First of all, let me apologize if the coming questions may sound stupid to expert. I am no expert in economics, I have no training nor I have followed any traditional curse.
I am just curious (and puzzled) and I couldn't find any answer to the questions that will follow.
As far as I have understood (and I may have misunderstood completely), broadly speaking, money is created by central banks and landed to govs with an interest and creating debt.
Now, let's make a very simple example, let's imagine a world made by 10 countries and 1 central bank. The central bank gives 10B (billions) to each country (100B in total) at a 1% interest rate.
At the end of the year, the world owes 101B.
- Where is this extra 1B coming from?
- Since it was never created in the first place, how can it be paid back?
- If it turns out that the world cannot actually ever pay back the full debt, then why do we care? (what is the use of it?)
Of course, the countries are in business with each other, during the year some will gain money, some will lose money. The countries that managed to gain that 1% can pay back the interest (but hardly the full debt). In general, for each 1% gained by some country, others must have lost that money.
So it appears to me that with such a design 1) the debt cannot ever be paid back, 2) someone must go bankrupt in the long run and 3) the debt can only grow over time (since it cannot be fully paid back).
Is that true or am I missing something?
Just to be clear, I get why we need money. I don’t get why we need debt. Wouldn’t capitalism work as well if central banks could just distribute money around as needed without asking them back?
Note: It has been pointed out that this question could be a duplicate of this one. However, I think these questions are fundamentally different. While the linked post does explain the mechanism of money and debt creation, it doesn't shine light one WHY do we care about debt, nor whether or not it is possible to ever pay back the world debt of it is destined to steadily increase over time.