When you think about it every Government, every business and every household all have bank accounts and all our money is in the banks, apart from the little bit of cash in the economy which currently stands at around 3% of the total of all out bank balances.
And yet, the same Governments, same businesses and same households are all in debt to the banks. The entire money supply is already in the banks and yet, we still owe the entire money supply to the banks. How could this be?
The reason for this is that banks create money, in the form of accounting entries, through lending and in doing so they create a matching debt to every euro they create. This is obviously the root cause of the debt crisis.
Reducing our debts is not a solution either since when processing a loan repayment banks cancel the money out of existence along with the debt.
This is the essence of how our economy runs and it’s a terrible way to attempt to run an economy.
At the moment Germans are confident enough to organise loans from their banks and in doing so they are confident to create new euros. However this is an unsustainable system and one which cannot go on for much longer, even in Germany.
One solution to the debt crisis involves allowing each country’s Central Bank to create bank-account money for their Governments as well as cash. This money would crucially be debt-free as source.