Re: causes of the depression

On 2 May, 22:02, Ron Peterson <r...@[EMAIL PROTECTED]
> wrote:
> On May 2, 1:12=A0pm, orangata...@[EMAIL PROTECTED]
 wrote:
>
> > It has long been recognised that deflation is the main cause of
> > recessions and depressions.
>
> What causes deflation? And, how do you know that?
>
> --
> =A0 =A0Ron

Inflation is caused by increasing the amount of money in circulation.
Roughly speaking, if the amount of money in circulation doubles the
value of money halfs. So, if the fed creates a lot of new money
inflation increases.

Deflation is a contraction of the amount of money. If the amount of
money in circulation decreases the value of each unit of currency
increases.

Credit created by banks is interchangable with money. When a bank
gives you a credit card with a 10000 dollar limit it does not need to
have the 10000 dollars in its vaults. It only needs to have 10% of the
amount it lends as reserves, as i pointed out earlier.  so the bank
can create 9000 of those dollars out of thin air.

thus  a credit card increases the amount of money in circulation,
causing inflation. If the credit card is taken away the amount of
money in circulation decreases, causing deflation.