Let me apologize if my questions sound stupid to experts. I have no training in economics. I am just curious and puzzled. I couldn't find any answer to the questions below.
As far as I have understood, broadly speaking, money is created by central banks and landed to governments with interest and creating debt.
Now, let's take a simple example. Let's imagine a world with 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 1B was never created in the first place, how can the 1B 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 the 1B in debt?
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?
I don't think this question duplicates this one. While the linked question does explain the mechanism of money and debt creation, it doesn't shine light on WHY we care about debt, nor whether it is possible to ever pay back the world debt if it is destined to steadily increase over time.