No 4  Where’s Waldo - that interest factor?

Most of our money, the credit money behind a loan or behind your debit/credit card - the money we all do our major business with - is not cash that you can hold in your hand. But it is a loan, a loan of bank credit, for which interest must be paid.

Interest is why the law of money operates, why money goes where money is. 

To explain with two examples: one my size, and then a giant size. 

If I, or you, have $100,000 and you lend it out at, say, 3% interest, you receive $3000 in interest payments at the end of the year. Correct? 

Your borrower still owes you the $!00,000, however. Thirty-three years at that rate and you have nearly doubled your money. (You have had 33 times $3000 to spend at your pleasure.) And your borrower still owes you the $100,000. Good play, Shakespeare! Whatever your borrower has had to do to acquire those interest payments, he/she has been working for you for thirty-three years!

So, financially, it is better to be a lender than a borrower. As that little transaction plays out, wealth has flowed from your borrower to you.

Interest is the simple mechanism by which money goes where money is. It is like icing on the cake.

Example 2. 

Let’s go big. Let’s take the money in the world economy, trillions and trillions of dollars, yen, rupees, pesos - most of it created by commercial banks. Now, in case you did not notice, let me point out a simple, highly significant fact. Those banks create the money supply and lend it to us. But they do not create the interest, our “rent” for the use of the money. So the question is, where does the rent/interest come from if it is not part of the money supply created by the banks?

Come back next week, and we’ll try to figure out where the interest payments must come from. That will be a big blog. Meanwhile, think about it in terms of “growth”. It may be hard to conceive, but my challenge is to put it in clear, understandable language.