What I don't understand is: WHERE DID ALL THAT MONEY GO?

[TreasonousBastard]

14. It never existed. Basic macroeconomics explans it...

When you put $100 in the bank, it lends $80 of it. Since you can get your $100 back at any time, there is now effectively $180 in circulation and the money supply just got a little bigger. The system works because everybody doesn't withdraw their money from the bank at the same time. Withdrawals, deposits, cleared checks... all happen sporadically and there's always enough actual cash in the bank to cover them. The system can go on forever (we think).

Except when there isn't enough actual money in the bank to cover a run on it, like what happened in the 30's with bank failures, bank holidays, and other good times. That's when we find out that the whole system is based on... nothing. It used to be based on a few tons of on or so of gold, but there wasn't enough in the world to back monetary and economic growth so we threw that system out. Besides, there are better uses for gold than just having it sit in Fort Knox.

So, the "money" just vaporized. It's like you bought Facebook stock and look at the price now. You just lost a bundle of "money" that vaporized. That might hurt, but it's not serious unless you borrowed against it-- now you have a debt that didn't vaporize and you have to cover with the money that disappeared.

The system is straight out of Alice's looking glass, but it's the best we've come up with yet, and with all the problems it's still the one that allows you to buy a car, an iPad, and a house. Without it we'd have little or no capital to build the stuff to get us out of tents and woodstoves.