Money as debt
Money as debt film is based on “What is money? Or how money created?”. Money dominates our lives and the surprising thing is that no one can define the Money, The schools we attended and the institute we attended don’t tell us about the money. We all have one question where does the money come from?, Every times when the question come in our mind, the mind brings a picture of mint printing bills and stamping coins. We think money is created by government it’s not true government only created 5% money. We usually thinks paper money and metal money is created by federal government by the help of mint but the true is money is not created by federal government. The majority of money is created day by day by the banks.
Most of us thinks bank created money by their own earning but the true is that bank creates money with the help of loan. Bank give loan to borrower and borrower signature on the “IOU” loan paper promised to repay the loan amount plus interest to the bank if they failed to repay the amount they lose the house, the car, the plot or the assets pledged collateral.
The history of modern banking system:
Most of us known in former times (Ancient), Barter system was used for Transaction purpose, Where you have to give one commodity in order to get another. This system was good but it had many complications and difficulties, Because of which, People started thinking something else. Even at time people aware about the importance of gold, So they started doing business by making gold and silver coins, Holding more gold while the travelling was very difficult because of heavy weight and afraid of theft as well. Some Goldsmith and other people thought of business opportunity in it, so they came up with a solution ” The goldsmith’s tale”
The Goldsmith’s Tale:
Modern banking system comes from the Goldsmiths. The Goldsmith made the vault and protect people’s gold and get their small amount of rent. Goldsmith hire the guard to protect the vault and pay them salary. They told people, to give their gold to them, we can keep your gold safe with just a small fees. Everybody likes that idea and gave their gold to goldsmith, In return Goldsmith gave them “I.O.U” the piece of paper, In which it was written, that I have your gold with me and how much gram it is, In simple words we can it a gold receipt, By showing that they can take their gold back.
This system was working properly. But after sometimes goldsmith realized after the making system, most of people are not coming to take their gold back and all the people start doing business by using that I.O.U receipt because all were sure, receipt means the gold is also safe.
After the knowing that about I.O.U receipt, the gold smith working in the wrong way, because the I.O.U receipt becomes a money. They made fake I.O.U receipt even the gold is no in the vault. They gave fake I.O.U receipt to poor people on loan and get interest on the loan. This way they made so many receipt. The Goldsmith shop becomes the first Bank of the world and receipt was the first world currency.
The money system today:
In the past, fiat currency issued banknotes and every one had the right to refuse them. But now as the fiat currency is connected to the federal government no one has the right to refuse the banknotes issued by them.
In the past, bank used to create money only when they had gold or someone had deposited gold to the bank. But now the system has change completely, money is no longer backed by Gold instead it is backed by a loan or mortgage. Today, banks create money by giving a loan of money that doesn’t exist yet but because the borrower promises to repay the loan amount plus an interest to that amount. Bank can create as much money as we can borrow. Making money will be an issue if people stop taking loans from banks but that is not quite possible due to the fact that majority of the people’s lifestyle today is a little too expensive for them.
Governments place an additional statutory limit on the creation of new money, by enforcing rules known as fractional reserve requirements. Essentially arbitrary, fractional reserve requirements vary from country to country and from time to time. In the past, it was common to require banks to have at least one dollar’s worth of real gold in the vault to back 10 dollars’ worth of debt money created. Today, reserve requirement ratios no longer apply to the ratio of new money to gold on deposit, but merely to the ratio of new debt money to existing debt money on deposit in the bank.
No Debt, No Money:
What’s more amazing is that once we realize that money really is debt, we realize that if there were no debt there would be no money. That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.
Majority of the money that we have today in this economy is created by a loan or a debt. Therefore in other words, the money supply to this economy is equal to the total amount of loan principal. However, when you pay back to bank, you’re paying not only the principal amount but the interest of the loan too. Money Supply is equal to Loan Principal or Money owed is equal to Loan Principal + Loan Interest.
The total of money circulate in this economy is approximately equal to the total of loan principal. So now you need to pay the extra loan interest to the bank.