@ IJesusChrist
This is a long one.
IJesusChrist a dit:
I am wondering what you consider a winner in this system... It's an odd label.
Perhaps.
It’s interesting how discussions on complicated topics often tend to border on being about semantics.
So what’s a winner?
Smartass answer
Depends on the scale against which you’re measuring.
Slightly more informative answer
In my last post I suppose I was referring to being a “winner” in terms of the capitalist system in which the goal seems to be to make money. I’ve been lucky to be born in a relatively prosperous part of the world and in a well-off family, so in that sense I’m one of the winners in this system.
Slightly deeper answer
Having said that, measuring success in terms of economical success is of very limited use. For instance, the above doesn’t take into account the benefits I have from living in a society with liberal legislation, which allows me to do almost anything I want with my life, or a whole host of other things.
My guess is our obsession with money and resources – take for instance the huge weight and importance we place on something like GDP – is due to old ways of thinking, born in a time when resources were far more limited and our immediate needs were our only concern.
Being rich certainly does not equal being happy, fulfilled or really anything positive. What it does mean is not having to worry about money. Imho, just like you only need to be smart enough to handle university, or tall enough to play basketball, you only need enough money to be happy. As long as a lack of money is not a hindrance, it doesn’t contribute much. What we need to do is to move away from our obsession with resources and focus on measuring quality of life.
Person (or entitiy) A takes 10 dollars from Bank.
Bank then requires person to pay back 10 * Z amount back.
In a closed system, where does Z come from? Person A cannot "Make" money from nothing - that is called counterfeiting. Only the bank can 'make' money from nothing. Where does Z come from?
The economy is much like an eco system where money is constantly circulating. Much like an eco system, it cannot be demonstrated by only looking at half the system.
So where does Z come from? Or phrased differently: How would A pay B, the Bank?
A would have to create value. Since in this example there cannot be any circulation, the bank would have to accept the goods or services offered by A as payment, or a relevant legal document, such as a document transferring ownership of a commodity.
In a more complex example, A would sell goods and services to C for money and use this to pay the bank. The bank in turn has expenditures and returns profits to shareholders who in turn spend money, thus returning the money into circulation.
So, Z is the additional value created by A:s work.
What about the money created by banks?
As you point out, banks are allowed to lend money they do not currently have. So where does this money come from?
Example: Most young people cannot afford to buy a house, but they will earn enough money in their life time to pay for one. The solution is to borrow money. The bank lends the money and gradually receives the same amount back, plus interest in order to cover its costs and to make a profit.
Where does the extra money, the interest, come from?
If we assume there is a set amount of money in the world, we would constantly have to create more. The confusion seems to arise from thinking in terms of money instead of resources or value. As the young person who took the loan work, they create value – or more “money”.
So the banks created money = some of the future work of the person taking the loan.
The problem with the system only arises when people are unable to pay back because the value they are able to create is not sufficient to cover interest. The subprime mortgage crises started because banks would lend money to people who were not expected to and consequently not able to pay back. Since banks lend money they do not have, they collapsed when a large amount of people defaulted at the same time.
This is why government regulation is crucial. Banks should not be allowed to lend money without good security or good expectation of being paid back. There will always be inherent risk, but without this system the young person in the example above would not have been able to borrow money.
So really, interest is the basis for our economy.
