I know that the government printing money in excess leads to inflation and devaluing the dollar. How does the use by consumers of credit cards have? I personally use very little cash and I hardly know what the money looks like anymore. I put much stuff on a credit card and pay it off monthly. That bill I pay from my checking account. My pension is on direct deposit so very little currency is used.
When you use your credit card, your money too enters into circulation. So that too inflates circulation, which is inflation. Just printing currency does not lead to inflation, spending that money does.
First off, the major expansion of money supply is done by the Federal Reserve which IS a private group of banks. However, they are highly dependent on the Federal Government and have been shown repeatedly to change their decisions based on politics.
Regarding credit cards, during a time of PRICE inflation using a credit card is a bad idea. This is because you're asking the bank to pay for something when the dollar is worth less, and then repaying the bank when the dollar is worth more (a month later).
In reality, banks want both inflation AND the usage of credit cards. This is because of the reason above, and also because credit cards provide one more step between the consumer and a bank run. The ultimate check on any bank is a bank run, and credit cards add extra protection from this.
It used to be that all money was redeemable in gold; you could just walk up to a bank with a dollar and demand a gold coin ($24 was roughly an ounce). However, banks didn't like this tight restraint (it prevented them from printing counterfeit dollar bills), and lobbied for a central bank that would eventually destroy the gold standard. In 1933 FDR made it illegal to own gold.
Anyway, banks love credit cards. But in using them during an inflationary period (I don't think anyone alive has actually seen a long-term deflationary period in US history), they harm the consumer.
Evan, can you explain a little more about what a bank run is?
Sorry about that.
So, here's the awful truth of banking. You know how you deposited some $500 in your bank a few days ago? Well, it isn't there anymore. They put it in a big pool with the other banks of the same chain. They're probably in the process of lending that money out to someone else.
If the bank's customers have deposited, say, $10,000, then there might only be about $1000 in that bank at any moment. The rest is floating about the economy.
Your bank is taking your money and spending it.
A bank run is when the people realize that there might be a chance that their bank won't be able to redeem all of their money. Say, if you have $25,000 in the bank, and want to spend it all, the bank probably doesn't have that money anywhere.
A bank run is the ultimate check on bank counterfeiting.
If you'd like to learn about Fractional Reserve Banking -- which allows you to understand how banks are counterfeiters -- I have a few hubs about it.
I think the threat credit cards pose to the economy is the risk of too many households putting themselves further in debt. With cash, after you spend it all, it's gone. With credit cards, you can just keep going. Over time, those people will likely be unable to pay back some of their debts to businesses. So the money that those businesses didn't get affects their bottom line and those consumers who were pumping money into the economy will no longer be able to do so because no one will loan them money.
But I could always be wrong. I'll be interested to see what others have to say.
I personally see the problem government, businesses etc seeing consumers having a limitless about of money and so everything rest on the shoulders of the consumers. Businesses 24/7 365 days a year advertising to the consumer, government taxes consumers here, there, everywhere. You want life insurance pay for it, you car insurance pay for it, you want health insurance pay for it. There is never enough money to be made so whatever the CONSUMER NEEDS That What We'll Raise The Prices On.
I could go on with this but while agencies fool themselves in thinking consumers can keep paying whatever theyt want some comsumers realize they can't keep making rich companies richer and so the spending slows down as the FAT Cats scratch their heads saying I wonder why I'm not making the money I use to make.
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