Argh - the 'magic money tree' cliche, please you know that's bollox right? There literally is a magic money tree, how do you think money is made? you've swallowed the biggest lie politicians come
out with, a countries finances aren't like your personal bank account, Politicians say this because many people don't know what money actually is and where it comes from and that suits them.
Money is meaningless - cash, notes, coins and digital money (numbers in a computer) are nothing but paper, metal and numbers in a computer. Money is simply a representation of wealth. The global currency that every country uses is called FIAT currency, which means it is not not backed by any commodity whatsoever. Until the 70s the Gold Standard was used, the US Dollar was chosen after WW2 (because it was most stable) and it was convertible to gold bullion - this was called the Bretton Woods system - but the US ditched this in 1971 followed by every other globally trading country.
From this date money was backed by nothing, well it was backed by the government saying yes this bit of paper is worth £20 or whatever, backed by nothing more than a promise to pay. FIAT money has no intrinsic value at all. It is simply a promise to pay, the government issues bank notes and says this £20 is worth £20 and we all agree and trust the promise and thats how money pays for things. Money is really an IOU, its not related to gold in a bank safe or anything else other than the promise that government guarantees it’s worth the value stated and we agree. Thats why bank notes have ‘I promise to pay the bearer the sum of ..’ printed on them, they are a promise to pay.
In the UK the Bank Of England makes the bank notes that are in circulation just like that, it prints it and the government promises its value. The Bank of England is owned by the government on behalf of the the country, you and me. They magic money out of a printing press and promise its worth what it says it's worth. So that is the first magic money tree - but what about inflation you say, the government can't just keep endlessly printing money? No it can't because money only has value if some people have it and some people don't - you can only be rich if some people are poor, we can't all be rich that makes money meaningless (we'd have to come up with a society based on sharing without cash, of which many have tried to do in the past none ended well). The government controls the supply of money into the economy to keep this system of moving money around going.
But the governments magic money tree is not the only way money is magicked out of thin air it's actually only 3% of money that is created. The rest is made by private banks, they make the majority of all the money thats in the economy out of nothing - it is digital or electronic money that only exists as digits on a computer.
Many people think banks operate by taking your money as a deposit and then lend it to someone else to make a profit. That is not how banks make money, they don’t lend the money you deposit to anyone. Banks actually make money every time they issue a loan. They do this by simply typing a number on a keyboard - say a thousand pounds - a person receives a loan by the bank issuing a new balance of £1000 by issuing it as line in their account. No money is taken from another account it is just made as a digital entry by tapping it on a keyboard.
The bank recognises this new £1000 entry because it expects to get the £1000 repaid. The bank ‘promises’ you can get the money in cash from a cash machine, or send digital money to buy things - its a digital IOU.
The bank charges interest on the loan, by doing this it creates money out of nothing - the money created never existed before the interest was drawn and it wasn’t produced by making anything it just appeared, like magic.
The bank keeps the interest as profit and uses it as capital. The new money that was typed into your bank account then disappears when its paid back, it’s cancelled out, destroyed - disappearing as mysteriously as it appears.
This is how banks actually create money, this is how money is made and where it comes from. So why does a bank take your money at all if it doesn’t use it for loans? They are not particularly desperate for your money, but they have a use for it. The bank uses customers deposits as security in case people want to take out lots of money at once, if literally everyone did this at once it wouldn’t be to give them their money it would cause ‘a run’ because it doesn’t hold all that money, but it counts on not all its customers taking all their money out at once - it can at a reasonable level provide for those wanting to make big withdrawals.
You may come across the argument that the the bank created money is not money in the same way money is created by the Bank Of England and that it is in fact credit, this is false. Some politicians and civil servants will argue this - but it isn’t credit because all credit comes with an element of risk. The Financial Services Compensation Scheme (FSCS) backs £85,000 for individual accounts - if the back goes bust, the government will give you your money back. The government will compensate you and help banks if they can’t provide your money that you deposit - its risk free so cannot be regarded as credit. The Government prints money and borrows it through selling gilts (bonds) to banks and investors this is how it borrows money, this how it paid for Covid, bails out the banks and spends money needed because not enough is provided by taxation - this is what is known as the budget deficit and public borrowing.
In a way the government makes money from nothing too, from printing it and borrowing by selling bits of paper - gilts. However there is one big difference, the government needs to pay back with interest the money it borrows. Can you see where this is going - yes it prints more gilts and sells then to banks - it's what we've been doing since the 1600s - we have to have a deficit it is required and it will never not exist, if it did no new money would be created and we'd probably all start bartering instead. The credit crunch, when Northern Rock was bailed out by the government was the country not going bankrupt- because the government won't let it and the government is what backs all money by promising that is what it's worth.
Apparently 85% of the UK population do not know or are only partly aware of this, including politicians (worryingly) and most of the media. This understanding needs to become commonplace, not least because it would resolve the widespread angst present in the population presented with a myriad of serious global challenges that seem insurmountable. It would also mean the continued political decisions that cause them and the misinformation and manipulation by the rich and powerful could be effectively challenged.
These facts are not secret, the information is freely available and can be found. But yet the question is not asked, it is assumed - the fact that it isn’t is to the benefit of the group of people already rich and continually getting richer and to the detriment of everyone else and the future of the very planet. Sir Mervyn King the Governor of the Bank of England 2003 - 2013 is quoted correctly explaining that “When banks extend loans to their customers, they create money by crediting their customers’ accounts.”
Private banks make astronomical amounts of money, it is how money in our economy is created (helped by Government). This could be good, but Banks are private businesses mostly owned by investors who hold shares in the bank (with exceptions ie credit unions)- their reason for existence is to make more and more money for these shareholders. Banks invest in the things that provide the highest return - which are primarily the financial markets and property. They don’t invest in small businesses or community projects things that are actually needed and useful because there is no incentive to do so.
Because our current financial system is dependant on debt, borrowing from banks to create more money - it pushes more and more people into poverty while continuing to make a tiny group of people richer. The more loans that are taken on, the more profit is generated : More loans, more debt, more money. If nobody went into debt, there would be virtually no money in the economy - the system depends on debt, the electronic money that banks create. Every pound coin that is generated requires interest paid on it and because its the people or businesses who need or have to borrow money, the 99% of the population. Money is transferred to the 1% of people who don’t need to borrow money the very rich. Income and wealth is sucked up by the wealthy minority and the gap between the wealthy and the rest of us gets bigger and bigger. This is why so called ‘trickle down’ theory is impossible under the current system, it doesn’t allow it, so as long as the money we use is dependent on interest being paid by the majority the wealth disparity will keep increasing.
The beneficiaries of wealth created by debt get richer and more powerful. They steadily own more of the assets in the country and the world, this is why corporations get bigger and we lose more smaller and diverse businesses that we need. Its the reason the same shops and businesses appear everywhere you go, its the reason chain stores and food franchises have replaced high streets, its the reason everything is getting more expensive, its the reason transport, housing, healthcare and social care is slowly disappearing.
A system that depends on debt creation from a majority of the population has to continue to make that majority poorer it has to in order to create more money. If it didn’t there would be no new money in the economy, which means less spending, fewer jobs and on and on… Currently we are stuck with two choices; more money and more debt or less debt and less money.
A country can't go bankrupt like you say, because it borrows money from itself - it is both the borrows and lender. You can't go bankrupt from lending yourself all your money. Government borrowing has been in existence in the UK since 1694 and so therefore has the defect. The government borrows money by issuing bonds known as gilts which are IOUs promising to pay back the money with interest. The government doesn’t just print more money, but the gilts that it issues are just bits of paper that are an IOU, a promise to pay back the money - with interest.
We can always pay for anything we or the government want to, money won't run out. But money has to be controlled in terms of who has it and who doesn't - and the economy is based on most people not having enough as it's dependant on debt, so private banks can create a profit so be whole system can keep going. The government and banks just control the flow of money, like a river - with locks and weirs. It's just the system is really unfair and means most people struggle while a few people get rich.
A country can't go bankrupt, well yes it can - but not in the way you or me.can if the UK government is bankrupt it means the whole global finance system has collapsed and in this case we really, really are f**cked and will be too busy growing our own food and fighting roaming gangs to worry.