Sunday, August 21, 2011

A simple explanation of what is happening to our economy.

Credit is money that's been borrowed. In a healthy economy (one with sound money, like gold), credit is limited to savings. That only makes sense, doesn't it? How could you borrow something that someone else hasn't already put aside for the purpose of lending?

Of course… saving is hard. Most people would prefer to have the benefits of credit without the effort of saving. Thus, we have modern economics, which is based on a simple lie: That you can safely expand credit in excess of savings.

But, of course, you cannot create wealth from a printing press. Doing so causes price inflation, asset inflation, a credit collapse – or a mix of all three. Everyone knows this. And yet it seems the entire global political class remains dedicated to pretending otherwise.

When credit is expanded far enough in excess of savings, you get a collapse.

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