Why This Crisis Doesn't Make Sense to Normal People #2
Money Doesn't Exist Until It's Borrowed
All of the paper money in your wallet or bank account is really debt. In earlier times, paper money was backed by gold or silver. After 1971, money became an IOU from the government. Today, money doesn't exist unless someone borrows money.
For example, when you receive a credit card in the mail, the money you can borrow with it doesn't exist. All you have is a piece of plastic. But let's say you go to the store and charge $100 on your new card. At the moment, $100 brand new dollars is created. It didn't exist until the moment you used the card. And when you pay the $100 off, the $100 disappears from the economy.
The primary reason the Federal Reserve Bank is keeping interest rates near zero is because they want you and me to borrow money. They also want us to pull the money out of our savings account, because interest rates are low, and risk the money in the stock market instead.
All of the paper money in your wallet or bank account is really debt. In earlier times, paper money was backed by gold or silver. After 1971, money became an IOU from the government. Today, money doesn't exist unless someone borrows money.
For example, when you receive a credit card in the mail, the money you can borrow with it doesn't exist. All you have is a piece of plastic. But let's say you go to the store and charge $100 on your new card. At the moment, $100 brand new dollars is created. It didn't exist until the moment you used the card. And when you pay the $100 off, the $100 disappears from the economy.
The primary reason the Federal Reserve Bank is keeping interest rates near zero is because they want you and me to borrow money. They also want us to pull the money out of our savings account, because interest rates are low, and risk the money in the stock market instead.
