Me: money is fake

Them: yeah it's just paper that we ascribe value to

Me: no it's faker than that. Only 3 percent of USD exists as physical currency. The rest is just bank credit.

Them: right, so money is just numbers in bank accounts that the government creates from nothing

Me: no, it's faker than that. Most money is bank credit, created by private banks. Not the government, not the Fed, banks like Chase or Bank of America. They take zero dollars and turn that into a loan and debt. They decide who gets new money. Capitalists decide where new money is created and who it goes to. If the government paid back all government debt, there would be no more treasury bonds, and then if everybody paid off all their private debt, there would be no more money.

Them: wow, so most money is just credit corresponding to debt, and there's just a small amount of money they borrow from the federal reserve that was created by the government.

Me: no, it's faker than that. Since 2020 reserve requirements were abolished. Banks don't need to legally keep any money on hand or borrow money from the federal reserve or each other at all. They can just pay interest on every dollar they create to the federal reserve without borrowing from the Fed at all.

Them: oh. So money is REALLY fake.

Me: yeah. so if the government just paid off all of our student debt it wouldn't affect the money supply at all. It would do nothing to the economy other than release a huge debt burden. So let's do that.

@Rico a bank can create money but it's a liability for them. When a loan is created the borrower spends it and the bank has to pay out. Some *other* bank gets the money, usually.

A bank makes money by getting someone to agree to pay them (a loan). Helping the borrower spend money is an expense that they would avoid if they could, but that's why borrowers agree to loans.

You wouldn't promise a stranger that you will give them $100 for no reason. Same principle.