As the volatility on Wall Street and around the world continues today despite the bailout passing last week,  it’s worth considering that our current financial difficulties may stem from deeper issues that go well beyond what a quick cash infusion from the government can fix. If it seems to you that adding to the nation debt to pay off banking debts seems like the proverbial “robbing Peter to pay Paul, ” you’re not alone.

The problem here isn’t just the specific debts of the sub-prime mortgage debacle, but debt itself. America is currently treading water in a sea of debt and the present currents of irresponsible cutting and spending and bad fiscal policy are only taking us further out to sea. 

But, suppose someone told you that all of this debt was really a good thing because debt is actually where most of our money comes from.  If you’ve ever found yourself in the downward spiral of personal credit card debt like most Americans today, the first question you might ask is  “What about all the interest?”

Now suppose the answer you got to the question was to be reassured that as long as our economy and access to resources keeps growing at rate faster than the amount of interest we owe, we can just keep borrowing more and more to create more and more money, and things will just be great for ever and ever.

Would you’d be comforted by this plan, or might you get that queasy feeling that someone’s trying to sell you on some sort of pyramid scheme?

Well, Ladies and Gentlemen, welcome to the wonderful world of Fractional Reserve Banking and the global monetary system!

If you’re not familiar with Fractional Reserve Banking, or you’ve ever wondered where our money actual comes from, I urge you to watch Money as Debt below as a good introduction. While it certainly isn’t the last word on the subject, it’s definitely 47 minutes of time well spent.