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Any loan getting repaid technically "destroys" the money unless new replacement lending is made. It's because the money was created when it was lent out, i.e. b
by srj 3y ago
Any loan getting repaid technically "destroys" the money unless new replacement lending is made. It's because the money was created when it was lent out, i.e. banks are allowed to lend money they don't have up to a point (called the reserve ratio). When it's repaid the interest is kept by the bank but the principal goes back to their balance sheet as money they can lend.
For central banks this is taken to the next level as I'm not sure they do anything with interest.
- dfxm12 3y agoThis is important. I think this is not well understood and these misunderstandings lead to misplaced anger about things like "government spending" and "student loan forgiveness" or government fiscal responsibility in general.
- emaginniss 3y agoThe money the government spends or forgives still goes on the balance sheet and will either come due at some point, or will result in the default of the US Treasury. That would be like me saying that spending crazy amounts of money on a new sports car doesn't matter because I have a huge line of credit. Eventually, that money for the car needs to be repaid. You can absolutely see examples of this in city and state governments in the US that have failed to make pension payments. Kicking the can down the road will eventually catch up with someone. https://www.detroitnews.com/story/news/local/detroit-city/2018/07/18/detroit-bankruptcy-retirees-reaction/783828002/ https://www.detroitnews.com/story/news/local/detroit-city/20...