“To each his own”, describes the understanding of governmental policies, the monetary system and the money circulation of an economy aptly. Interpretation and individualistic habits are linked with the comprehension of economic models such that an individual running a small household is characteristic of associating his personal habits and methodologies to that of the entire national and international economy, lacking a broader perspective there by failing miserably at believing the bizarre situation that coherently exists.
In the true essence of it, most economists lack the resources and access to information for the purpose of deeply discerning with an intimate glance truly how the economy and the monetary system works. Half knowledge, is said to be extremely dangerous and these half baked goods when transferred onto the common public for the purpose of epistemic satisfaction genealogies a viewpoint which’ existence is in reality runs parallel to the practical operations of the money creation, circulation and control.
Contradictory to popular belief, money is created when money is lent and not on the rudimentary of increased savings. Savings, in fact, in this boom bust cycle cause the economic transactions to shrink to such an extent that economic growth is adversely affected. David Cameron himself, untrained to conquer the reigns of the economic crisis blindly follows the popular belief thereby defeating the purpose of solution provision in its entirety as a conceptual basis of reform.
Unlike the former centuries and decades, the 21st century upholds the most advanced means on monetary transactions; the evolution of mankind is to be credited for the same. In the day and age of technology, money has reduced from a 17% existence in physical and tangible form to a negligible 2.6% over a period of merely 60 years. The concrete basis of this evolution in its demographics is the legislation implemented in the time of Robert Peele for the purpose of bringing back physical money supply to the state there by, expanding the treasury and government profits. This led to the establishment of commercial bank money, which is an accounting term used by banks in situations where in credit occurs such as loan lending etcetera. The utilisation of accounting trickery and treachery enables banks to create money out of thin air, which may seem unbelievable to the common man but really isn’t! This implies, whenever an individual obtains a loan or borrows money from a bank, commercial bank money is created against the same amount lent to that individual and in a scenario wherein the money is returned the commercial bank money also know as the bank deposit is cancelled out of the system, which in simple terminology means that it disappears!
Basic economic understanding leads us to believe that an increase in the money flown in the circular flow of model causes increase in consumption and production there by inducing the components of GDP, hence causing economic growth. Following the same ground rules we can comprehend that borrowing leads to the creation of commercial bank money or bank deposits there by, causing an overall economic growth there by, explaining the phenomenon of debt induced economic growth.
Private Banks showcase 97-98% control on the circulation of money also demonstrating there power to choose the sectors who’’s engines money fuels. Like any banking institution, private banks aim at profit maximisation and fuel sectors catering to their individualistic profitability and not those that favour the society as a consequence of which the boom bust cycle becomes a vicious one. Such activities on the banks’ behalves occur solely due to incentive offered by profit maximisation and loose ends in legislation which can easily be exploited.
Ever since the establishment of commercial banking money, money supply has almost doubled in a decade at a growth rate of 7-10%. Such an increase has only been ignited by increased borrowing.
The incentives discussed act as statutory supporting claims to the statement that increased borrowing causes economic growth but as soon one individual defaults his borrowings, a ripple effect across the nation causes bank insolvency at a national level thereby reducing the capability of the banks to lend further, In a grave periodic recession such as the one just mentioned, people are bound to borrow further more thereby causing the economic crisis to worsen much like a cancer or tumour in the human body.
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