By selling war bonds to savers and spending the money, governments recirculate people's savings. War-workers and suppliers earn that spent money as their incomes. Debtors can use their earnings to repay their bank loans. Suddenly the debt-depressed economy is put to work and is earning incomes, and defaulting loans are restored to performing status when debtors are put to work and are earning incomes again. War spending bails out debtors (who are put back to work earning incomes), and bails out the banking system that was failing due to mass defaults by unemployed debtors.
Bail-ins are a perverse solution to The Money Problem.
But world war is the truly stupid solution to a global problem of money arithmetic. Money that is spent blowing sh** up is financially "wasted": the government is never going to earn a "return" on the money it "invested" in war. War is the ultimate malinvestment. But the wasted money solves a debt crisis. And it provides income-fueled demand for consumer goods and consumer assets (like houses) that can be built and sold at profitable prices.
Intelligent Use of the Money-Issuing Power
A government-issued money-giveaway program, not necessarily permanent but continued for as long as it takes to bail the system out of its negative-sum $arithmetic problem, is a "rational" solution to a debt crisis. But government money-issuance and giving money to people violates the core commandments of the monopoly bankers' sound money religion. So the simple monetary actions that would save the system from its own internal flaws, and would distribute the benefits of capitalism's vast economic productivity "to everybody", are mortal sins against the bankers' money monopoly. And any banker or nation who sins will be punished, swiftly and severely.
Banks are for-profit businesses. If a bank manager loses money by forgiving debts, he will be fired for violating bank policy and national banking laws, and the debts will be reinstated. China may be the sole exception, though it is unclear whether or not the Chinese understand the secret of their own success. If the Chinese try to "normalize" their money and banking system to BIS standards, they will be in the same debt crisis the rest of the world is in right now.
The Chinese government owns the yuan-issuing Chinese banking system. The government exercises macro governing authority over the banks. If the government wants to put the economy to work building hi-speed rail, the banks are instructed to lend money to entrepreneurs who want to build and operate hi-speed rail. The entrepreneurs hire the economy, using yuan the banks created and loaned for that purpose.
{Building vacant cities and magnificent bridges to nowhere is not exactly an "optimal" employment of an economy's productive efforts. But it's better than war, as a way of getting incomes into the hands of workers and suppliers who are paid to produce things that nobody is going to buy. "Vacant" is a rung or two above "blown to smithereens".}
The entrepreneurs are "capitalists". They want to invest the borrowed money in ways that will eventually provide an income stream that will enable them to repay the loans and produce profits that make them richer in money. The efficiency and innovation-inducing profit motive is supported and enabled, not supplanted, by intelligent use of the money-issuing power.
If socially beneficial businesses are not money-profitable and cannot keep up with their loan payments, the government instructs the banks to keep lending them more money to keep hiring the economy and keep producing whatever goods they produce. Chinese manufacturers routinely dump unsold inventories at below cost prices, so Chinese consumers can buy the goods at very low prices (which is very similar to something CH Douglas advocated in his "social credit" money and price system).
If bankers are distressed by their asset portfolio full of non-performing loans, the government can set up a bad bank to buy the bad loans off the good banks. Or the money-issuing central bank can buy the bad loans off the commercial banks for good money, and the bankers are happy again. During QE, the Fed bought hundreds of $billions of non-performing MBS off Wall St banks. Communists do not have a lock on operating a "socialized" banking and money system. The system, by arithmetic necessity, has to be at least partly socialized to correct for its internal negative sum arithmetic and inevitable savings/debts imbalances.
Money arithmetic is the flexible factor in this economy-serving equation. As long as the government and its central bank support the commercial banks rather than impose impossible arithmetic requirements upon them, the banks can add positive $numbers into the equation, and the banks don't have to extract those $numbers back out of the equation as loan repayments. The economy is not made subservient to the perverse arithmetic requirements of the money system. It's a simple thing to add or subtract $numbers, as long as you haven't deified $numbers as if you are their servant, not their master.
The money system is not some immutable or incomprehensible feature of deepest physics. The present form of the banking and money system was designed by bankers to serve bankers' narrow short term interests, and legislated into legality by governments. The system does not even serve the long term interests of bankers, unless we assume bankers will always be bailed out by governments and taxpayers and bank depositors every time the banking system crashes.
The system is not some unknowable mystery. Humans made this system, and we can change it. We can recognize and understand the system's basic arithmetic failings, and we can tweak the system to make it work. That's what "monetary system reform" is all about: making the minimal changes to the money system that are required to keep it functioning without crashing, so that us and our economies can keep working, earning, and saving money.
The microfinance banker loaned money to the peasants, charged interest that is payable in money, and he demands to be paid his interest in money. The blatant arithmetic impossibility of the peasants paying the banker more money than "exists" in the peasant's economy, does not dissuade the banker from insisting they pay him the money that they agreed to pay him.
As a for-profit capitalist business, the loan principal is the banker's "product", and the interest is his "profit". Interest is the "rent" banks charge for borrowing their product -- money. Bankers only recover their "costs" in loan principal repayments. Banks earn money "profits" from interest payments. Banks, including microfinance banks, are not charities who "give" money to peasants. Banks lend money, all of which the banker is responsible for recovering from the borrower as the loan payments come due. As a for-profit business, the bank needs to collect interest payments in order to pay the bank's own costs of operation (mainly its employees' salaries), and to earn profits that can be distributed as dividends to the bank's shareholders, the bank's "owners".
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