The diabolical mechanism
What happens, when a debt gets repaid? Now this is interesting. The interest on the debt is of course the property of the bank. The amount that was loaned out and has now been paid back is destroyed. Just as it was "created" it is now "uncreated" or destroyed at the moment of extinction of the loan. So your bank can create money out of substantially nothing, it can cash in the interest, and then it can uncreate that money, having subsequently the possibility of repeating the cycle with another willing customer.
If you ever wondered where the banks get the money to buy the best and largest buildings in town, here is the explanation!
If this seems unjust, wait for the diabolical part.
An economy needs money so that goods and services can be exchanged. If there is too little money goods will remain unsold, prices will fall and we call this deflation. If the scarcity of money becomes serious, eventually the economy will go into recession, that is, production comes to a halt, people lose their jobs, misery starts to reign. So it is very important that the amount of money in circulation is at all times sufficient for people to buy the goods and services that are being offered.
If on the other hand, too much money is available, inflation, which is a general rise in prices that diminishes the "buying power" of money, is the result. Inflation is as undesirable as deflation, and it would be best if money were stable in it's buying power.
At this time, government has only indirect means, to assure such stability, because it is the banks who can determine how much credit to create.
Also with the government unable to create it’s own money, the only way to make sure there is enough money to buy the goods that are on offer, is to continue taking loans! Of course that means to continue to pay interest! That is why governments never have enough money, and why we have to be taxed to the limit of endurance to pay for debt service, in addition to all other government expenditures. Diabolical indeed. A private money issuing monopoly run through Banking corporations: first of all the "central banks" and then, in a chain, all the other banks to follow. It is our banking laws that allow banks to create credit themselves, instead of money being issued by the government, for the people.
