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Yes, it's quite strange at first when you come to this topic with the understanding of money as something more tangible. I really struggled with the concept at
by rags2riches 6y ago
Yes, it's quite strange at first when you come to this topic with the understanding of money as something more tangible. I really struggled with the concept at first, but there are good resources to help with this. It clicked for me with the help of Khan Academy unit on Money, banking and central banks. The Bank of England paper linked elsewhere in this thread is also good. I had to draw up balance sheets and make examples for myself to really get it.
And regarding the silly example, don't sweat the details. Try to think of the concept of what my example is trying to get across. Let's say the grocer died and a house fire and he hadn't payed for his insurance.
- jonplackett 6y agoHey thanks for the extra reading. I understand the example, but surely these are outliers? Banks won’t give you a mortgage without insurance, and most people do pay their insurance. So banks can’t be taking that much of a hit except under extreme circumstances. Most of the time they do pretty well out of defaults. They just take the house and sell it. They’ll only lend to you in the first place if you have reasonable collateral (again 2008 housing crisis is a lesson they learned on that) but they still ultimately got the asset + all the money paid in interest up to that point. Am I missing something?
- rags2riches 6y agoNo, you're not missing anything. The point is just that it's not a vice of mathematically assured doom because of the fact that money is debt. Banking can be a really good business and bankers have been really good at lobbying, but that is not what the Money as Debt scare is about. In the end, debt is a type of relation between people. And banking is a business with its own costs and risks.