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Where does the money come from?





lagoon
The British Government has just announced a 500 billion loan. Where does this money come from. As far as I can see, it does not exist, and is instead imaginary, floating around in the financial systems.

Where does the Government get it's loans from?
Bikerman
lagoon wrote:
The British Government has just announced a 500 billion loan. Where does this money come from. As far as I can see, it does not exist, and is instead imaginary, floating around in the financial systems.

Where does the Government get it's loans from?

Basically Governments get their loans by issuing bonds. A bond is a financial instrument which promises to pay a fixed rate of annual interest (based on the face value of the bond). These bonds are bought by national institutions (pension funds for example) and are also sold abroad. Currently Japan and China hold over a trillion dollars of US treasury bonds, for example.

There are other ways of generating money
a) You simply print more. This, of course, leads to inflation where the value of the pound (or dollar, or whatever) is decreased because you need more and more to buy the same amount of goods.
b) You get a loan from the IMF. This is a last resort since it normally involved strict conditions over interest rates and fiscal policy which severely restricts a government.
Libby
Almost all money is created by banks through debt.

This video explains it extremely well:
http://video.google.com/videoplay?docid=-9050474362583451279&hl=nl

And money is kind of imaginary. It's like fairies. If too many people don't believe in it, it stops existing!
lagoon
So my fears have been confirmed. The money that is propping banks up doesn't exist, it has instead been fabricated by other banks. Scary...
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