Summary of Money as Debt Essay

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Money as Debt
The “Money as Debt” was created by Paul Grignon in 2006. It is the most fascinating video I have ever seen. Moreover, I am just amazed how much I have learned in just 47 minutes. This video describes how basic banking system works and answers the question where the money comes from.
Years ago, bank used to create money only if they have the real gold with them or someone deposits the gold to bank. But this is not how the bank operates today. Nowadays, banks create money as long as we, as individuals, borrow it and give the promise to return that money back. So, today, money is backed by the loan or mortgage. However, bank loans money that does not exist. Furthermore, as soon as people realize that bank creates money out of …show more content…

So, $1K somehow magically becomes $100K ($1K+$99K). Assuming that $1K is backed by Gold, then $99K is now backed by loan. It seems like the banks only create $9K but in reality $99K (x10 times) of money has been created out of nothing. Therefore, bank can create as much as money people can borrow. As long as new loan agreement is signed, brand new money is created!
As explained in this video, the money supply to the economy is equal to the total amount of loan principal. However, when the borrower pays back to the bank, he is paying not only the principal but the interest of the loan. Additionally, the total of money that circulates in this economy is approximately equal to the total of loan principal. So, in order to sustain this monetary system, more debts need to be created to make sure the system have enough money supply to pay back the loan interest. However, when more debts are created, more debt interests are created too. Thus, more money the borrowers owe. Finally, what I learned from this video is fascinating and scary at the same time. I am sure that this system most likely will collapse one day, and who knows what will happen to us, regular

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