money early in their careers. Not only can they use this money to pay back the loans, but they will be able to spend more in the economy and begin saving more for retirement earlier.
Loans from existing resources is much different from loans from "money" created out of thin air. Which is what happens when you go to the bank and get a loan for school, or a car or a house.
It is hard for people to fathom because of certain misconceptions we have been led to believe for so long. When you take your money and deposit it into a bank, you think of that money as yours. You have an account statement and when you deposit money you see your statement increase by what you deposited. Therefore you think of it as yours.
But when you deposit money into a bank the money now belongs to the banks. Your account is a promise to pay. You may think this is just semantic, but the distinction is important to understand to begin to truly understand how we end up getting screwed. By "we" I mean everyone
except the bankers.
When you want to buy a car but don't have the money. You go to the bank and sign an agreement that the bank credits your account for the loan and you agree to pay the loan back + interest. For collateral, the car you are going to buy is offered. If you don't pay, the bank can take the car.
Now understand, what you and the bank have just exchanged are promises to pay. both of you. The "money" used to buy your car is then simply created out of thin air with just a keystroke. You account is credited and you give the seller of the car a check.
If what you wanted was a car, and what the bank had was money, then why doesn't the bank simply buy the car with
their money and then sell it to you for the cost + interest?
Because the bank isn't going to use it's
own money. The money they get when people deposit money into bank accounts.
Banks create credit like this all the time. Every single day, thousands of times a day across the board. All the credit created that is used to buy real world things created by people who labored to bring those things. And when all that credit is created, the interest to pay it back is
never created.
If it came to the point where everyone who owed a loan were to all have to pay it back at once + interest, there would be a mad scramble because there wouldn't be any actual money to pay the interest. This is ok because as credit is created and spent in the real world, that money circulates. Interest is paid by principle created from other people's loans.
In times where more is being paid back than is being loaned out, deflates the money supply and leads to deflation. If you had zero debt, deflation is a good thing. Everything is cheaper. You are getting, in effect, a dividend on your own money. You can buy more real world stuff.
For the banks, however, deflation is the end of the line because of how accounting is done. When you get a mortgage on a house, the principle is the liability which is offset by the worth of the asset (the house you don't own but put up as collateral). In deflationary periods the worth of that asset on the bank's books (your house) to offset the liability (your loan) is devalued to the point that banks can take massive loses.
This is a consequence of a debt based monetary system and is the reason that debt can never be dealt with. It doesn't matter if the tax code is reformed and simplified. It doesn't matter if there is a "balanced budget", it doesn't matter if the GDP grows. As long as we used debt based currency then there must
always be debt, public and private. To eliminate the debt, to pay off the national debt, is to destroy the entire currency.
The total money supply being spent in the real world is 100%. The amount of actual, physical currency is only around 5% of that. Our system works well to facilitate commerce with but a fraction of actual money in the system. But the cons are that we, each and everyone of us, by hook or crook, are on the hook for debt. Even you who are debt free, when the banks fail they must be bailed out, the government must go into further debt to inject the money needed to pay merely the interest on past loans. This is taken from you in the form of taxes.
It's the monetary system that is at the root of it all, it is the root that is rotted that must at some point reach that level where the credit can no longer be expanded. Every credit expansion created by banks out of thin air dilutes the money already in circulation. Inflation. The process cannot continue forever. To control this the banks have created and use the business cycle.
The business cycle is treated as if it is a natural cycle like the water cycle. It is not. It is created by the banks as a means to extend the life of the debt based monetary system. In times of money expansion more and more people are hooked into loans (willingly hooked I add) and in times of money contraction the banks take possession of real world things from the percentage of people unable to repay their loans.
You think of different banks of operating independently of each other, but in reality the entire banking system works as a single entity. And it all starts with the misconception that the money you deposit into a bank is your money.
Posted: Tue Apr 17, 2012 11:58 am