Quote:
Originally Posted by renormalised
the debt is real, but in "real" terms it's nothing more than 1' and 0's i.e. there's nothing defining the debt...They trade the debt through an exchange of promisary notes
IOU. That's what I meant... they may owe "X" amount, but it's nothing more than an IOU.
Fractional Reserve Lending is a joke.
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I see what you mean, and yes, they are mostly 1s and 0s running across the ether. Even the process by which a large bank may borrow money from a central bank is virtual. This is the reason why the FED can lend at 0.25% at the "Discount Window".
Yes, it is indeed an IOU, but the origins of the IOU note is back in the days of the goldsmith, when the citizen could not carry their gold around with them. So for a small fee, which usually covered the minting as well, the goldsmith held the gold and gave a note (IOU) to the citizen. It didn't take long and the goldsmith began to realise that more money can be made by holding less gold than notes issued...the birth of fractional reserve lending.
It might sound a little crazy, but the average citizen is far better off and more financial when the banking [loan] rates are high, not low.