lol - I've been meaning to reply to this thread for days, but since it's fairly quiet down in this forum I figured there was no rush. And then I see an Injin led nine page epic this evening. I feel proud to have provided a platform for this
jonb, on 21 February 2011 - 12:04 AM, said:
You are £1 up, but the borrower is £1 down, so the interest payment is not creating new money.
Where new money is created is when the £10 you lent out is spent by the borrower, and is deposited in the banking system again, creating another £10 available to lend out in addition to the £10 you already have deposited.
But aside from the multiplier effect, the interest payment on my £10 still results in an extra £1, no? Albeit that it is money borrowed from the future labour of the borrower, there is still an additional £1 that has to chase a return in the future? Forget the multiplier effect for a moment - the money supply is growing constantly (in this example in ever smaller increments), and this means an ever growing supply of capital chasing a return - therefore an ever growing increase in the amount of debt required to produce a return?
In that simple example, you would probably have a reasonable ratio of new capital : lost capital due to default. So maybe the money supply would not grow continuously, and might even retain some semblance of balance. Until you introduce fractional reserve as you point out above, at which point the growth becomes exponential.
Injin, on 21 February 2011 - 12:18 AM, said:
When the money is offered to the banker he should announce that the money is already his. In not doing so is the fraud perpetrated.
Quite. Nicely put.