The banks are not just in the business of lending out money. They also take deposits and pay interest on those deposits. It's a fraction of what they make on loan interest payments, but it's still a significant expense.
Borrowers can go bankrupt and default on debt. That's also effectively a huge expense.
Banks are competing to offer the best interest rates to their customers. If a bank could still make a lot of money while offering a lower interest rate than their competitors, they would.
> The more money the banks print
The only way they can print more money, is to issue more debt. But issuing debt is an expense for a bank. Either you do due diligence, which takes a lot of work. Or you accept the risk of issuing risky loans that may be defaulted on, which again, will be an expense. And then there's a mountain of regulations on top of that to try to prevent the banks from taking the second option, which also takes work.
It's not the free money machine you make it out to be. (Edit: Not that I'm saying it's not at all lucrative. But it's a risky and difficult high-skill job, which is extremely important to every aspect of society so that in itself isn't remotely surprising)
> they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
Sure.. that's how the economy has worked since the dawn of time.
Money is just an abstraction over credit in general, and credit is always how most of the economy has worked, even before money was invented.
You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
Some of the earliest texts we've discovered was records of this kind of debt. That's exactly what paper (and digital) money is.. a record of debt distilled to its purest essence and made easily tradable.
The difference now is that instead of credit being created through these informal arrangements, you go to the bank, which does the work of ensuring that you're good for the debt. You get some numbers in an account which then lets you go to the neighbors and pay them to help. Whether you repay them by doing work for them directly, or work for someone else in the community, doesn't matter anymore. Which makes the whole system much more efficient.
> You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
You're missing the bigger picture. The difference is that banks are handing out unlimited credit notes for something they don't have, and are charging interest on them.
it's not unlimited. There's a regulated amount for which they're not allowed to go over (reserve requirement - which has since 2020 been set to zero), and they are required to have enough equity/capital (called capital requirements outlined here: https://docs.google.com/viewerng/viewer?url=https://www.fede... )
If it is indeed true that a bank could just print unlimited loan notes, then why did Silicon Valley Bank collapse? Wouldn't it be possible to just print themselves out of their troubles?
You're missing the bigger picture too. Silicon Valley Bank didn't collapse - it was bailed out with unlimited money from the bigger banks.
The only limitation the banking system faces is excuses to loan money (one of the reason long-standing wars that last for years are increasingly common - the banking system gets to fund both sides)
There's no such thing as equity ownership anymore. The banking system has seen to that by slowly changing the legislation in every country around the world.
The banks are not just in the business of lending out money. They also take deposits and pay interest on those deposits. It's a fraction of what they make on loan interest payments, but it's still a significant expense.
Borrowers can go bankrupt and default on debt. That's also effectively a huge expense.
Banks are competing to offer the best interest rates to their customers. If a bank could still make a lot of money while offering a lower interest rate than their competitors, they would.
> The more money the banks print
The only way they can print more money, is to issue more debt. But issuing debt is an expense for a bank. Either you do due diligence, which takes a lot of work. Or you accept the risk of issuing risky loans that may be defaulted on, which again, will be an expense. And then there's a mountain of regulations on top of that to try to prevent the banks from taking the second option, which also takes work.
It's not the free money machine you make it out to be. (Edit: Not that I'm saying it's not at all lucrative. But it's a risky and difficult high-skill job, which is extremely important to every aspect of society so that in itself isn't remotely surprising)
> they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
Sure.. that's how the economy has worked since the dawn of time.
Money is just an abstraction over credit in general, and credit is always how most of the economy has worked, even before money was invented.
You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
Some of the earliest texts we've discovered was records of this kind of debt. That's exactly what paper (and digital) money is.. a record of debt distilled to its purest essence and made easily tradable.
The difference now is that instead of credit being created through these informal arrangements, you go to the bank, which does the work of ensuring that you're good for the debt. You get some numbers in an account which then lets you go to the neighbors and pay them to help. Whether you repay them by doing work for them directly, or work for someone else in the community, doesn't matter anymore. Which makes the whole system much more efficient.