Why It's Impossible To Get Out Of Debt

Did you know that money isn’t real anymore? In the good old days, gold and silver were used as money, but soon it was too burdensome to carry large amounts of gold and silver coins around.

The U.S. Federal Reserve began to exchange banknotes for precious metal coins. So for a $10 coin, a $10 banknote that could be converted back to gold coins was traded, and the gold was held in the bank vault. At some point, banks petitioned the government to allow fractional banking. Fractional banking allowed banks to pass out 100 dollars of notes for every $10 coin they held in their vaults.

But wait: why (and how) would a bank ever give out more money than they take in? By offering interest-bearing loans, of course! [This is the exact moment that money ceased to be real]. So what’s the problem, obviously, now more people could buy things with the borrowed money, which would stimulate the economy and that’s good.

Let’s pretend we are still back at that first fractional bank with one person’s $10 gold coin in their vault. One person has a $10 reserve note that they exchanged for the coin, and nine other people have $10 reserve notes that they borrowed from the bank. Let’s allow a year to pass. So now the nine people all owe 11 dollars (10 + 1 interest) [as a side note, you can see why banking is such a great business since they just made a 9-dollar return from someone else’s original 10 dollars]. And they all have been outstanding citizens, and they didn’t waste the $10, and they want to go and pay the loan off.

But where will they get the extra dollar each? They would have to borrow it from the guy who had the $10 coin since he has the only other $10 in circulation. Of course, he will want to charge interest. So if he lends the 9 dollars and the nine people all pay off the fractional bank, they still owe him the principle and interest on the loans they took to pay their interest. How can this interest ever be repaid? The bottom line is that it can’t.

So we have a monetary system where all the participants can’t be debt-free. The current system is just like this, only taking away the $10 backed by gold. The bottom line is that the current monetary policy depends on ever-expanding debt. There are many results of this system: inflation and polarization of the distribution of wealth.

Thank you for reading and hope you have a good rest of the day!

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