by Gregory K. Soderberg –
Often we are told of the wonderful power of compound interest (earning money on both principal and previous interest). We are told how compound interest can make even a modest investment grow into a great amount. For example: If you invested $10.000 at 7% compound interest for 30 years; you’d expect your investment to grow to $76,122.52. Sounds Great! Compound Interest must truly make money Grow!
For a moment, let’s step out of the dream world hype of banking, financial planning and Wall Street. Just how does money grow? Where does the interest come from when you put money into an interest-bearing account? Does it turn into something like rabbits that mate and quickly reproduce? What happens? The increase of money in your account had to come from someplace.
To understand financial planning, economics, growing public and private debts, ever increasing taxes and prices, etc. we must learn and always remember What it is we now use for money and HOW ALL new money is created and put into circulation.
When the economy grows and more money is needed, always remember that: “The actual creation of money always involves the extension of credit by private commercial banks.” —Source: U.S. Treasury
If the private sector doesn’t borrow it, the government must or the money cannot exist! If you invest $10,000 and 30 years later get $76,122.56; somewhere, someone in the private sector or the government had to borrow $66,122.56 before it could get into your account. Now you have the money. They have the debt which can never be paid, only transferred because there is no way to create the money needed to pay the interest when money is created through the lending process. A loan only creates the PRINCIPAL of the loan not the interest.
“Money is created when loans are issued and debts incurred. Money is extinguished when loans are repaid.” —Source: John B. Henderson, Senior Specialist Price Economics, Congressional Research Service.
Therefore, the debt must constantly grow. Many claim that money for interest comes from increased production (worker productivity.) But, when was the last time your personal production (goods and services) turned into money? Did you wave a magic wand over a shoe, shirt, bushel of corn, a new car or an hour of labor etc. and see it turn into money?
Production never turns into money. Forcing people into debt to obtain money is economic servitude. Creating money as interest-bearing loans only creates the principal, never the interest. The Interest must be borrowed too! “Money for paying interest on borrowed money comes from the same source as other money comes from.” —Source: Russell L. Munk, U.S. Treasury
“Money that one borrower uses to pay interest on a loan has been created somewhere else in the economy by another loan.” —Source: John M. Yetter, Attorney-Advisor, U.S. Treasury
Like getting a loan at a bank, you can create money by using a credit card, signing the forms sent to you by the credit card company and promising to pay the credit (money/numbers) back in the future with interest. The bank uses your promise to pay as collateral to create the money as a loan the minute you swipe your card. The only difference is that credit card loans do not require meeting face to face with a loan officer.
The Shoe Factory
Imagine that we have $10,000 total money in circulation. We invest all of it in a compound interest-bearing account. Let’s say that the money is invested in a shoe factory. The factory spends the $10,000 for raw resources and labor to produce shoes. It sells the shoes and recaptures the total money supply and returns it to the investor. Remember, if the total money supply is only $10,000, that is all that the shoe factory could return to the investor.
If the factory is going to return the original $10,000 investment PLUS 7% compound interest, the money supply would have to be increased by at least $66,122.52 or even more if the shoe factory is going to have a profit. To increase the money supply under the present system, it must be borrowed by someone from a bank. By borrowing the $66,122.52 needed to pay the investor 7% compound interest, the total debt drawing interest at some bank would be $76,122.52.
This is why the statement, “We cannot borrow our retirement savings” is true except for a small minority. Everyone cannot borrow and save loan principal. Since special interests lobbied to switch our money from an ‘evidence’ of Wealth to an ‘evidence’ of Unpayable interest-bearing debt, all money is borrowed by someone and loaned into circulation.
Hopefully, at this point, it is easier for you to understand how America’s private debt is near $50 Trillion and government debt of $22.0 trillion all drawing interest in 2019 and a total money supply of just about $14 Trillion, all evidence of debt, extinguished if repaid and the interest debt growing every second. These facts are not easily or clearly seen because there are vast numbers of loans being made and extinguished daily and because the general populous is not taught these facts.* (Read Essay, Education and Our DEBTonomy)
Banks spend a large part of interest payments back into circulation. However, this ‘interest spending’ does not increase the money supply. It simply keeps money in circulation. In addition, the total number of interest and debts that are not repaid are resolved through business losses, repossessions and bankruptcies.
We are forced into debt to get money created. This is economic involuntary servitude a violation of our 13th Amendment protection.
“Neither slavery nor involuntary servitude, except as a punishment for a crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.”
All production except money is traded into circulation. Money should be traded into circulation as a final, debt-free, earned payment representing the wealth, not the debt of our nation.
Congress should combine 3 of its powers to: provide for the general Welfare, coin Money and established post Roads into one act! The American Transportation Act. Monetize the value of building, upgrading and maintaining our public roads! Create the numbers. Spend them into circulation debt-free in lieu of taxation or bonding as a payment earned as wages by the people who do that production which benefits the general public. As soon as Congress does so, your life, the life of every American, every person, would begin to improve immediately.
“Spend ‘Em! Don’t Lend ‘Em!”
Wealth Money Radio