Interest at only 10 %, if you play fully the game of the banker, you pay 117 times on only 50 years...
Think of your credit card, at 18 % !
Whenever I address the fundamental question of "why" we need monetary reform, I always give the following explanation:
Under the current system, all money is created out of nothing by a private banking cartel and then loaned into circulation at interest -- first by the Federal Reserve, via its purchase of government bonds; and second by commercial banks, via fractional reserve lending.
There are two critical problems with this process.
First, when banks loan (and thereby create) money, they create only the principal, not the interest. This is why the overall indebtedness of the economy is always many times greater than even the most liberal estimate of the money supply. Granted, if no one borrowed, there would be no interest to pay; but there would also be no money supply, and thus no economy.
Second, because all money is created as a loan, whenever the principal of a loan is paid back, the money supply is reduced by that amount.
Allow me to clarify with an example.
For the sake of simplicity, let's assume the money supply is currently zero, and that there are only two people in the producing economy -- Person A and Person B.
Next, let's assume that a newly chartered local bank -- which I'll call Bank X -- has $200 in "excess reserves" (presumably loaned to it by a central bank through a "discount window").
If Bank X loans Persons A & B $100 each and charges them 10% interest, then the money supply increases to $200, total indebtedness increases to $220, and Bank X's excess reserves are exhausted (meaning it can't create additional money by monetizing debt).
Now, if you're Person A, the question arises: since you owe Bank X $110, yet have only $100 to your name, how can you get the extra $10 you need to get out of debt?
Not by going to work for the bank, because Bank X hasn't even received its first interest payment yet, and so has no interest to spend back into the economy.
Thus, the only way you can obtain the $10 you need is by producing a good or service with your labor and offering it to Person B for that very amount. In this way, you "capture" -- through the process of production-and-exchange -- the necessary portion of Person B's loan principal to pay the interest you owe.
Even though money has "circulated" as a result of this transaction, the money supply is still $200. The only thing that has changed is the distribution of that supply, because you now have $110, while Person B has only $90.
Now, here is where we get to the heart of the matter.
When you go to Bank X and pay the $110 you owe, the principal portion of that loan -- $100 -- vanishes back into the nothing from which it was created, while your $10 interest payment goes into Bank X's capital assets. Thus, the most that Bank X can spend back into the economy is $10. Let's assume it does so by paying Person B $10 to wax its floors.
This brings the money supply back up to $100, thereby leaving Person B with $10 of unpayable interest debt –- a debt that will now proceed to
compound over time (see
http://www.wealthmoney.org/wonder.html).
Since the average reader usually concludes at this point of the illustration that the interest debt generated by fractional reserve lending is, by definition, "unpayable" -- and that there is thus a built-in shortgage of money -- it is at this same point that debt-money apologists attempt to impress everyone with their knowledge of mathematics.
They do so by asserting that the interest income received by Bank X can be recirculated over and over again -- via "amortization" -- until only a tiny fraction (less than one-half of one percent) of outstanding interest debt remains.
Now, in a purely abstract construct, Person B can, indeed, pay back all but a tiny fraction of the interest he owes, if...
(a) he pays it back a little at a time over the course of, say, five years, with one part of each payment going to pay down the principal, and the other part going to pay down the interest;
(b) Bank X automatically spends all (rather than some) of the interest income it receives from Person B back into the local economy; and
(c) this recirculated interest always winds up in Person B's hands and not someone else's.
Thus, if Person B's first payment (assuming a five-year payment plan) is $2.12, $.83 of that goes toward paying off the interest, while the other $1.29 goes towards paying off the principal. Bank X then pays its teller $.83 as wages. Person B mows the bank teller's lawn for $.83, thereby "recapturing" the interest portion paid so far. Person B now possesses $98.71.
In the second payment, Person B pays $2.12 as before, only this time $.82 goes toward paying off the interest, while $1.30 goes toward paying off the principal. Thus, the most Bank X can pay its teller this time around is $.82, which means that, no matter how hard Person B works, the most he can recapture from the bank teller is $.82. Let's assume he does so by mowing her lawn again. Person B now possesses $98.41.
You see how it works? The reason Person B must accept increasingly lower wages for the same work is that, after each payment, there is literally that much less recirculated interest in the economy for him to recapture through production-and-exchange.
That's how it works in a purely abstract construct.
In a real-world construct, however, this theory of Person B paying off his interest debt through amortized payments simply doesn't work, because real-world constraints have to be assumed out of existence.
There's an old economics joke that goes:
"How many economists does it take to change a light bulb?
"Two -- one to change the bulb, another to 'assume' a ladder."
What is being falsely "assumed" in this case are two things:
Assumption 1: as Person B's wages decrease (not because his labor is "valued" less, but because there is literally less money in existence with which to pay him for that labor), his basic cost of living will decrease right along with them – i.e., grocery store owners will conveniently ask for less money in exchange for the same food; clothing store owners will conveniently ask for less money in exchange for the same clothes; and apartment building owners will conveniently ask for less money exchange for the same apartments.
Assumption 2: as the money supply contracts, employment opportunities (the very thing Person B relies upon to recapture recirculated interest) will remain constant.
The first assumption is absurd, because as any experienced businessman will tell you, there's a break-even point (between operating costs and sales revenue) below which business owners simply cannot lower prices without bankrupting themselves in the process.
The second assumption is even more absurd, because history has shown over and over again that money supply contractions not only cause unemployment, but severe unemployment -- the most obvious case in point being the depression-inducing contraction of the early 1930s.
It therefore follows that amortization does not solve the money-shortage problem, because there are simply too many critical aspects of daily reality that must be assumed out of existence in order for it to work.
So, to summarize, under the current debt-based money system there is a built-in shortage of money, due to
(a) the fact that money is "uncreated" whenever the principal of a bank loan is repaid; and
(b) the fact that the money needed to pay the interest on that loan is never created in the first place (which means interest can never truly be paid off, but merely shifted to someone else).
That more than anything else is what creates our dog-eat-dog, musical chairs economy -- an economy in which millions of people work frantically to capture other people's loan principal; and in which virtually everyone works (to one extent or another, and whether they realize it or not) as indentured servants to the banking elite.
Austrian School propagandists routinely suggest or imply that a necessary ingredient to solving this problem is to simply hault or slow the creation (or "printing") of money, but as any objective observer can now see, not only would that not solve anything -- since it would neither hault nor even slow the compounding of the countless billions in unpayable interest debt that hangs over our heads -- it would, by increasing the built-in money shortage, merely excellerate the speed by which bankers could foreclose on countless properties and businesses nationwide (a fraud-based looting of the real economy that Austrian School cranks like to euphemistically call a market-based "correction" or "adjustment").
Now, does that mean more "spending" is the answer? No, because at present, more government spending means either more debt or more tax hikes (or both), and we can no more borrow our way out of a debt-caused depression than we can tax an already overtaxed economy into prosperity.
The solution is to go to the root of the problem by instituting a debt-free money system in place of the current debt-based system!
Todd Altman
Let's step out of the dream world of bankers' hype. Just how does money grow? Where does the interest money come from? When you put money into an interest-bearing account, does it turn into something like rabbits that mate and quickly reproduce? What happens? The increase of money in your account had to come from someplace. To understand financial planning, economics, growing public and private debts, increasing taxes and prices, etc. we must always remember what it is we use for money, how all New money is created and put into circulation.
It's at this point that bank agents love to explain that the interest money comes from increased production. Stop here - and think! When was the last time your personal production (goods and services) turned into money? Have you ever waved a magic wand over a shoe, shirt, bushel of corn or hour of labor etc. and seen it turn into money?
Let me explain another way. Imagine that we have $10,000 total money in circulation. We invest all of it in a compound interest-bearing account. Let's say that the money is invested in a shoe factory. The factory spends the $10,000 for raw resources and labor to produce shoes. It sells the shoes and gathers back the total money supply and returns it to the investor. Remember, if the total money supply is only $10,000, that is all the shoe factory could return to the investor. 
If the factory is going to return the original $10,000 investment PLUS the compound interest, the money supply would have to be increased by at least $66,122.52 or even more if the shoe factory is going to have a profit. To increase the money supply under the present system, it has to be borrowed by someone from a bank. By borrowing the $66,122.52 needed to pay the investor 7% compound interest, the total debt drawing interest at some bank would be $76,122.52. It's easy to understand how we have $26 trillion of debt drawing interest at the end of 1990. 
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