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Understanding True Credit and False Credit
by Frank Shostak
Mises.org
There are two kinds of credit: that which would be offered in a market economy with sound money and banking (true credit), and that which is made possible only through a system of central banking, artificially low interest rates, and fractional reserves (false credit).
Banks cannot expand true credit as such. All that they can do in reality is to facilitate the transfer of a given pool of savings from savers (i.e., those lending to the bank) to borrowers.
Consider the case of a baker who bakes ten loaves of bread. Out of his stock of real wealth (ten loaves of bread), the baker consumes two loaves and saves eight.
He lends his eight remaining loaves to the shoemaker in return for a pair of shoes in one-week’s time.
Continue Reading at Mises.org…
Source: http://financialsurvivalnetwork.com/2015/03/understanding-true-credit-and-false-credit/?utm_source=rss&utm_medium=rss&utm_campaign=understanding-true-credit-and-false-credit
