Our banking system was first created when men decided that gold was to heavy to carry around and so they created banks. You could put your gold in the bank and be issued a paper currency to use instead. You would pay for your goods with the paper money and the store owner could take that paper to the bank and be issued gold. However, this was limited.
Next, the banks decided that they could help generate more wealth to people by creating a reserve. This reserve would be 10% more than the gold that they had in the bank. Next, the United States came in and decided that once everyone had set their currency it would be a good idea to rate the currencies against the dollar. The reserve was then set to be 10 times the amount of dollars. After several more years, a chairman of the Federal Reserve was appointed. He is put in charge of how wide they will grow the United States money supply. In 2008, he decided to bail out the banks because of the fragileness of the reserve system. This is how the debt situation has been created. The system will work as long as everyone’s money is systematically devalued slowly.
Here is an example of how money works. Let’s say that there is a neighborhood with 10 houses for sale and there are 10 buyers. The houses are worth 100,000 pounds. Now let’s say that 10 more houses are put in the area, but there are still only 10 buyers. This will cause the prices of the homes to go down. The same thing is happening with money. They are increasing the supply, but the demand remains the same.