A Vicious Cycle

No loans no moneyDebt facilitates production and trade. As the debt supply increases, money just becomes increasingly worthless unless the volume of production and trade in the real world grows by the same amount.

Add to this the realisation that when we hear that the economy is growing at 3% per year, it sounds like a constant rate. But it’s not. This year’s 3% represents more real goods and services than last year’s 3% because it’s 3% of the new total. Instead of a straight line as is naturally visualised from the words, it is really an exponential curve getting steeper and steeper.

More money is needed to fuel this growth and that is generated through debt, so the total debt, and subsequently the total money supply continues to grow, causing money in the system to become more worthless.

This is called inflation.It’s the value of money falling every year that causes inflation,
NOT the rise in cost of goods and services.

No Debt No Money

“That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”(ECCLES, Marriner S.), Chairman and Governor of the Federal Reserve Board.

If this is news to you, you are not alone. Most people imagine that if all debts were paid off, the state of the economy would improve.

It’s certainly true on an individual level. Just as we have more money to spend when our loan payments are finished, we think that if everyone were out of debt, there would be more money to spend in general.

But the truth is the exact opposite where national economies are concerned.
If banks stopped lending there would be no money at all!

Previous – Debt Causes Inflation

Next – Predictions for 2016 – 2020

About the Author Amit

Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide. He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’. He helps business owners and professionals ‘Create A Second Income’ through investments.

follow me on:
>