Economics Questions

Re: how can just about everybody have a credit card

strat2131 — Sun, 05 Jul 2009 01:47:41 GMT

Its quite complicated but works alittle like this (ignoring all accounting)

You deposit 5$ into your bank. Your bank can then use this as reserves and depending on the multiplier issue out up to 10 times more in the form of credit (car loans, student loans, bank loans etc). In australia there is no Reserve requirement, so theoretically they could issue out as much as they please. This however would make them very illiquid (so they tend to use a reserve ratio of 8%), if you wanted to pull your 5$ out, they (in order to maintain there reserve ratio) would have to liquidate the expanded credit. This is how there is so little cash in the vaults of the bank but almost everyone has 300,000 dollar home loans, 20,000 dollar car loans and 10,000 dollar credit card debt and the amount of credit keeps on expanding.

If you want to learn more (i have simplified alot, and might seem somewhat confusing) i recommend watching this playlist on youtube http://www.youtube.com/user/khanacademy#play/user/CECDA315A8848B99 . Its simple and it just goes through the process, the guys views on wealth are abit distorted (especially with the value gold, versus the value of fiat currency.)

Re: how can just about everybody have a credit card

Bank Run — Sun, 05 Jul 2009 00:03:24 GMT

I've never had or will ever have a credit card. I don't participate in banking. If less people did there would be a deflationary pull on the money supply.

Capital savings can lead to capital investment. Loaning money is a form of investment. Folks are inevetable investors in many unseen ways, like insurance, stocks, bonds, and money in banks.

Perhaps a book like The Case Against the Fed, or The Mystery of Banking by Rothbard, will help.

Good day.

Re: how can just about everybody have a credit card

I. Ryan — Sat, 04 Jul 2009 14:50:18 GMT

The credit does not come from savings. Instead, the credit comes from no where (i.e., inflation).

how can just about everybody have a credit card

inquisitiveteenager — Sat, 04 Jul 2009 11:56:40 GMT

Countries like the USA and Australia have a low level of national savings.

If nearly everyone has a credit card, how is this possible?

I thought some people had to have savings to lend to others as

credit.

I'm lost