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Isn’t it surprising to know that someone wants you to be in debts? Yes,
t is hard to digest.

But have you ever noticed the fall in the interest rate for the loans?

Have you ever thought about why would they do it?

Don’t say for the customers’ benefit. — The reason is they want you to fall into more debts.

Let’s break the facts around this.

The first question to ask is, why would they want you to be in debt?

Fact: A Loan of 10Lakhs Turns into 1 Crore.

I am sure your mind must have gone blank.

You also must be thinking, how is it possible?

Worry not. I will clear that.

It is the reason they want you to be in debt. — Yes, debt creates money.

You must be wondering how it happens. I will clear about it with the help of an example.

Consider, there are Bank A, Bank B, Bank C and so on.

Suppose you took a loan of ₹10,00,000 and deposit it in another bank — Bank A.

And every bank has a reserve ratio of 10% to facilitate the transactions.

Consider, I took a loan of ₹9,00,000 from Bank A and deposited it in Bank B.

And bank B can loan out ₹8,10,000 from that money, and this cycle goes on.

If you pay close attention, the first loan of ₹10,00,000 has become ₹27,10,000 in the economy as cash circulation.

It means more debt creates more money in the economy. And inflation also increases.

It is the reason why they want you always to be in debt.

And when people start repaying the debts, the economy shrinks. Due to this, the government goes into debt to maintain a healthy cash flow.

Central Bank doesn’t want to let this happen. So it reduces the interests rate to encourage us to take more loans.

I can sense that your curious mind will go into calculations to find how ₹10 Lakhs become ₹1 Crore. But I am backing you.

We are entering into my favourite part, the math.

The process of taking a loan and depositing is a series if we pay close attention. — It is Geometric Progression.

where a=10,00,000, r=9/10=0.9

We can’t say how many people are going to take the loan. So, it becomes an infinite series.

Sum of infinite series, S=a/(1-r) = 1,00,000/(1–0.9)= 1,00,00,000

It is how a loan of ₹10,00,000 becomes ₹1 crore in money circulation in the economy.

If the reserve ratio is 5%, then your ₹10,00,000 turns into ₹2 Crores in the economy.

End of the theory, you might be thinking, is taking a loan good?

I am not an expert in this subject, but I will share from my level of understanding.

More debt => More cash flow in the economy => Inflation

No debt => Economy shrinks => Govt falls into debt to revive the economy => Inflation

It seems as if inflation is inevitable. Again I am still learning about the subject of money and the economy.

And taking a loan should be a personal choice.

You should ask, why am I taking a loan?

If it is for an asset, it is a good thing as you are going to generate money from it.

If it is for a luxury or a liability or for something that depreciates, you need to think about it.

I am very happy to be introduced to the concept of money and economy from Digital Deepak through his internship program.

What do you think? Please share your thoughts so that I can learn something new today.