GLOBAL FUTURE ANALYSIS
CREDIT | DEFINITION
What is credit? Credit is the possibility to buy goods/service without having the capital for it. In short: extension of the possibility to own/consume. It's evident that before we can understand both the nature and the effects of a Credit Crisis, we must understand what credit is. One of the strangest things in modern society is that almost 98% of the people knows nothing about on of the most important influences on their life: the thing called money. Where does money come from? A question each kid asks his/her parents around the 10th year of their life. In 98% the parents must say: we don't know. This lack of crucial knowledge on one of the most important facets of economic life must be addressed first. If we don't know credit, we don't understand the Credit Crisis. Credit is about capital supply. Capital supply is about money supply. Money is about currency. A good currency is about a widely accepted/valued money type/standard. A bad currency is about a not widely accepted/valued money type/standard. A good currency has just the right level of money supply. What is the right level of money supply? The level that any by two parties wanted transactions can be done easily in that currency. What is a too low level of money supply? As transactions will be done in other that the wanted currency because the wanted currency is not available enough due a shortage in supply (relative to demand). What is a too high level of money supply? As there is more money in the market than transactions needed, and the value of money starts to decline by this oversupply. Oversupply always lower the value and price of anything. Oversupply of money also lowers the value and price of money. What is the value of money? The fact that you can do transactions with it. What is the price of money? The price of money is called interest. A percentage per year you get from if or pay to the bank (depending if your balance by the bank is positive or negative). Capital is about possession. Capital can have several appearances: real estate, goods, rights, services and money. Non money capital (real estate, goods, rights and services) can be easily exchanged for money: that's the function of money: easy exchange of goods and services by a commodity (money) everybody wants. Why do we want money? Because it's easy to transport and we can exchange it any time we like easily for products and services. Why do we want capital? Because it gives us use/comfort/image or interest/profit in return for the ownership. We can let other people do the work and profit from it. Here capital comes very clear to energy, as by energy we multiplies man labor hours severely: energy use is poor man's capital. Credit is borrowed capital in a currency.
Author: Gijs Graafland
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