Suppose we divide everyone in the society into two corporate A and corporate B, (or similar to an island with only 2 people), each year banks loan out 1 Billion to A and 1 Billion to B, and they do production and consumption and trade with each other. They need to return the loan plus interest. Since the money supply is only 2 Billion, where is that extra interest come from?
Question 1: In this model is the assumption that there is only 2 billion in the entire world ?
Question 2: If so, has this ever happened anywhere? The worst debt situation that the United States has ever faced would have been during the last recession and the great depressing when personnel approached 100% of GDP.
Please raise the level of abstraction, 2 billion is just an example, add as much 0 as you want, the reasoning won't change
From economy perspective, there are only 2 types of people on this planet: producers and consumers, and most of the people have both role, so it is enough to have 2 people to represent them
My question was center around the idea that 100% percent of the currency in this world was being loaned, not the actual number. Most banks loan out much more than they actually have but not more than society as a whole.
Most of the money is debt based, but not all of them, when US disgarded gold standard, some part of the money is backed by gold
