Where does all the money come from and where does it go?

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If people can’t / don’t spend en masse and therefore cause businesses to collapse on a large scale, meaning they aren’t paying staff, where does all the money go?

And where do governments borrow money from?

[Edit] en masse not on mass.

In: Economics

9 Answers

Anonymous 0 Comments

[https://www.youtube.com/watch?v=PHe0bXAIuk0](https://www.youtube.com/watch?v=PHe0bXAIuk0)

This is the best, most concise explanation you can find for such a complex topic.

Anonymous 0 Comments

not really ELI5 but you could find this helpfull: [https://m.youtube.com/watch?v=iFDe5kUUyT0](https://m.youtube.com/watch?v=iFDe5kUUyT0)

Anonymous 0 Comments

Money is just a stand in for goods and services. While the physical dollars are still around somewhere, because people aren’t working, the goods and services aren’t being made, and thus millions of dollars worth of value is never being made. The dollars as a result are not being pushed around, so that value is just gone. Poof.

Anonymous 0 Comments

I’m no expert but essentially the Fed creates and distributes the money. The government is basically taking loans against itself when they overspend on their budget.

As for lack of consumerism to drive company sales, the money obviously stays in the hands of the individual.

Anonymous 0 Comments

the basic/generic answer to your super vague and broad question is that…… the flow of cash/money/current slows down. it still exists but it’s not moving either because people/businesses are spending less, have non to spend, and there is less people/businesses taking on debt.

Anonymous 0 Comments

> If people can’t / don’t spend on mass and therefore cause businesses to collapse on a large scale, meaning they aren’t paying staff, where does all the money go?

The money that a business has when it closes goes to whichever people or institutions that the business owes money to. (Anyone who has provided goods, services or money to the business, but hasn’t been repaid yet, and anyone that the business has promised money to.) Businesses have bills like anyone else. If there is any money left over after all of these creditors have been paid, then it would go to the owners. If there isn’t enough money, things that the business has that are worth money are sold, and the funds used to pay the creditors.

> And where do governments borrow money from?

Governments create bonds, which are promises to pay a certain amount of money (plus interest) at some point in the future. Investors (which can be individuals, businesses, governments or other organizations) buy these bonds, and the money goes to the government that created the bond. Note that these bonds can later be traded or sold between investors. The more confidence there is that the money will be paid back, the lower the interest rate the issuing government needs to offer.

Anonymous 0 Comments

The federal government puts more money into the economy by allowing banks to lend more out. In other words a number is changed in an account, and banks lend it out. Where did it come from? It was created out of whole cloth. The treasury can remove money from the economy by destroying old currency previously in circulation. Money is a fiction, a concept, and idea societies have confidence in. When we lose confidence, money becomes worthless. That’s how currencies collapse.

Anonymous 0 Comments

> If people can’t / don’t spend on mass and therefore cause businesses to collapse on a large scale, meaning they aren’t paying staff, where does all the money go?

It just sits there in investments and accounts. The transfer of money (paying for stuff) it was keeps the economy going. If businesses stop making money then they can’t pay their workers and suppliers anymore.

> And where do governments borrow money from?

Governments print money and they can print as much as they want, at least theoretically speaking.

It used to be that money was backed by something, so currency represented Gold or some other commodity. Today though the majority of countries use a fiat currency which means that currency is backed by the strength of the economy of the government that issued it.

So the value of say the US dollar is based on the strength of the US economy.

The US government can print as much money as it wants, but doing so de-values the currency causing inflation. So only so much money can be printed if they want to keep the value high. But if the US economy or government has a serious financial problem they can theoretically print money until they solve the problem, but doing so would de-value the currency so much that inflation would cripple the economy.

The central bank of the US (part of the government) is responsible for maintaining this balance. They issue currency in the form of paper + coin as well as digital currency (in a bank account, not bitcoin) typically to the banks. They loan this money to banks at an interest rate, the prime rate that everyone is always talking about.

Banks in turn loan this money to people to buy houses etc, and make money with the loans.

The government can therefore also recall these loans and destroy currency to make the value go back up.

Depending on which economic theory you subscribe to, the risk of inflation is primarily the reason we pay taxes to fund government services instead of the Government just printing money to pay for everything. Taxes in a sense remove money from the system.

When you talk about government debt, this is the government borrowing money in the form of Bonds. A bond is a contract loan in which the government agrees to borrow your money for X number of years and then pay you back with a set interest rate. The government borrows money like this to pay for things without having to raise taxes, which is a political minefield.

Government Bonds are super important to the economy, as much of peoples retirement savings are in bonds. Bonds are considered a very safe investment.

So why doesn’t the government just print money to pay off the debt? It would cause massive inflation and cripple the economy.

Anonymous 0 Comments

Am I the only that started singing Cotton Eyed Joe after reading the title? I’ll see myself out….