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Pulakit Bararia
Building Snippetz an...ย โขย 1m
We think of banks as places that store our money and keep it safe. But thatโs not really whatโs going on. When a bank gives out a loan, they donโt get poorer. They simply type new money into your bank account. Itโs brand-new money that never existed before. The only difference is that when you pay it back, the money gets canceled outโ and the bank only keeps the interest. The problem? Productivity doesnโt necessarily increase when we create new money, and that can cause inflation. If society starts producing fewer goods, but more money is added into the system, prices will go up. Since thereโs no additional contribution to match the extra money, banks have almost complete freedom to create as much as they like. And if theyโre running low on backup money? They can simply go to the central bank and ask for more. And thatโs when things get ridiculous. Banks and foreign countries buy bonds from the U.S. government, and this influx of money helps fund the governmentโs budget. But hereโs the catchโ The U.S. government almost always spends more than it makes, so itโs constantly in debt to those who buy these bonds. To pay off that debt, it uses taxpayer money. Last year, the government spent almost $7 trillionโ but tax revenue wasnโt enough to cover it. So what did they do? They had to create new bonds to get more money. As crazy as it sounds, this system of adding more money through debt is how the world operates.
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