ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Money is Debt; Debt is Money

Updated on September 27, 2017
profile image

Trading the Forex and Binary Options Markets, for the enjoyment and profits, experienced some downsides but it's all part of the course.

So you think you know where money comes from, I bet if you were to reach into your wallet or purse and took out a £5 or £10 note, even £20 or £50 if you’re flus

Or you think that money is produced by depositors putting their money in the bank who then lend that money out to people via a loan.

Well that’s what we are led to believe, however the Banks have been playing a clever game, so clever in fact that not many people know the real way money is created and the banks get rich from creating money from thin air.

No really, Banks create money from thin air, however all money is produced as debt.

Let me try and explain this:

Imagine a land with no money or bank, so I create the lands first bank to create money to use as a way of exchanging for goods, I the bank of Gaz create with the flick of a pen on some paper £100, the first £100 of money into existence, I then give that £100 to a shopkeeper or farmer to use, straight forward so far.

But this is where it gets interesting, when I gave the £100 to the farmer or the shopkeeper I asked for the £100 to be paid back with interest, in fact let’s say 10% interest to keep things simple, so in total I want £110 paid back to me. But where is that extra £10 going to come from, because I’ve only created £100 not £110?

This means I’m going to have to create another £10 to put into circulation; but I now want 10% interest on that £10 also. So now the original £100 can be paid back with interest, this still leaves £10 to be paid back including £1 interest, but again we end up in the same situation, more money will now have to be put into circulation, thus creating more debt.

You see the £5 or £10 you have hold of, yes it’s money to you, however that money is somebody else’s debt , someone somewhere is paying interest on the very note you have in your hand.

It would be impossible for everyone in the world to pay off their debts as there is not enough money in the world to pay it off, someone has to default , and the debt would remain, it’s impossible for the debt to be cleared.

So the bank lent you the money to buy your house, you may want to rethink that meaning of money lent to you bit.

When you go to the bank for a mortgage (or any loan) the bank agrees to “lend” you the money to buy the house, except it doesn’t lend you any money, it creates debt in your name.

Another example:

Mr Smith wants to buy a house and decides to ask the bank for a mortgage to buy Mr Jones’ house, the asking price Mr Jones wants is £100,000 (let’s keep it simple)

The bank has agreed to “lend” Mr Smith the £100,000 to buy the house, except the bank doesn’t lend him anything, they don’t go into a vault and count out £100,000 to give to Mr Smith, instead what they do is once everything has been agreed and Mr Smith has signed on the dotted line, the debt is created, the bank will go into Mr Jones’ account and credit his account with +£100,000 then at the same time will also go into Mr Smith’s account and type minus -£100,000 and so £100,000 has been created as debt.

No doubt that £100,000 will have come with an agreement that states Mr Smith will have to pay that £100,000 back to the bank plus interest of 10% (keep it simple again), so Mr Smith will have to pay back a total of £110,000 over a period of say 25 years which is the usual time period for a mortgage.

So now Mr Smith has to go out and spend the next 25 years working to earn money from the money supply as mentioned earlier to repay the bank £110,000.

For Mr Jones, he now has £100,000 to spend into the economy (perhaps Mr Smith will receive some of that money through work and use it to repay the £110,000). But now this is where the banks create more money and turn £100,000 in to £1 Million using Fractional Reserve Lending

How Banks use Fractional Reserve Lending

The Banks are allowed to reserve only a fraction of your deposit and can loan out the rest

  • Mr Jones has the £100,000 in his account or savings account
  • The bank can lend £90,000 of that out in the form of car loan/credit card loans and keep the remaining £10,000 (10% of the £100,000 in the vault) Mr Jones’ account will still say £100,000
  • So now there is £190,000 in the money supply
  • The borrower of the £90,000 takes the money and pays the seller of the item (a £90,000 car) and the seller of the car pays £90,000 into his account
  • His bank then lends out 90% of the £90,000 leaving 10% (£9,000) in the vault and so now there is £271,000 in the money supply.
  • The borrower of the £81,000 then takes the money and pays the seller of the item and the seller pays the £81,000 into her account.
  • And her bank then keeps 10% (£8,100) in the vault and lends out the remaining £72,900 so now the is £343,900 in the money supply,
  • The process keeps going and going until £1Million is created from £100,000.

And don’t forget, the banks are earning interest on the £1 Million.

£1 Million which can’t all be paid back without the bank creating more debt from other people taking out loans and putting more money in to the money supply.

© 2017 Gaz Trader


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)