Credit is a
wonderful tool that can help advance the division of labor, thereby increasing
productivity and prosperity. The granting of credit enables savers to spread
their income over time, as they prefer. By taking out loans, investors can
implement productive spending plans that they would be unable to afford using
their own resources.
The
economically beneficial effects of credit can only come about, however, if the
underlying credit and monetary system is solidly based on free-market
principles. And here is a major problem for today’s economies: the prevailing
credit and monetary regime is irreconcilable with the free market system.
At present, all
major currencies in the world — be it the US dollar, the euro, the Japanese
yen, or the Chinese renminbi — represent government sponsored unbacked paper,
or, “fiat” monies. These monies have three characteristic features. First,
central banks have a monopoly on money production. Second, money is created by
bank lending — or “out of thin air” — without loans being backed by real
savings. And third, money that is dematerialized, can be expanded in any
quantity politically desired.....To Read More......
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