Re: causes of the depression

On Sun, 04 May 2008 08:36:37 -0700, Ron Peterson wrote:

> On May 3, 10:17 pm, orangata...@[EMAIL PROTECTED]
 wrote:
> 
>> > What causes deflation? And, how do you know that?
> 
>> 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.
> 
> Sure, the bank doesn't need to have cash, but doesn't it need to have
> assets to back the debt that it issues?

The assets are the assets of others:  The bank needs no assets itself.
Banking is a service.  The banks account for debts between real economic
players in the economy.  The car buyer owes the car seller and the bank
operates as an intermediary.  If the buyer fails to pay the asset is
repossessed and resold.  The honest borrowers pay the cost of all of this
bookkeeping and resale and such in the form of a finance charge that is
somewhat erroneously termed "interest".  The banking system does not need
any big pile of gold to keep the books and act as the financial
intermediary because the cost of failed loans is paid by the
honest borrowers. The banking system must be regulated by disinterested
third parties to insure that the service providers (the banks all hooked
together in one big centralized bank) don't charge too much for the
services rendered.

> 
>> 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.
> 
> Who has done a study to show that your statements are correct?

Has anyone done a study to verify that water is wet?

-- 
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of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
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