[jaxtellerSoA]

Debt with interest is inherently destructive. Inevitably the demand for debt owed exceeds the actually supply of money. To put it in very simple tangible terms, if the US economy was say $100,000, and say all that money is lent out at a simple 10% interest rate due back in one year, then a year from now the demand to be paid back is $110,000. Where is that extra $10k coming from? It doesn't exist. Lending with interest is designed to fail. The only "solution" is to keep printing more money.

[manishsharan]

I think you are implying the companies and people borrow money for shits and giggles. The reality is that most companies borrow money only when the availability of extra capital would help them generate more revenues or capture addtional market share. So they would take into account the cost of servicing the debt and repaying the loan.

However, there are cases like IBM raing debt to buy back shares and boost share prices. I have no idea how that will work out for them.

[jaxtellerSoA]

>I think you are implying the companies and people borrow money for shits and giggles.

Nope. I was just using an example. It could have been $100k and only $50K was lent out. You sill would need $105k at the end of the year to satisfy all debts and have an equilibrium within the economy. Where is the extra $5K coming from? Magic??

> The reality is that most companies borrow money only when the availability of extra capital would help them generate more revenues or capture additional market share.

This doesn't change the fact that the demand back for money will exceed the actually money supply.

It is simple math really. The fact that they are using the cash to, hopefully, generate more revenues is irrelevant.

Private companies have no control over the the supply of money. This is a central banking problem.

[tboyd47]

True; but the revenue / additional market share is never a sure thing. The company can't make a contract with the universe. The interest payments, however, are a contractual obligation.

[stephen_g]

You’re confusing stocks (such as the stock of debt) and flows (including payments), a common mistake. Every expenditure is another person’s income. Money is spent multiple times around the economy, and some agencies try to measure how quickly it happens, which is what the velocity of money is, and the concept of the fiscal multiplier comes into this.

If the economy is growing, it is true that continual money creation is required to stop deflation, but a lot of people don’t realise to what extent because it isn’t commonly known that not only can the Government create money, but that in fact all bank lending does and is expansionary [1].

1. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

[davidverhasselt]

To stay in your simplified universe, consider just two entities, A and B. A has all $100K, B has $0.

- A loans $100K to B at 10%.

- B buys raw materials from A for $100K and creates products X and Y.

- A buys product X from B for $60K.

- B returns $60K to A.

- A buys product Y from B for $60K.

- B returns $50K to B.

A ends up with $90K and product X and Y. B ends up with $10K. At no step was money created out of thin air. Total supply still $100K.

You could simplify it some more by allowing B to pay back A using product X and Y instead of moving $60K around back and forth.

[craigsmansion]

But A is in the money business, they should have no interest in X and Y.

- A loans $100K to both B and C at 10%.

- B makes X and Y, C make Q and R.

- B and C can produce and sell X,Y,Q, and R to one another to their mutual hearts content, creating a lot of value, but in the end A can only be satisfied by $220K. Either B or C is going to end up short.

Why would A accept X or Y when it's detrimental to their business interests to do so?

[triviatise]

this isnt really right.

Lets assume the product that B makes has a value which allows a 50% gross margin

A loans $100K cash to B at 10% markup (total value of system= 100K)

B buys raw material from A for 100K cash (total value of system now 200K as a magic 100K of raw materials were just added)

B creates product X and Y, now worth 200K (system is now at 300K)

A buys 60K of product X with cash (doesnt change value of system)

A cannot buy 60K of product Y with cash, though the total value of the system has increased.

There isnt enough cash in the system to settle all debts, but the total value of the system has increased. Cash would need to be printed to cover debts.

Fiat currency to some extent is balanced against the total GDP of the US.

[imtringued]

The interest doesn't disappear, it lands in the pocket of the lender, only the principal does disappear.

If you do indeed lend 100k$ from a central bank and they "print" the money then the money supply increases by 100k$ for the duration of the loan. When you pay it back the money vanishes into nothingness again. Interest payments go to the central bank which makes a profit, governments spend the income and the money starts circulating within the economy again. [1]

[1] https://www.ecb.europa.eu/explainers/tell-me-more/html/ecb_p...

[dragonwriter]

> Where is that extra $10k coming from?

Spending money doesn't destroy it, it can be spent more than once in a year; even with no additional money, you just need higher velocity of money for their to be more money spent in one year than another. The extra $10K doesn't need to come from anywhere, the same way the base $100K (which was already spent the first year and thus "consumed" if you mistakenly assume money is single-use) doesn't.

[jryan49]

Doesn't the interest come from the extra value that was created in the economy from that debt?

[mathattack]

Interest is determined by the risk inherent in the debt. Think of it in terms of consumer credit. Whether a bank or credit card company lends you money at 5% or 15% has more to do with how creditworthy you are, then with how good a use you will make of the money. (Think TVs on installment plans)

[Nasrudith]

Loans fundamentally create virtual currency in the first place. Not to mention that if the economy has the same amount of value a year from now something has gone very wrong here - an entire nation of people working and yet they don't have more or better?

It brings to mind a reducto ad absurdum of fixed currency amounts with massive deflation where your grandfather's couch cushion change is worth more than a new couch as why absolute fixed currencies are unviable.

[adrianN]

The extra 10k is coming from the increased profits enabled by the investments that the 100k paid for.

[jaxtellerSoA]

>The extra 10k is coming from the increased profits enabled by the investments that the 100k paid for.

Companies, and their profits, can't and don't create cash out of thin air. That isn't how the money supply works. This is a central banking problem.