previously, in the comment section:
So, quick recap on how money is created in Capitalism:
- Person A (“Johnny”) takes a loan in the form of credit.
- This loan is entered as both an asset and liability on the bank balance sheet.
- The central bank transfers 1 dollar for every 10 loaned to the lending bank during a transfer window at the reserve.
- Johnny spends this credit at a store, incurring Goods and Services Taxes.
- This credit is deposited into the store/company wallet as “money”, digitally.
- This money incurs theoretical tax (Corporate income) to be paid at the end of fiscal year.
- This money then gets paid out to employees. It gets taxed immediately as income tax, with a portion witheld and digitally transferred to the government.
- Johnny pays the monthly interest due on the original credit.
- The employees spend the money on food/housing, incurring Goods and Services Taxes.
- The bank at this point has lent out even more derivatives of the loan, which has at this point been deposited twice, transferred once, and partially spent.
- The central bank has transferred even more cash to the bank’s fault in the reserve.
- The government spends tax revenue to function. It isn’t enough to fund the government, so it takes a loan from a merchant bank.
- Said merchant bank gets some cash - 1 dollar of cash for every 10 loaned - transferred to reserves by the central bank.
- The government now has to pay interest on loans.
- goto 12