This is a schematic of my previous 2 posts for those who have a tough time conceptualizing what I'm talking about.
The cycle on the left shows what happens in a normal business cycle where currency or money is not tied to interest rates. It is pretty self-explanatory. Please refer to my previous post if you don't understand. The graph or chart on the right is a business cycle when interest is introduced. It purposely is not a circular-flow diagram because after each cycle debt is not reset but accumulates over time.
As you can see when there is Interest, instead of having debt destruction or reduction there is debt dispersion. What I mean by this is with interest payments added to debt, there is an ever-growing supply of loans . The total amount of loans (principle plus interest)is greater than the entire money supply, this forces businesses to compete for the limited share of money to avoid bankruptcy. Some businesses will not succeed and be forced to bankruptcy. The money that would have helped the bankrupt business is instead siphoned or collected by successful businesses that must be used to pay their loans (which grows with interest). The debt is thus dispersed from the economy and given to creditors. In effect, discretionary income is reduced because of interest payments that causes other businesses to suffer. Thus we arrive at my first point, Interest promotes bankruptcy by siphoning money from the economy to go to loan payments. (Note: Both Interest and non-Interest Economies can have Bankruptcies but they are far more likely in a system with Interest)
Without enough money to fulfill debt obligations, debt does not reset instead with every cycle it accumulates with the wealthy and leads to asset inflation. During the bust phase of the business cycle with Interest another interesting phenomenon is prone to occur called stagflation. Basically, with the increase in Bankruptcies during a recession, a supply shock can occur causing prices for goods to soar. This can cause even more problems for wealth inequality. This is much more rare in a regular business cycle without Interest.
This competition of limited money to supply ever increasing amounts of loan causes a group of Haves and Have-Nots. Creditors and Businesses that succeed will disparately own greater portions of wealth at the expense of bankrupt companies and creditors holding bad loans. This wealth is not necessarily re-circulated back into the economy. The top 5% can own 90% of the money. There is no incentive for that 5% to give a portion of their wealth and since the consumption of that 5% can never equal the consumption of the 95% that money is not respent into the economy.
The cycle on the left shows what happens in a normal business cycle where currency or money is not tied to interest rates. It is pretty self-explanatory. Please refer to my previous post if you don't understand. The graph or chart on the right is a business cycle when interest is introduced. It purposely is not a circular-flow diagram because after each cycle debt is not reset but accumulates over time.
As you can see when there is Interest, instead of having debt destruction or reduction there is debt dispersion. What I mean by this is with interest payments added to debt, there is an ever-growing supply of loans . The total amount of loans (principle plus interest)is greater than the entire money supply, this forces businesses to compete for the limited share of money to avoid bankruptcy. Some businesses will not succeed and be forced to bankruptcy. The money that would have helped the bankrupt business is instead siphoned or collected by successful businesses that must be used to pay their loans (which grows with interest). The debt is thus dispersed from the economy and given to creditors. In effect, discretionary income is reduced because of interest payments that causes other businesses to suffer. Thus we arrive at my first point, Interest promotes bankruptcy by siphoning money from the economy to go to loan payments. (Note: Both Interest and non-Interest Economies can have Bankruptcies but they are far more likely in a system with Interest)
Without enough money to fulfill debt obligations, debt does not reset instead with every cycle it accumulates with the wealthy and leads to asset inflation. During the bust phase of the business cycle with Interest another interesting phenomenon is prone to occur called stagflation. Basically, with the increase in Bankruptcies during a recession, a supply shock can occur causing prices for goods to soar. This can cause even more problems for wealth inequality. This is much more rare in a regular business cycle without Interest.
This competition of limited money to supply ever increasing amounts of loan causes a group of Haves and Have-Nots. Creditors and Businesses that succeed will disparately own greater portions of wealth at the expense of bankrupt companies and creditors holding bad loans. This wealth is not necessarily re-circulated back into the economy. The top 5% can own 90% of the money. There is no incentive for that 5% to give a portion of their wealth and since the consumption of that 5% can never equal the consumption of the 95% that money is not respent into the economy.
