nornerator

I am not an economist. I am simply an individual who has taken a few courses on economics and understands the principles of supply and demand fairly well. Please correct me if you are knowledgeable.

So my theory is that credit creates inflation to the point where we are dependent upon credit and can no longer purchase the things we need based on current money.

The thought experiment:

Consider a hypothetical economy. There is a currency, there are goods, and supply and demand sets the prices for those goods.

If the supply of goods remains the same, and more currency is printed, the price of the goods increase.

If the supply of goods remains the same, and currency is destroyed, the price of goods decrease.

Now, lets add some credit into this system. If credit is available to many people, and many people use credit, it is as if more money had been printed. This will cause goods to go up in price. At this point the shop owners have priced in the availability of credit in the same way they would price in extra availability of currency. This is bad news for the people because it means that the prices of goods reflect an inflated currency, even though the amount of currency remains the same. It is now more difficult to afford goods without credit because the prices are set to reflect the availability of credit. This means that people are in some sense dependent on the banks.

If credit becomes too available to the point where the amount of credit in the system far outweighs the actual currency then the prices of goods will almost entirely reflect the availability of credit. This is a very bad situation because the businesses price their goods under the assumption that people are buying it mostly with credit. Essentially the prices of goods are hyperinflated. It is very difficult to get by without using credit in this sort of society.
The worst part is that the people who control the availability of credit will be in complete control of the prices because there is so much more credit in the system than actual currency the prices are almost completely controlled by the availability of credit.

We currently live in a society where there is FAR more credit than there is actual currency. Prices are set under the assumption that everyone has and uses credit for regular purchases. When the credit is taken away from us it causes people to lose their jobs, houses, and in general a more depressed society.

The problem is, credit availability can be lowered quickly and dramatically contrasted to the slower time it takes for prices to be adjusted. This causes business to go bankrupt in the process because they can no longer make the purchases they had been because the prices they were paying to their supplier reflected the availability of credit. The suppliers then go out of business because they took out large loans to buy the supply that they hold, and if they lower their prices to the point that the consumers can afford they will not be able to cover their debt to the bank. When businesses cannot cover their bank debts, the banks take them over (typically)It's like watching a large set of dominoes all falling over.

The banks are in control of the credit, and therefore the banks control the prices. This crash was designed. The major banks are now sucking up all these homes and businesses. It is a major power grab.

Any economists on here that can point out where I got misguided?

Yana Usdi

I don't think it's the credit itself that's the biggest part of the problem, though you're right in that it creates at least an increase in the money supply. If it was left at that it might stabilize though. From what I understand the bigger part of the problem is what they call the fractional reserve system, that's where new money is "created". They can loan more money than they have and that money they loan is simply created at the fractional reserve ratio. Wiki explains it to a point without going into too much of the conspiracy stuff some sites get into, the section titled "Money Creation" gets into that some.

Fractional-reserve banking - Wikipedia, the free encyclopedia

I'm no economist either, just someone who tries to pay attention like you do. Our financial system does seem to be at the root of a lot of our problems though. Darkflan posted a quote by President Woodrow Wilson in this post that I've always liked, he said that in regard to the Federal Reserve central banking system which he had signed into law when he had second thoughts about it later. A lot of people see that as a major turning point in our nations direction and history, one that the history books don't mention much.

A lot don't though. The idea of a central bank doesn't bother me as much as it does some people but the influence of private banks on the nations money supply does bother me. There's no reason I can think of why we shouldn't control our own money supply without needing the banks to act as a middleman. How to fix it without choking the market with a sudden credit loss I don't know, the current system is so entwined in our way of life now that it doesn't offer an easy solution that I see.

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Darkflan

And that's what scares people. I don't think there is any way other than taking the hit financially. If we changed the system we would probably go into a depression today, but Id rather have a depression today that will eventually change and do good for the economy, then a recession that continues to draw everything out and will ( and it is going to happen ) cause a depression farther down the road.

No easy solution at all. It will be bad, but if people didn't learn back in the 30's maybe they will learn now?

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[darkflan] Old friend from a printshop I work at, he owns his own business now and was talking about hiring me
[darkflan] then i asked him if he knew where to get some good buds

newcarcaviar

Nonerator, I don't see you post here very often, but your posts are always incredibly intriguing. That's pretty much the way I've been looking at it, but like you, I'm no economist.

Here's something you might be interested in reading if you haven't already.
Fiat currency - Wikipedia, the free encyclopedia

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Shine on, Syd. 1946-2006