posted on Oct, 1 2007 @ 06:41 PM
I've seen some dumb threads by people who think they know economics so here is a very dumbed down economic thought experiment to show how the systems
really work and why:
Imagine you gave a town of 100 people, a limited number of gold coins which could therefore not be counterfitted. Say 1000 coins.
What would happen?
Eventually more successful people would hold onto a majority of coins and for economic activity to continue you would need redistribution of
But since we live in a world that believes property should be protected, our wealth redistribution comes in the form of loans - since loans require
repayment on lost revenue during the time the loan is generated, you have to have interest rates.
Interest rates cause inflation.
But inflation causes growth...because now instead of 1000 gold coins in the economy you have 2,000 bills representing 2,000 gold coins that don't
There's still only a finite amount of coinage, but most of that coinage is never in circulation.
What is going on is economic activity. People using the bills as money anyway, to continue their economy.
Now, you could reissue 1,000 more coins into the economy and you'd have deflation which is the same number of bills as there is gold coins (value
And the cycle would repeat itself...people would amass most of the money, and there'd be a need for redistribution.
In today's world currency (bills) is the gold coins and demand checks are the "bills" in our hypothetical scenario, because there's no need for a
precious metal currency just a tangible currency to stabilize the economy.
Because no one knows exactly how much money is going to be needed and so it is left to market forces, not to idiots who think they can measure the
idea that everyone needs only 10 coins for their economic activities.