Posted: Mar 28, 2013 12:41 am
I think there's two separate issues here: The fractional reserve lending (which is pretty innocuous, I think), and the actual creation of money from the reserve bank. The creation of new money by the reserves is created out of debt, i.e. it is given to the government/banks with interest applied. The potential problem with that is that economies have to continually grow (above population growth) to service that debt. But I'm not sure what the alternative is. Free money, as some people say? Well that would be ridiculous, as then there would be no disincentive for governments/banks to borrow money. Money would literally grow on trees. And accompanying that would be insane levels of inflation. So essentially, the interest charged is necessary to give money a "cost". Not sure what other way it could be done.