that the debt is inherently unrepayable?
Since each dollar can only come about through debt, doesn’t that mean there will always be more debt owed than money existing to pay it back?
Not necessarily.
Suppose the government borrows money from the FED at 3% interest and then puts it in the banks that pay 4% interest and charge 6% interest on business loans. If, on average, every loan is to a productive enterprise that provides real valuable goods so that it can earn a 15% annual return, everyone will be able to pay the FED back and there will be a surplus. The problem emerges when the borrowers aren’t providing enough real valuable goods to justify paying 6% interest. The system could work if the FED was only governed by an omniscient accountant who knew with absolute certainty how much every person and every business would earn for eternity. Our only problem is that there are no such applicants.
I do not agree with the above comment.
The federal reserve gains interest on its assets (debt obligations from either banks, governments etc.)
It does not recieve interest from banks in the same way the banks recieve interest from us.
The fed gains its interest through forcing banks to create an account with them and hand over a significant proportion of there cash as reserve requirements, the FED then lends that out and makes a nice profit, which usualy goes to the treasury (minus expenses.)
They also act as a lender of last resort, printing money and lending it above the cash rate to banks that cant get it on the open market at the cash rate (known as the discount window.)
They also engage in QE which prints money to buy yielding assets such as mbs and agency related debt.
In order for society as a whole to repay its debt would be impossible, at the end of the year the assets of the population would be for example 1 trillion in cash, and the liabilities is 1trillion + interest. This interest is therefor unrepayable, and can only come about through debt acceleration or default.
Thus our banking system tends to accelerate. at the end of the year 1 trillion +interest is owed, the interest comes from more people borrowing during the year, so the money supply growth throughout the year finds its way to debtors who pay there interest Or they default.
The confusion alot of people have is they think the federal reserve prints money, lends it to banks, who expand it and lend it to us. The real world is alot more complicated, and fractional reserve banking was in operation BEFORE the fed. The american banking system has developed over hundreds of years and is therefor alot more complicated.
I think good and simple explanations of the federal reserve on monetary system can be found on youtube “khanacademy” has a set of 20 or so videos that explain the accounting and theory. Also the “Money as Debt” on youtube is a good first start. Then move onto Rothbards books on Fractional reserve systems and the federal reserve system
Think of it this way. One entity issues money. It issues it with interest. In order to pay back the debt someone else has to borrow more money from the issuer, it is then the first borrowers goal to get money from the second borrow in order to pay the debt and vice versa.
If all debt was paid within our system then net dollars would equal zero. The only way to pay all the debt generated in our banking system would be for the issuer to issue the interest as legal tender notes along with the principle note issue. These notes could then be used to pay all debt thus eliminating all circulating currency. This is due to the way the FED works its balance sheet. It requires thousands of pages of explanation, which other scholars have already given us. Rothbard, Hayek, Mises, and North helped me gain an understanding of the process. Happy reading.
FSK, (FSK’s Guide to Reality) has a blog and he explains the “debt virus”. I don’t remember the whole thing, I find FED mechanics completely boring and irrelevant to my daily fight to survive, but FSK usually does a very good job of explaining these things in layman’s terms.
The reason that you find so much disagreement is that it is extremely difficult for humans to model in their heads a vector field with sources, sinks and time lags (which is what money flow is). But it would be relatively easy to write a computer simulation that would sort out this issue once and for all. I am not aware if this has been done but would love to hear of any such work.
haha, get to work! I smell a nobel.
Simulations are amazing…
http://www.youtube.com/watch?v=rnd-LdXlffI&NR