...Do banks actually CREATE money out of thin air? Hmmm.. No. (A) Banks do not create the VALUE of money -- The value of money is created when the money is used to pay for economically valuable goods or services. (B) Not all business ventures that banks loan money for, are successful -- Most small businesses go bankrupt in less than 5 years! -- Even entire countries sometimes default on their loans! -- The money created in these loans is lost to the loaning banks -- The interest that was to be repayed to the banks from these defaulted loans is also lost. (C) Banks that do NOT exert due dliligence and loan money for unprofitable business ventures do NOT get their money back -- principal or interest! -- and these banks go bankrupt themselves! ...Or, these banks SHOULD go bankrupt... This was the FUNDAMENTAL problem with the Derivative-backed-loans for homes and real estate during the early 2000s -- These Wall-Street-securitized loans REMOVED the need for due diligence from the banks, as the banks got their money back IMMEDIATELY by selling their home and real estate loans to Wall Street firms (which then bundled them into Collateralized-Debt-Obligations, CDOs, and sold these CDOs to investors...) The result of this financial insanity was the World Financial Crash of 2008. (D) The economic value that is CREATED when an economically valuable good is created is NOT permanent. The product -- whatever it is -- more or less slowly deteriorates, as does its economic value. In physical science this is known as ENTROPY, and entropy is simply a measure of an INESCAPABLE physical reality. An easily visible example of this is our clearly deteriorating national system of roads and bridges and other infrastructure. The economic value that is CREATED when an economically valuable service is performed is also ephemeral, and clearly depends on the kind of service performed. https://youtube/watch?v=cKmBYXb_9-Y
Posted on: Sun, 04 Jan 2015 23:04:29 +0000
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