For a bank to have money in it’s possession it needs people/business

Comment on General Election 2010 Poll Results by David.

For a bank to have money in it’s possession it needs people/business to save money in that bank so it can lend that same money to other people/businesses who currently don’t have money.

Seriously Jamie, it’s not rocket science.

If no one borrows money, the money others are saving with a bank isn’t working and so isn’t earning money which means the bank can’t pay the savers interest on their savings and what’s the point in saving money in a bank if it doesn’t earn interest?

That’s economics 101.

Our economy, like many others, runs on debt, a business that requires money to invest in it’s business borrows money from a bank and pays interest on the loan and savers get a share of that interest for allowing the bank to use their savings.

Think about it Jamie, a lot of people (and businesses) who are doing well financially have debts, the main one being a mortgage on their home. I’m doing really well financially, but about 40% of my home is owned by a bank and the money they loaned me a few years ago to buy the house is earning money for savers because I pay interest on the loan.

I don’t have any other debts (hate being in debt), but without a willingness to borrow money today, so a person/business can get what they want today (like a nice car instead of a car that will do) our economy would be quite stagnant: as has been shown with devastating financial effect by the credit crunch, we got a recession which is negative growth, the economy shrank!

An economy running on debt works as long as the banks don’t make too many risky loans and unfortunately the banks screwed up by making dumb ass loans that a 10 year old with a calculator could have seen the loans were a massive risk, but they hid those risky loans by repackaging them as safe loans and selling them on to other banks so they could make more dumb ass risky loans, so they could repackage them as safe loans…….. (the US banks were the biggest abusers)!

Without banks lending money to businesses, many businesses lack cash flow and can’t do business despite being good businesses that are good for the economy. When the banking crisis started, pretty much all banks stopped lending money to business (the banks panicked) and this caused many businesses to go under because they had no cash flow to do business!

“It’s a circular process. NO one can economically save without others borrowing.” Sums it up nicely.

David