Falcon91Wolvrn03 said:

Let's start with a system that has $60,000 of real cash - $10,000 in a bank and $50,000 with the general public.  I want to start a company so I borrow 9,000 from the bank at 10% interest.

The bank creates that $9,000 out of thin air and loans it to me.  I spend that $9,000 on the general public to help me start my business and now there is $10,000 in the bank, $59,000 with the general public, and $0 with me.

I sell my product to the general public for $20,000, and repay the bank $9,900.  Now the general public has $39,000 ($59,000 minus $20,000 for my product), I have $10,100 ($20,000 minus $9,900 bank repayment) and the bank has $10,900 ($10,000 plus $9,900 minus $9,000 which is retired).

This leaves $60,000 in the system, which is the same as what we started with.  The numbers don't really matter; you'll come out where you started.

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Now here's an interesting thought, a very powerful tool to sort this problem out (or cause our swift destruction). The US does have the power to mint currency adding to the money supply without the creation of interest. Currently the mint introduces so little it has no real influence, but they could theoretically mint a coin worth any value they wish and deposit it directly into the public treasury.

It could be used to pay off the national debt, it could be distributed in the form of a stimulus to every american citizen, or even global citizens technically, effectively wiping out all debts public and private and closing the wealth gap completely if we so wish. There's all kinds of obvious flaws and pitfalls to over come if one were to wave such a massive wand but it's an interesting rabbit hole to explore.

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shivas.wisdom said:

In other words, the general public (which includes you) lost 900$ to the bank in the exchange.

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shivas.wisdom said:

What prevents the money supply from concentrating in the hands of the money lenders?

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krypto2000 said:

...the majority of the monry in circulation, thst is to say physical cash, not simply monry that is on the books, was printed and lent to the nation with interest. So you're right, but if it's not practiced that way in the real world does it matter?

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krypto2000 said:

I hope no one minds if I repeat this here, I think it could generate an interesting discussion as well, although I think you have been the only one to comment on it so far.

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Now here's an interesting thought, a very powerful tool to sort this problem out (or cause our swift destruction). The US does have the power to mint currency adding to the money supply without the creation of interest. Currently the mint introduces so little it has no real influence, but they could theoretically mint a coin worth any value they wish and deposit it directly into the public treasury.

It could be used to pay off the national debt, it could be distributed in the form of a stimulus to every american citizen, or even global citizens technically, effectively wiping out all debts public and private and closing the wealth gap completely if we so wish. There's all kinds of obvious flaws and pitfalls to over come if one were to wave such a massive wand but it's an interesting rabbit hole to explore.

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And yes as you said it would very much so lead to hyper inflation, but as I then followed up that's exactly the point, that is the very mechanism by which it works.

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qman said:

If credit growth comes to a halt, I assume money supply would decline as repaying debt starts destroying it.

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qman said:

Also if debt defaults starts destroying once good assets, that destroys money.

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shivas.wisdom said:

In other words, the general public (which includes you) lost 900$ to the bank in the exchange. What prevents the money supply from concentrating in the hands of the money lenders?

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Falcon91Wolvrn03 said:

In other words, I paid the bank $900 to make $10,900.

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Falcon91Wolvrn03 said:

What prevents the money supply from concentrating in the hands of anyone, including the entrepreneur?

The first thing is simply the fact that bankers, entrepreneurs, and the general public all want to buy things, whether it be nice houses, boats, cars, vacations, etc.

The second thing depends on whether we're talking about gold backed currency, or fiat currency.  If it is gold backed currency, it would make sense to hoard it, as that would artificially increase its value and makes the hoarder richer.  But with fiat currency, there is no incentive to hoard because money loses its value over time due to inflation.

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for the second point, we may not see money hoarded like gold these days, but it definitely isn't exactly being redistributed either. Extra funds are instead, I assume, reinvested in stocks and loans; which would only perpetuate the problem of concentration of wealth.

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shivas.wisdom said:

Falcon91Wolvrn03 said:

In other words, I paid the bank $900 to make $10,900.

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I assume you meant 10,100$ (20,000$ minus 9,900$ bank repayment)?

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regards to the first point, there is a finite cap to the amount redistributed in this way. A billionaire only needs so many houses, cars, etc.

As for the second point, we may not see money hoarded like gold these days, but it definitely isn't exactly being redistributed either. Extra funds are instead, I assume, reinvested in stocks and loans; which would only perpetuate the problem of concentration of wealth.

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Let's start with a system that has $60,000 of real cash - $10,000 in a bank and $50,000 with the general public. 

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