Where will all the money come from?

So they will have to do another round of bailouts. And it will cost trillions. The governments will take over all the bad loans, invest in the banks (who are going broke because the value of the bad loans went through the floor), and buy out the car manufacturers. Who will pay for all this? And another interesting question: Where did all the money that the banks lent out in the first place come from?
The answer is: It was all borrowed from the future.
Money is just bookeeping, and banks are places who keep money on one side of the accounts, and lend it out on the other - assuming to make a profit in between. If they instead of lending the money buy stuff, such as collateralized debt obligations, they can lend money against that, too. And they did.
But it must have started somewhere. Where did they get the first assets against which they could lend? Partly, it came from the deposits of people, but that could hardly have been enough. The CDO:s provided a way to lend the borrowed money several times. But the money which they lent, and more important, the money now shoring up the balance sheets so they do not have to go broke, all comes from the government.
Maybe it would have been better if the government had let the bad banks go broke, and started a new bank to take over peoples loans and deposits. But they would never dare to be that radical, not in any country. Instead, they will give the banks money to increase the capital so they can continue to lend.
That money will also come from the government. And how does the government get money? They can litteraly print it. But the thing is that they do not print the actual money. The government prints bonds. And the bonds are nothing but loans - on the future. The bonds are sold, turning into assets which can be used to lend against. To the banks.
Bonds used to be a great investment, and still the amount of bonds is small compared to the size of the economy - even in a place like Japan. Because bonds are loans saying "you will be paid from the future tax assets of this country", they are dependent on the country doing well and people paying their taxes. And they are loans against the future.
Interestingly enough, this is also the reason why governemnts are so afraid of deflation. Deflation is when money starts increasing in value, because prices go down. Inflation, which happened during most of my youth, is the opposite: Prices go up, but the supply of money increases even more, so the actualy amount of money that exists to pay for things is bigger than before, and the value of money goes down.
You might think that money becoming more valuable would be nothing to be afraid of. But when money gets more valuable, so does assets which are priced in money. Such as government bonds. This would not be a problem if there was a reasonable amount of bonds, but when someone has lots of them - as China does US bonds - the result is that Chinas bond holdings will represent a larger part of the US economy than before. This is not good for the US, and not for China either, since it will devalue their own currency.
In the end, it is all about power as usual. Having someone else own a large part of your country (even if they can not get paid until the bonds are due) means you have to do what they say. Whether you are Iceland or the US.
Bonds are great for goverenments, because different from todays taxpayers, the taxpayers of the future have nothing to say. They may not even be able to vote - or even born. If the economy grows, the size of the debt shrinks relatively anyway, especially if there is inflation. But if there is deflation and the population shrinks, it will be interesting to see what happens. Japan is right there. Wonder who will own this country in 20 years.