"The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving the problem: execute the lenders, exile them, default outright or simply renegotiate to achieve partial default and low interest rates."
Or in the United States' case where the money is being lent in US dollars, print money (inflate) which decreases the value of the debt in real terms.
The modern money supply is not primarily inflated by minting/printing money.
The money supply is inflated when people make loans. Easy credit causes money supply inflation. Most of the inflation is caused by private lending, not public printing. Loans cause a 10-1 money supply increase on the base, and often more like 30-1 when you start to look at more risky lenders.
The recent CARD act has likely done more to deflate the money supply than anything in recent memory, as it made one of the most pervasive forms of credit much less attractive to people.
Every debt write down is money disappearing.
That alone makes me laugh at people complaining about inflation and strategic default at the same time, as the later directly combats the former.
The money supply is inflated when people make loans.
Well, when people loan more than they have, which banks in the US are allowed to do. Loans in and of themselves promote deflation, since people get loans to build wealth, and wealth increase in a static money supply is deflation.
The youtube video isn't working for me, right now, but that's clearly not correct. In a loan from A to B, the money B now has the use of is money that A does not have the use of. If there is interest on the loan, B can't make up the money for the interest from nowhere (unless B is a government controlling the supply for the money in question), so while the interest represents the additional wealth generated by the loan, it's not inflationary in and of itself. If no one is creating more money, the interest has to come out of a fixed pool of money in the economy, and now that there's more wealth (assuming the loan was successful), each unit of money is worth a little bit more, which is deflationary.
This might or might not be a problem, depending on who you ask. I think it probably is, but the only way to solve it permanently (rather than in a stopgap manner like creating money at a rate you hope matches the actual growth of the economy) is to make actual wealth the basis of the money. This is, uh, very difficult, to understate the problem.
I'm referring to fractional reserve banking, and those loans, which are the primary source of money creation in the modern world. Not person to person loans as you are talking about.
In my original reply to you, I agreed that loans in fractional reserve banking are inflation:
Well, when people loan more than they have, which banks in the US are allowed to do.
But loans aren't the problem, or the source of the inflation. The inflation happens separately from the loan; the loan is just a shell game to hide what's going on.
You said, "Not person to person loans as you are talking about".
This is the same as saying it's not the loan, since the loan is the same in these cases. The difference is that when the bank loans money (at least in the US), they don't loan money they have most of the time, but money they're allowed to create to loan. I don't remember what the multiplier is offhand.
for the next poster (randallsquared) - banks don't loan money they don't have - or at least we have to be very careful with the terminology here.
They cannot create money out of nothing - they can only loan out a percentage of hte money they have on deposit. The key is they have to have it on deposit in the first place.
This effect compounds itself across multiple accounts and banks and does end up inflating the money supply by a factor of about 10 (assuming the reserve percentage is 10%) - but this is subtly but importnatly different than the bank being magically able to create money it doesn't have.
(the bank can't lend me $90 if it does't have $100 on deposit - it will have to keep the $10 in reserve. OTOH - if someone simply deposits $10, the bank can't possibly lend me $90, because they just don't have it.)
But this only works if they can count money as loaned and deposited at the same time. That is, if the system were sound, if they loaned out 80% of the money on deposit, that money couldn't be counted as still on deposit, but they do count it that way. A neat chart that shows this is: http://en.wikipedia.org/wiki/Money_creation#Money_creation_t...
And is in fact one of the major issues in the Euro debt crisis, since the centralization of the currency has taken this option away from debt-riddled governments like Greece.
Of course, much of the world's elite understand exactly what they're doing: i.e., use the economic catastrophe they themselves created as a pretext to kill the welfare state they've despised for 65 years.
Lost me there. Pure conjecture. If you're not one of the world's elite, you have no idea what their intent is, or even if they are truly coordinated, Bilderburgs notwithstanding.
For example, there is another suspicion that the banking elite uses bubbles and busts to drive down prices and then buy up productive assets on the cheap, and that welfare systems keep large segments of the populace dependent on government and under some measure of control. In which case, why would they try to destroy that system?
So which is it? All? None? Nobody knows. All I know is, if I wanted credibility for my economic analysis blog post, I wouldn't assert privileged understanding of the intent of the world's elite unless I actually was one (and maybe not even then).
Or in the United States' case where the money is being lent in US dollars, print money (inflate) which decreases the value of the debt in real terms.