Stepping Out of the Debt Trap
Donald Trump has claimed that American banks are not allowed to do business in Canada, which isn’t true, but the US banks would love to have a bigger piece of the financial pie in Canada, since commercial banks are some of the most profitable businesses in Canada.
And banks have an obvious advantage: it’s easier to be profitable when you can make money by making money.
As Mark Carney stated in his book Value(s), “In the modern financial system, the private sector creates most of the money in circulation. The principal way banks create money is by making loans. When the bank decides a borrower is creditworthy (that they are likely to pay the loan back), it credits their deposit account for the amount of the loan and new money enters circulation.”
The Bank of Canada, the Bank of England, the Federal Reserve, the Swiss National Bank, the Deutsche Bundesbank, the European Central Bank, and the International Monetary Fund have also pointed out that banks create money when they make loans.
Banks create state-sanctioned money with the click of a keyboard by allocating credit. Legal tender banknotes and coins are merely tangible tokens of credit.
There is a systemic shortage and artificial scarcity of state-sanctioned money because banks lend it into existence on the basis of interest-bearing debt. They create the principal amount of every so-called loan, but not the interest. Total aggregate debt, including principal and interest, is always more than the total amount of money in existence. And compound interest causes debt to grow exponentially.
Banks also misallocate credit by creating loans for unproductive and downright destructive purposes, which inflates the amount of money in circulation. Monetary inflation leads to price inflation, which erodes the value of savings and reduces the domestic purchasing power of the currency.
War is an obvious example of senseless destruction—but banks profit from the destruction and eventual reconstruction by collecting interest on loans that they create by allocating some of our collective credit for wars that mo
Article from LewRockwell
LewRockwell.com is a libertarian website that publishes articles, essays, and blog posts advocating for minimal government, free markets, and individual liberty. The site was founded by Lew Rockwell, an American libertarian political commentator, activist, and former congressional staffer. The website often features content that is critical of mainstream politics, state intervention, and foreign policy, among other topics. It is a platform frequently used to disseminate Austrian economics, a school of economic thought that is popular among some libertarians.
