and how the non performing loans (posh name for going broke) are a free Helicopter Money.
Some to get into the mood; The Money is Debt, the banks by lending money out of nothing create the money supply-the money in circulation. When a person takes a loan, he runs into the economy, tries to make money, repays the loan, the bank extinguishes the credit,and all goes back to zero. Here Witchdoctor will leave aside all attached to the debt/credit creation- like interest, fees, and all house of cards attached to it- derivatives, cdo, swap, bla bla.
But, here comes a Person.He takes a loan from a bank. If he is not a born fraudster with a bank as an accessory, if this Person is not taking his debt money- the loan – straight to Panama, or exchanges it for gold and runs with the gold somewhere far away, then this Person with this loan money starts to invest, buys machinery, hires people, office space, buildings, you name it….
And he goes broke, unfortunately….
The money he took as a loan will not go back to the bank and extinguish his Debt. And the bank cook book will not be equal to zero. This is a Bad Credit, the non performing loan.
But here the strange thing happens. The Bad Credit, the loan, was spent, and it is circulating in the economy. Other persons buy and sell with this money, they get paid with this money.And lets imagine this Non Performing Loans in a society where 10 or 15% of money in circulation is bad credit. It is like , out of 1000 euros, a person has 100, or 150 euros of the free Helicopter money, not attached as a debt to the bank any more, because the Person which took it went broke. And imagine if this 15 % MUST BE RETURNED, ONE WAY OR OTHER. iT IS A 15% SHRINK OF ALL, A COLLAPSE OF THE DEBT DRIVEN ECONOMY. And the society goes booom.
This bright side effect is confirming the one of the Witchdoctor three laws of the debt driven economy (coming soon), which say that the debt economy , to function, needs an amount of free, not tied cash ,which is matching the fractional reserve.But here wee see it coming in a contorted way.
Now will wil turn our head in the opposite direction, to the table of the Fractional Reserve Saloon, where banks count the outcome. 15% means they are broke, as in the story of the 16th shot at the OK Corral, and 6,66 , the number of the beast, is gone.
And they need something. The Bail In or the Bail Out.
Bailing OUT, the money supply expands. Simple. The 15 euros of the bad loan stay in the economy, and the new 15 euros which the State has to put, cover the bad loan in the Fractional Reserve Saloon of the bank(s)ters. A double, the new way of QE (quantitative easing) done by the State, unfortunately with creating new taxes and new debt, which provokes the stagnation.
Bailing In, the supply shrinks, and we are back in the downward circle of Austerity, leading to collapse.
Crap Situation, as it is the debt driven economy.
Witchdoctor