Frank Shostak defines True and False Credit:
When I was a kid, the grocer and pharmacist gave my parents till the end of the month to pay. The wholesalers gave the retailers thirty days to pay. Manufacturers gave wholesalers 30 days, materials suppliers gave the mfgr 30 days, extraction gave material makers 30 days... most of the economy was on credit, all asset backed (Shostak's true credit) and none of it at interest.
Then came 1971, Nixon went off the gold standard lite, and banks experimented with lending the bad credit Shostak mentions: asset less backed credit.
Notice what a Moslem correspondent pointed out: in the massive private credit outlined above, nonpayment meant the lender took a loss, and the borrower lost nor gained nothing. Lenders were careful, they had skin in the game. When credit is loaned with no asset behind it, and the borrower fails to pay back, the bank loses nothing (for it lent nothing) but the borrower loses some other secured asset (home?). This new thing is profound, the more nothing the banks lend, the more assets they can vacuum up upon failure, at no risk to themselves.
True credit is managed at a human scale by 350 million (in the usa) people, the false credit is managed by six banks. In the former credit expands with population as human interaction recommends its asset-backed introduction. With the latter six banks are agents of social engineering on an industrial scale.
To the extent we have false credit (92%?) minus what false credit accidently is invested in true economy pursuits, is the degree to which this economy will fail, plus, what with regression to the mean. Imponderable. But will there be enough people who recall that pitch perfect, human scale, unitive and creative credit system to revive it after the crack-up bust?
Better get a business going in the true credit economy. The false credit economy is in for a rough ride.
Feel free to forward this by email to three of your friends.
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).Nor has there ever been a need for banks to expand credit, let alone offer it. Banks don't have money, it belongs to their depositors, in a free market. In capitalism, your deposits are owned by the bank. (You did not know that?)
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.
For example, a depositor opening a checking account at a bank in the United States with $100 in cash surrenders legal title to the $100 in cash, which becomes an asset of the bank.Money is strictly medium of exchange. It is used to extinguish debt. Credit is an agreement to pay later, not the same thing. Currency can be either a warehouse receipt for gold (medium of exchange) or credit (fiat currency). Gets confusing fast, doesn't it? That is on purpose.
When I was a kid, the grocer and pharmacist gave my parents till the end of the month to pay. The wholesalers gave the retailers thirty days to pay. Manufacturers gave wholesalers 30 days, materials suppliers gave the mfgr 30 days, extraction gave material makers 30 days... most of the economy was on credit, all asset backed (Shostak's true credit) and none of it at interest.
Then came 1971, Nixon went off the gold standard lite, and banks experimented with lending the bad credit Shostak mentions: asset less backed credit.
Notice what a Moslem correspondent pointed out: in the massive private credit outlined above, nonpayment meant the lender took a loss, and the borrower lost nor gained nothing. Lenders were careful, they had skin in the game. When credit is loaned with no asset behind it, and the borrower fails to pay back, the bank loses nothing (for it lent nothing) but the borrower loses some other secured asset (home?). This new thing is profound, the more nothing the banks lend, the more assets they can vacuum up upon failure, at no risk to themselves.
True credit is managed at a human scale by 350 million (in the usa) people, the false credit is managed by six banks. In the former credit expands with population as human interaction recommends its asset-backed introduction. With the latter six banks are agents of social engineering on an industrial scale.
To the extent we have false credit (92%?) minus what false credit accidently is invested in true economy pursuits, is the degree to which this economy will fail, plus, what with regression to the mean. Imponderable. But will there be enough people who recall that pitch perfect, human scale, unitive and creative credit system to revive it after the crack-up bust?
Better get a business going in the true credit economy. The false credit economy is in for a rough ride.
Feel free to forward this by email to three of your friends.
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