How can the US national debt be over $23 trillion if that much money doesn’t even exist in the world?
In: Economics
Most “money” is just numbers on computers or written down on ledgers, not actual physical currency.
Person A lends a coin to person B.
Person B then lends that same coin to person C.
Persons B and C now have a combined debt of 2 coins from borrowing the same coin.
Let’s say there is 100 dollars for total 10 people they wants to borrow 10 dollars with 10% of interest rate now after 1 year they have to bring 120 dollars back but there is only 100 dollars right, it’s just keep happening for over 100 years. Also mortgages you gonna borrow hundreds of thousands of dollars but you don’t have the exact amount.
I believe there is more than $30 trillion dollars in circulation in the whole world right now.
In the US, there isn’t $23 trillion. However, there is something called debt.
Imagine, we are 3, me, you, and john. John give me $5. I owe him $5. I give you $5, you owe me $5 and I owe john $5. There is now $10 dollars debt overall.
Economy is hard to explain. I encourage you to read more about how banking and lending work.
Fuck capitalism.
There is ways more than $23 trillion in the world. That number might be the amount of physical money that exists (cash), but doesn’t include money that exists on record.
The same way a person can own more property (house, car, etc.) than money they have ever made in their life.
We have an inflationary monetary system. Meaning we increase the total amount year by year.
That money is created through debt, basically someone who wants more money than they have asks for it. That money is created and added to the total supply.
Because that (and all) money is created by debt, all money in the world is owed as debt by someone to someone else.
Debt of course has fees and interest to be paid on top of it, meaning that even more money is owed than what is borrowed.
In summary; money is made by debt, loans require interest. Therefore there is always more debt than money.
If everyone tried to pay off all their loans (people, business and governments) there would not be enough money in the world to do it.
There’s different types of money. But talking about debt specifically, a lot of the world’s money is created as debt. Depending what you think of as money then actually most of the world’s money is created that way.
This happens through something called the Money Multiplier Effect. The money multiplier works like this. Say I have $100 and I put it in the bank. The bank then makes money by loaning out some of that money to other people. So say you come along and ask for a $50 loan and the bank says sure and lends you my $50. But then say you buy something off me for $50. I then put my $50 in the bank. I now have $150 in the bank and the total amount of money in the world has increased from $100 to $150. It’s basically been created out of nothing by debt. And now say someone else comes along and asks to borrow $100, and the bank can lend them $100 because they have my $150 in the bank. And then if they use that to buy something off me for $100 then now I have $250 in the bank. And this can go on indefinitely, and leads to the creation, out of thin air, of almost all money. And it works fine provided we don’t all ask for our money back from the bank at the same time. When we do that creates a run on the bank and the bank collapses. But as long as everyone has confidence that the bank does have at least some real actual money to cover the number of people who might want their money back in any given day then the system can keep on going.
Money that’s created in this sense, out of debt through the money multiplier, is called M1. So in my example above there’s $250 in the world, $100 of it is real money and $150 of it is M1.
Anyway [here’s how much money there is in the world](http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/)
– Narrow money ie notes, coins, savings accounts, gold etc… $37 trillion
– Broad money ie stocks shares and bonds: $90 trillion
– M1: $215 trillion
– the notional value of real estates, land, assets, and all the actual “stuff” in the world, if we were somehow able to sell it all to a passing alien and get a good price for it: $217 trillion
– derivatives. Derivatives are weird. They’re essentially the notional value contained within all contracts, promises, and legal instruments in the world. As well as the market of exotic financial instruments that are used to gamble on these notional values, insure against breach of contract, trade risk against other risk, buy now pay later, pay now buy later at a guaranteed price etc… If you want to google these terms: futures, options, securities, and forward contracts are all forms of derivatives. And they’re just the most normal ones. The total notional value of the derivatives ecosystem is incredibly hard to quantify but is somewhere in between $500 trillion and $1.2 quadrillion
So the US national debt is 67% of the real money in the world, but because they’re not needing to repay it (and indeed repaying it would be a disaster for the world because it would basically vanish 67% of all money out of existence) it doesn’t matter what percentage of real money it is. And it’s only a tiny percentage of money in a broader sense: somewhere in between 8% and 1% of broad money depending on if you count derivatives etc…
That much money does exist in the world. Money can take many forms and there is way more than $23 trillion.
The Federal Reserve loans money to the government at interest. That number is the total amount owed by the United States government to the Federal Reserve. (Btw, your federal income tax pays the interest)
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