Journal #5: Money As Debt

Money as Debt Synopsis:

The main issue being discussed in this film is money: what is money and where does it come from? The question of what is money cannot be answered to this day, but the question of where does money come from can be answered: the mint and banks. The money produced by the mint is what is produced by the government. This money only makes up about 5% of the total money available. The other 95% of the money is made by banks.
The story of the goldsmith tells about how banks came to be and how the first bank began. The goldsmith made a vault for all the gold that he had so it would be safe from everyone. People began to want to rent out space in his vault for their gold also. The goldsmith allowed this to happen, by charging for the space used and for interest. He then began to make an income from the depositors. After people would leave their gold in the vault the goldsmith would give them a paper receipt known as a claim check. These claim checks were then being used around the marketplace because they were much easier to carry around than the larger, heavy sacks of gold. The goldsmith began to lend out gold as loans, but then realized it would be better to lend out the claim checks instead of gold. More and more people began to ask for loans. All of the major depositors did not ever come back to pick up their gold. When the loans were paid off, the goldsmith would make tons of money. He became very rich. Suspicions around the village grew. People thought that he was using their gold to become rich. All of the depositors threatened to take back all their gold, but he was able to prove them wrong by taking them to the vault. He still had everyone’s gold in the vault, but he was just making claim checks with money that he did not have. This was the beginning of banking, although this is not how banks still work today. The demand for loans became greater, and the goldsmith kept lending out checks for gold that did not exist. The interest that was being paid on the gold that did not exist made him very rich. Suspicions grew again. All of the wealthy depositors wanted their gold back, but he did not have enough gold to pay them back. It became a “run on the bank.” This is what every banker dreads. This in turn ruined the individual banks and the trust in all other banks.
Money represents debt. Now a dollar is equal to a dollar. You cannot pay in two different kinds of currency. There is one currency for the whole country and that is what you can use to pay with. The policy used to be gold is equal to the same value in a claim check. This is no longer the case. The government and banks create money. The amount of money available used to be limited to the quantity of what the money was, for example, gold, silver, or fish. Now, money is created as debt. Whenever a loan is taken out more money and more debt are created. In 1957 the total American debt was $5 trillion. In 2006 the total American debt was $45 trillion. Money is created when debt is created. Every time a banker loans out money to a person, more money is made. In order to take out a loan, you do not need to have any money in the bank and there is no limit as to how much money you can take out. The banks need to make user that they have 10% more in deposits than in loans; otherwise they will be shut down.
Banks can make as much money as we can borrow. The government mints only make 5% of the total money available. The rest of the money is made by loans and created by the banks. When a new loan is made, the old ones should be repaid. The government plays a big role in the money system: 1. the government makes everyone use the US currency (1 US dollar), 2. Private Banks can pay out in government currency, and 3. Government passes regulations to protect money systems functionally and credibility with the public without telling the public where the money comes from.
There is never enough actually money to lend out. Loans just make more debt. The more debt, then the more money there is. If there is no debt, then there is no money. If everyone were out of debt, there would be no money to spend. This would be very bad for the economy and for everyone. If there were no more loans, then there would be no more money. This is what happened during the Great Depression. If we do not want to have this happen to our economy again, then bankers need to keep giving out loans.
Banks create a principle not an interest. Only the principle is paid off. Interest money is money that does not exist. The bankers get the money from the overall principle money, and borrowers are in the same position. More new debt money is needed to increase the pay interest. The time lag between the money owed and the money created is good because if there was no time lag then everyone would be bankrupt. What can be done to help the system? Four questions have been formulated to come up with a response to this question: 1. Why do governments CHOOSE to borrow money from private banks at interest when governments could create all the interest free money it needs itself?, 2. Why create money as debt at all? Why not create money that circulates permanently?, 3. How can a money system dependent on perpetually accelerating growth be used to build a sustainable economy?, and 4. What needs to be changed to allow the creation of a sustainable economy?
Monetary reform advocates have debated whether changing the system is good or bad. They argue that the system needs to be replaces and that the old systems worked better. They argue that we should return to the gold based money system. The rebuttal to this argument is that no one will want to carry around huge, heavy sacks of gold when shopping. These monetary reforms will not come easy; it will take a long time if they ever do get passed.
Marshall McLuhan, media ‘guru’ says, “Only the small secrets need to be protected. The big ones are kept secret by public incredulity.”