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Why US debt fears miss how money is created

14 January 2025 · 35 views · 0 likes · 0 reposts · 92 blog views

AI economy leadership philosophy

The video explains that the US is facing a financial crisis because the interest on its national debt has surpassed $1 trillion a year - more than the defense budget. Many people, including Elon, believe the government is going bankrupt. However, Steve Keen says it comes from misunderstanding how money and debt actually work.

The classical economic model assumes banks do not create money, viewing them as intermediaries that only lend existing deposits. In reality, banks create money through loans via double-entry bookkeeping. When a bank issues a loan, it simultaneously creates an asset (loan receivable) and a liability (borrower's deposit). This expands the money supply without requiring pre-existing funds.

Similarly, government spending and borrowing create new money, which is necessary for the economy to grow. Cutting government deficits completely would shrink the money supply and harm the economy.

It challenges a lot of what we’re taught about money and debt.

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