How money gets destroyed – (Part 6 of 6)

Remember how new money is created when a bank makes a loan?

Well when someone repays the loan, the opposite process happens, and money is actually destroyed.

It effectively disappears from the economy entirely.

This is vitally important, because it means that if we, the public, start reducing our debts by collectively borrowing less and repaying more, then the amount of money in the economy will actually start to shrink.

If we all collectively reduced our debts by £1billion, then the money supply of the economy will actually fall by £1billion.

There will be £1billion less money changing hands in the economy.

If we significantly reduce the debt then the shrinkage in the money supply could actually cause the economy to slow down or grind to a halt…