In a debt based economy in a closed system (like the Earth) isn't there always more debt than existing money?

Question

In an economy based on borrowing in a closed system won't there always be more money owed than money that actually exists. In a simplified form if I lend someone $100 dollars in a closed system (that is the only $100) and charge them 5% interest how will they be able to give me $105 the extra $5 does not exist. In the current system I guess that 5$ would have to be made from the next wave of borrowers. So say there is another person and I lend him a $100 and the first person makes $5 dollars of the second person and pays me back now the 2nd person owes me $105 and only has $95 and is now $10 short. This which works fine until lending is reduced. If it is reduced below the currently owed interest then there is no way the loan can be payed back. In this type of system even if everyone makes perfect business decisions the last wave of borrowers are doomed to fail. Is this the legacy we want to leave to future generations? This is basically a pyramid scheme and seems untenable

Answer 1

Yep you got that right . It is meant to in slave the populations of the planet to the elite who the debt is owed to .

Answer 2

The new money comes from the productivity. Every work done creates wealth.

Even if you think Earth as a closed system, there is always wealth created, either from the resources created with the borrowed money or otherwise.

That is why there is more wealth created every day, and we (human race as a whole) are wealthier then a few decades/years/days back.

Answer 3

The money itself is a kind of debt.  And when more debt is created.  Then this has the same effect as printing money and increasing the money supply.

Money is nothing more than IOU notes that promise to deliver goods and services upon request.  And the only difference between paper money and other kinds of debt is the timing when the goods and services can be requested.

When you have paper money.  Then you can immediately exchange it for goods and services.  But when the bank lends you money.  Then usually there is a time-frame when the bank can demand payments from you.  And the bank can't demand immediate payment from you.

Of course, when the bank lends you money.  It doesn't mean that the bank gives you its own money.   Banks are allowed to engage in so called fractional lending.  When a bank has $1 million dollars from depositors.  Then the government allows this bank to lend out $10 million dollars to anybody who wants to borrow.  And as long as the depositors don't all come back and ask for their money at the same time.  Then the bank can juggle its loans and deposits despite having lent out 10 times more money than it actually has.



In fractional lending system, lending out money is almost the same as printing money.  Because banks are allowed to lend money that they don't actually have.

But when the debts get so large that people cannot possibly pay them off.  Then there is a very simple mechanism for solving this problem.  The debtors default on their debts and say that they can't pay.  They declare bancruptcy and whatever else the legalities require.  And that's the end of it as far as the debts are concerned.

Of course, the lenders are going to be very unhappy with this kind of a situation.  And for a long while they won't trust the people who have borrowed from them before.  They won't trust and they won't co-operate economically.  Which will be bad economically speaking.

And it's not just individuals who can default like that.  Companies can default too.  And so can governments and whole countries.  This has happened in the past numerous times.  And I'm sure it will happen in the future too.

The US government has never defaulted on its debts yet.  But there is a first time for everything.  And it probably will default in the future.

Answer 4

So what you're asking is, where does the new money for the interest come from?

It comes from the new resources accessed through use of the borrowed money.

Earth isn't a closed system, and the human economy especially isn't a closed system. A person who is loaned money can create new value by increasing the efficiency of processes or by accessing previously untapped natural resources.

The earth as a whole isn't a closed system on account of the fact that it receives energy input from the sun, and that energy has value.

Answer 5

Ask this question to Mr Clinton, He pay all the debt of the US and some during is mandate He really balanced the budget

after that, the Bush came in and disasters happen.