John Rubino's 19 August article in GoldSeek supports my contention that since credit works like money, a credit contraction destroys money, and this undermines our ability to make sound financial assessments:
"Prudent Bear’s Doug Noland has for years been pointing out that one of the drivers of the credit bubble has been the ever-broadening definition of money. As the global economy expanded without a hic-up, more and more instruments came to be used as a store of value or medium of exchange or even a standard against which to value other things—in other words, as money."
Now that lenders are pulling in their horns, central banks are creating more cash to replace the "loss", and the result must be a dilution of value in the currency.
2 comments:
and therefore rampant inflation as the value of money drops?
To me, that seems to be the implication. Credit can be withdrawn, but am I right in thinking that replacing/shoring up debt with central bank money sort of cements in place some of the money supply expansion?
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