The problem with banks
May. 31st, 2001 06:27 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
mbarrickThe system in place *has* to blow up eventually. I explained this to Trish at one point a while back. At the moment, in most countries, money is "created" by banks issuing credit. It makes no sense. If you look at a reduced model of how the world's economy works it becomes clear:
Imagine 99 people living on an island. They get along by trading value for value, for example the carpenter builds cabinets for the farmer who gives him a chicken in return. This works becomes complicated when the carpenter needs another chicken but the farmer doesn't need new cabinets. The baker, however does need cabinets, and the farmer needs bread. Then along comes the 100th person, the banker. "I'll make you something called 'money' to facilitate these complex trades" he promises. "And I'll only charge a tiny bit of interest, say 5% a year, so that I can get by too." So he prints a hundred dollar bills for everyone and everything works fine until the year is up. "OK, you owe me $105," the banker says. But there is only $100 to be had. The only way the islanders can "pay" is to borrow even more money from the only source, the banker.
That's it in a nutshell. That's what we are doing. The money doesn't mean anything and when the more is needed the banks simply loan more out with nothing to back it up. It just doesn't work.
Imagine 99 people living on an island. They get along by trading value for value, for example the carpenter builds cabinets for the farmer who gives him a chicken in return. This works becomes complicated when the carpenter needs another chicken but the farmer doesn't need new cabinets. The baker, however does need cabinets, and the farmer needs bread. Then along comes the 100th person, the banker. "I'll make you something called 'money' to facilitate these complex trades" he promises. "And I'll only charge a tiny bit of interest, say 5% a year, so that I can get by too." So he prints a hundred dollar bills for everyone and everything works fine until the year is up. "OK, you owe me $105," the banker says. But there is only $100 to be had. The only way the islanders can "pay" is to borrow even more money from the only source, the banker.
That's it in a nutshell. That's what we are doing. The money doesn't mean anything and when the more is needed the banks simply loan more out with nothing to back it up. It just doesn't work.
