Macroeconomics Essay Example | Topics and Well Written Essays - 750 words - 2

Macroeconomics - Essay Example There is a widespread misunderstanding that banks or governments create money. In fact it is the people who create money through their hard work. Banks handle and reallocate money and assets. Governments only borrow money into the way of life from the banks. People work hard and earn assets which can be bought or sold, directly by exchange or through the use of legal tender, or through the making of capital. Everyone who buys or sells, producers or consumers, are traders. Trading, especially purchases, usually happens in credit. The promise to pay creates money and after production when the goods or services get into the market for sales, the debt is repaid. When a debt is repaid, money which was in trade is neutralized or made null. Borrowing creates money and repaying it extinguishes the money. The successful lender or sponsor of a loan is all the dealers who trade with the borrower which is the society or the market. This is how money is actually created, and extinguished. Banks a ct as clearinghouses, clerks who keep track of the dealings between merchants. In the LET system (Local Exchange and Trading system), which was developed 20 years ago as the basic banking system, each dealer opened an account with zero balance in it. The bank charged a small fee for each transaction which became the sole income for the bank. This is the basic banking which later developed into giving loans to its customers who were in need of excess money which they did not have at a given point of time. The interest on loan became another income for the bank and now it is this income that creates more money in the market. So as to put more money into the market, banks started encouraging customers to put more money into the bank as various types of deposits which earned them interests and which in turn would be lent out to others as loans by the bank. Thus money made by one person keeps rotating in the market through another person by way of bank