Miss this one piece and everyone suffers. This missing piece is so sublime that you need to think on it - ponder it. Chew the words. Meditate if you want to, but think about this concept and DON'T reject it out of hand. Don't blow by it in a hurry to tell what you think you may know about the subject. You do not "get" the way our monetary system works as well as you think you do; so, park it. And Ponder. For a long while.
Here is the piece: principal payments are extinguished from circulation when a loan payment is made.
Think about what that means!! A good portion of you reading this have skipped over this fact or assumed something about it that isn't true, or missed the big part that's there. So here it is again: principal payments are extinguished from circulation when a loan payment is made.
Bottom line? This is one of two mega-major draw downs in a debt based money system and, therefore, in our economy. If you don't master this concept, you will be off course. If this is not part of your monetary lexicon and seamlessly integrated into your understanding of our monetary system, you ARE off course - and fifteen award winning but deceased economists, saying otherwise, makes no difference.
Forget the experts - those back slappin', two timin', soft shoein', nickle nippin', penny pinchin', jaw jackin', pink-tea and lemonade drinkin', liers. They lie. And they lie to you and to me. And they do it with "authority" and "position" so that you are prone to believe it. They are parroting, in many cases, ideas from some guy, gone long ago, that could NEVER have envisioned trading collateralized debt obligations, 24 hours a day, at the speed of light. Never. Stop following after such foolishness. They don't know and so they lie and make the stuff up, or they parrot someone else. Stop believing it. After today, you don't have to believe them any more. You will have reason enough to think it through on your own.
Most people assume that when a loan payment is made that the bank either puts that money into some vault, or they return it to some other bank, or they put it into their own account as profit, or some such thing. Not so. It goes nowhere. The new loan pricipal was typed into the books when the loan was made and "extinguished" from the books when it gets paid back. Interest is a seperate issue and we have and will continue to cover that elsewhere on this blog. For now, think principal - loan principal.
If I walk in to the bank with $10 in my pocket and take out a $100 loan at 10%. The bank, makes a new $100, and loans it to me. If I pivot on one foot and do a 360 degree turn so that I am back facing the teller, I can pay back the $100 I just got and take the $10 from my pocket to pay the interest. The $100 gets written off the books - extinguished or "uncreated". Gone. Not available to anyone. Not the bank, not the economy in general, no one. I didn't make that up, it comes from the Federal Reserve's own book Purpose and Function!
Imagine, now, everyone that made a mortgage payment this month. A car payment. A student loan payment. A credit card payment. Any loan payment to a bank. ALL of that principal flows out of the economy and is extingushed. Next month, same thing. And the next month. That's quite a little draw down of the money supply, isn't it? How do we get more money, then, into the economy? Borrow more.
What happens if the rate at which loans flow into the economy, does not outpace the rate at which the principal payments are taken out of the economy? In otherwords, what happens if the U.S. (people, government and business) does not borrow fast enough? Principal payments are continuing to be made and the economy dries up. The economy dries up...
That is why they needed a "stimulus" package. And that is why there is record borrowing and debt by the U.S. Government, but no recovery.
Principal payments being extinguished is the hole in the bucket. New borrowing is the hose. Don't borrow fast enough, the bucket dries up.
Solution? We need money that does not flow out the hole in the bucket. Money that is not a principal payment to someone. Money that comes into being, without borrowing. You say, "Why, we can't do that!" Seriously, consider going back to the college you went to and demand your money back for the missinformation they taught you. B.S. we can't do it! We can if we want to! It's in the Constitution and we did it for a long time before the Federal Reserve came around. Read Article 1, Section 8 of the U.S. Constitution. Find where Congress can coin (or make) it's own money. No borrowing. And that means no taxing! Just for once, will you demand that they follow the Constitution!
If you can demonstrate, in detail, how gold can support an economy this big, let me know. If not, then you can still use the same principles as gold - when you use infrastructure.
Monetize the production of the infrastructure and you can rebuild America, this economy and the world - debt free.
With no principal being paid back for the infrastructure rebuild, that money then becomes available to pay down debt, for savings and investment. Isn't that what we want? Isn't that what we need? Then do it! Lean this concept and lobby for it's passage.