Inflation 101

From a recent comment on Big Picture,

“All currency in circulation worldwide is nothing more than an instrument of debt, let us imagine for a moment that all borrowing were frozen for the next 50 years.

“The net effect would be that no new money could be created, as it takes borrowing to create currency. The world would have to operate on its existing money supply for the next 50 years. Without the ability to borrow to pay down debt, debt would have to be paid down with existing currency. When debt is eliminated, so is currency. By freezing debt in this manner, the end result would be a decrease is the money supply.

“A decrease in the money supply would cause a decrease in demand, causing lowering prices. The key issue to understand is that credit = money supply. Borrowing is required to expand the money supply while debt repayment contracts the money supply.”

This I enjoy!


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