Thursday, December 29, 2011

MONEY=DEBT-- Economic 101

If we fail to understand that our economy is run on debt, we will fail to understand our economy nor our political environment.

This video explains well,if someone takes out a mortgage, they have created money into the system. (This took me awhile to understand because I was focused on the Fed. The Fed loans to government but that isn't all the money supply just the debt of the government) When we pay off the loan that money disappears from the system.

So.... when all these house mortgages collapsed it was like paying off the loan and all that money disappeared from the system. This means that we were heading for a depression because when there isn't enough money we have a depression. That is why the Fed has been printing money like it is going out of style to equal the money lost by failed mortgages. There is still less money in our system than in 2008. Although we may have a slight inflation now.

The reason the Great Depression was so bad was that the Gold standard limited the amount of money the Fed could put into the system when the loans failed in 1929.

It starts slow so be patient