Quote from: johnyj on February 28, 2015, 01:20:28 AM

Quote from: Razick on February 27, 2015, 06:20:18 PM

Quote from: johnyj on February 25, 2015, 01:06:36 PM

Change the 100 pennies to 100 trillion pennies, same principle applies

Velocity of money has nothing to do with money creation. You move a dollar one million times between your left pocket and your right pocket, and voila you are now a millionaire Grin

You are missing the point which is that money doesn't have to be held permanently to pay debts. In the same year, I can borrow $100 to buy food, and the company that I bought the food from can put that money in the bank to fund more loans. The borrower of that money can in turn buy a product from my employer, the employer can pay me with the profit and I can use that money to pay my debt.

The amount of debt, income and expenditure in an economy is not limited to the amount of currency in circulation. If there are only 100 pennies in circulation, that doesn't necessarily mean that a debt of $10 is going to default.

Let's make some real calculation: Each month, you borrow $100 to buy food, and those $100 goes to the food company as income, and food company put $100 to bank, and bank loan out $90 (10% reserve requirement) to another borrower, he spend all $90 to buy products from your employer, your employer have $90 income, and he is so generous and gives you all $90 as salary. So, how could you payback your $100 loan with $90 salary at the end of the month?

This is an ideal situation that there is no friction and cost during the cycle, and it has not involved interest yet, just a simple trace of your $100 loan. You can see that you will never be able to make the ends meet. Similarly, the society as a whole can not earn more money than it spent, unless the money supply increases constantly, and money supply can only be increased by adding more debt nowadays

The assumption that there is not enough money to pay back the loans (due to interest or whatever) is stupid. In the fractional reserve example above, and in the more realistic scenario of today with practically no reserves at all, and in the case where the central bank edits its own account balance to provide reserves, there is always a lender for each dollar loaned. Someone always have the counterparty of each dollar loaned. The assumption is just wrong. This is not the same as it is problem free to in fact pay back or require a loan to be paid back; either it is paid back or defaulted on, it will have grave consequences for the participants, the total money volume, and the productive capability of the economy. Of course it is a problem, use the 2008 crisis as an example. Still, you can not say that there is not enough money around to pay back the interest, that is a total misunderstanding of what interest is.