Doly wrote:I really recommend the article above. After struggling for ages to understand what the hell was debt-based money, I finally got it.
I can also see why, if everybody asked for the money they supposedly have in the bank at the same time, there just wouldn't be enough. But what I still can't see is why the system doesn't fall over. One would think that it's been running for long enough to fall over somewhere. Maybe it has fallen over in some country, but I don't know about it. Or maybe I'm missing something here.
Can anybody explain?
I'm no expert, but I believe it hasn't fallen over yet because the interest is paid out in the future. So the prosperity we are seeing is 'borrowed' from the future. But since new money is continually entering the system today, prices keep going up, and we have more money to spend (assuming we get a pay raise from time to time).
Every loan I take is created by borrowing from my future earnings. At some point though, I don't think it can sustain itself, and will collapse. How or when is anyone's guess. If enough people can't make their payments, then Citibank, etc. won't have enough to send out to the companies who are relying on that cash at the end of the month, who then won't have enough to stay in business or pay employees.
The payments though for loans and whatnot are kept pretty low so that they are attainable. It's an illusion though, since the loan is spread out so far. For example, the Citibank credit cards minimum amount due is so low that it would take many years to pay it off if that is all that people sent in, and they would end up paying 3 times as much or whatever for the actual amount they credited. Sadly, lots of people I know pay that minimum amount and not much else.
And the banks/gov't just changed the rules significantly again, by altering the bankruptcy laws. No longer is it so easy to go without paying your debts, which to me is a good thing, but they still make it way to easy for people to get in over their heads financially.