Monday, 8 February 2010

Money as debt
Money as debt (47 minute video)

Our Monetary System is NOT Sustainable?

In previous example, you will notice that majority of the money that we have today in this economy is created by loan or debt. Therefore in other words, the money supply to this economy is equal to the total amount of loan principal. However, when you pay back to bank, you're paying not only the principal but the interest of the loan.

Money Supply = Loan Principal
Money Owed = Loan Principal + Loan Interest

The total of money circulate in this economy is approximately equal to the total of loan principal. So now you need to pay the extra loan interest to the bank, where do you get the money from? There are only 2 possibilities:

Not everyone will not able to pay back the loan together with interest

To avoid that from happening, bank will supply more money to the economy by creating more loans

In order to sustain this monetary system, more debts needs to be created to make sure the system have enough money supply to pay back the loan interest. The funny thing is when more debts are created, more debt interests are created too. Thus, more money you owe. This is the exponential thing and are fixing the things or making it worse? Will this continue forever or will it collapse one day?

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