I'd say you are making a good point Madharry, especially as you've been involved in the banking industry.
If there's a pile of gold in a country's vault and it's worth $X, because the price of gold is $x/ounce, then that is what the country has to spend. It cannot make money out of fresh air or set the printing presses in motion.
In the "good ol' days", many years ago, a country's currency note usually had printed on it, "Pay the Bearer, on demand, $x dollar in gold".
Of course, that didn't usually happen but the principle was there.
Today a bank can obtain $X from its Central Bank and lend out, say, $20X and charge compound interest (less its original cost to the Central Bank) on that larger amount. As long as they can control their risk, the banks are then making money from a large proportion of the money that they never had. What a great business !! |
