Credit is the basis of all economic activity
Understanding credit is vital if we are to navigate our way through the coming fiat currency crisis. Unfortunately, very few economists do.
Credit is the least understood topic of economics, not just by the general public but by economists as well. A credit crisis is in the offing, in the form of a fiat currency collapse. But when even economists of the Austrian school, who at least have a better grasp of their science than post-Keynesian macroeconomists tell us that the dollar is money and therefore not credit, they are not in a position to advise.
John Pierpont Moprgan in his evidence to Congress in 1912 had it right: Gold is money and all else is credit. Even under a gold standard, the dollar was credit, albeit technically a gold substitute. Even under a gold standard, gold was always held in reserve: hoarded, if you like by individuals whose gold hording was minimised by faith in the currency. Faith that is, that the conversion or credit issued by the issuer would always be freely exchangeable for gold at the predetermined rate.
This article reminds us of the relationship between credit, including currencies, and gold. It all goes back to Roman law from which our common laws arise.
Due to its abuse particularly by governments, it is credit which presents the greatest risk to our finances today. To appreciate why this is so requires an understanding of what credit represents, and how it differs from real money, which is physical gold without counterparty risk. Credit is always matched by debt: your financial asset is always someone else’s obligation. The collapse of credit’s value happens when a currency (which is also credit) is not attached by exchangeability to gold. That is the danger facing the entire dollar-based financial system today, now that we see the US dollar is ensnared in the US Government’s debt trap
