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Great post. An economy isn't growing unless we are producing something of substance and people are buying with cash (or we export goods that brings money into our country). This idea that GDP increasing (aka spending) results in growth, is completely false.
That's not true. Many, many successful small business have been started with loans and many people have increased their productivity via student loans. Plus it's awfully hard to imagine the markets for expensive items like cars or houses doing much without credit.
GDP is not spending, it's production. When people produce something of substance, it increase GDP, whether it's purchased or not and regardless of whether it's purchased by someone in the country or from abroad.
Wow, that must be the absolutely worst explanation of anything dealing with economics I have ever read.
Besides the fact that just because no one produced a good or service at the time the money changed hands is irrelevant.
It's like saying I bought a chair (or haircut) and put in on a credit card. Then, when I pay the credit card off I have not bought any services at the time I paid it off...so nothing was ever produced or earned in the first place. It's psychotic to believe that time sifting the payments from the good/service means nothing was produced.
The equation nets to 0; but it would be the same production of goods/services if the guy reserved the room at the start. Everyone then used the money instantly instead of offsetting it on credit, and he cancelled the reservation to get his money back.
It's the fundamental difference between cash, A/R, and A/P.
Hi subsound,
Its funny how absurd you consider the psychology behind clean slates of credit. Reserving the room would not have demonstrated the sole effect of money and credit. In other words, they had a frozen money system that would inhibit any future transactions(there is the productivity hit). It demonstrates the need for liquidity. Most of those people had receivable assets that were illiquid. Personal IOUs are not as liquid nor are they legal tender as a bank note which is a Federal IOU. That's the difference. If they had a local currency, it very well could have created more liquidity than personal IOUs, but it was lost on you in your desire to mock.
I also have news for you, all of our money is credit. We have a credit based money system.
That's not true. Many, many successful small business have been started with loans and many people have increased their productivity via student loans. Plus it's awfully hard to imagine the markets for expensive items like cars or houses doing much without credit.
GDP is not spending, it's production. When people produce something of substance, it increase GDP, whether it's purchased or not and regardless of whether it's purchased by someone in the country or from abroad.
Hi bluepepper,
That's what I call the MBA swindle. When money expands with productive potential, then this credit system works so long as it is actually productive. That is the reason why historically fixed capital(speculative investment) was left to the bond markets where they belong. Banks used to grant loans to merchants toward circulating capital(the kind of thing that is shipped or is in a warehouse) because a bank could actually risk adjust correctly. The trouble is when money expands to embrace speculative fixed capital, personal assets and expenses. Then the money supply expands with no productive potential and inflation ensues while also creating asset bubbles. The end result is the contraction and crash, the so called man made business cycle.
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