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In general, the person that lends out Money will ask interest payment. In the modern economy, bank credit is money creation in the form of debt while repaying debt destroys money. The debt money was created, but not the interest that needs to be payed for the service of temporary money. Some propose that it is impossible to pay that interest without someone (else) taking on more debt first: proposition P. The mainstream in finance and economics, however, proposes that it is always possible to pay the interest without additional debt: contra-proposition ( Pc). For both propositions there are plausible scenarios that support them. If reality is considered a mix of plausible scenarios, this seems to lad to an altered propostion Pa that states that, on average, additional debt is required to pay back interest. But is it?
Are all masters curricula at universities scientific? Is something likely because it follows from solid reasoning based upon previous research or just because some authority says so? And what makes something or someone an authority? Is it solid research or many references in prestigious journals? Which boils down to authority again, as what makes these journals prestigious? Is it because the majority of the research that it publishes can be reproduced well and withstand many attempts to falsify them? But that is also true when both the particular journal and the community stay safely within the limits of the mainstream and never put the fundamentals of that mainstream to actual scrutiny. In that case, the community will not leave the mainstream as that means no or less prestigious publication, which means less income. In that case, the community is locked in. Which scientific communities are locked in? Why am I asking these question?
How does a bank work in the modern economy?
A lot of textbooks explain that a bank lends out money from savings. This is not how banking works in reality. As most people associate “savings” strictly with “money in savings accounts”, the explanation is even misleading. However, as the model can be used to describe some interesting properties and can function as a basis for alternative models for banking, I added the textbook example anyway. Fortunately, there are also excellent papers that explain how banks do work. 1 This page tries to explain the story in a slightly different way, with less slang if possible. And it will also pinpoint some interesting, inherent problems of the current banking and money system. Where possibe, necessary, the economy lives on a far away and isolated island, yet without violating reality.