True CreditGenuine credit memo
The only thing they can do in fact is to make it easier to pass on a certain amount of saving from depositors (i.e. loans to the bank) to beneficiaries. Let's consider the case of a maker who makes ten sandwiches. Bakers consume two breads from their ten breads of genuine abundance and save eight.
Borrowing the cobbler his eight sandwiches in trade for a set of boots in a fortnight. Remember that this is the transmission of "real stuff", i.e. eight rescued bread wheels from the bakery to the shoe maker in return for a couple of pairs of shoes later.
Please also bear in mind that the amount of actual saving will determine the amount of credit available. Had the retailer only cut four breads, the loan amount would have been four breads instead of eight. Please be aware that the stored Loibe breads offer assistance to the cobbler. This means that the loaf of bread supports the cobbler while he is occupied with making them.
That means that the credit, through the support of the shoe maker, leads to the manufacture of footwear and thus to the creation of more genuine riches. That is the way to achieving genuine momentum of the economy. Introducing cash does not change the substance of what credit is. Rather than loaning his eight breads to the cobbler, the maker can now trade his eight breads for eight bucks and then loan them to the cobbler.
The cobbler can use eight bucks to save either eight sandwiches or other goods to help him make them. Bakers provide the cobbler with the opportunity to tap into the genuine saving swimming pools, which include eight breads bakers have made.
Remember also that without true saving, borrowing cash is an excercise in vain. Currency fulfils the function of a means of barter. So if the maker trades in his eight breads for eight bucks, he keeps his actual saving with the eight bucks, so to say. He will be able to use the funds in his pocket if he considers it necessary to retrieve his eight breads or to safeguard other goods and utilities.
If no goods exist, the cash in the baker's hands will be wasted. Banking does not change the substance of credit. Rather than the maker borrowing directly from the cobbler, the maker borrows his cash from the local branch of the bakery, which in turn passes it on to the cobbler.
Bakers receive interest on their loans, while banks receive a fee for the funds transferred between bakers and shoemakers. Shoemakers have the advantage that they can now obtain genuine ressources to participate in the production of footwear.
In spite of the seeming complexities introduced by the bank system, the nature of credit is still the transmission of stored material from the creditor to the debtor. Unless the pools of actual Sparkassen are increased, the latter cannot generate more loans. The focus of the extension of good credit by the bank system is an extension of actual saving.
Well, if the backer borrows his eight bucks, we have to recall that he traded eight rescued breads for that dollar. So, if a bench borrows these eight bucks to the cobbler, the bench borrows fully "supported" bucks, so to say. Problems arise when a central government, instead of borrowing fully covered funds, spends empty funds (fractional reserves banking) that are not covered by anything.
If uncovered cash is generated, it poses as true cash that is allegedly backed by actual things. However, in fact nothing was rescued. So, if such a sum of cash is spent, it cannot help the cobbler, because the empty bits of piece of paper cannot help him make the shoe - what he needs instead is loaf of bread. What he needs instead is loaf of cob.
Also, since the paper currency is pretending to be genuine currency, it can be used to deduct food from other activity and thereby dilute that activity. Exactly this is what the distraction of actual riches by cash from the "thin air" is all about. When the additional eight breads have not been manufactured and stored, it is not possible to wear more footwear without compromising other hobbies that are much more important to the consumer in terms of lifestyle and well-being.
This, in turn, also means that unsecured loans cannot be a means to achieve macroeconomic expansion. Instead of making it easier to shift money from saving throughout the entire sector to capital accumulation activity, when unsecured loans are granted, it is true that banking is starting to weaken the capital accumulation proces. Note that without the presence of the CB, no unsecured credit cannot be granted on a permanent footing.
Thanks to a policy of money pumps, the Federal Reserve ensures that the growth of unsecured loans does not lead to the bankruptcy of each other's banking systems. This suggests that as long as the growth in credit is fully supported by actual saving, this must be seen as good good news as it encourages the accumulation of property.
Wrong credit obtained from "thin air" is poor good tidings because credit that is not backed by genuine life insurance gains is an agency of commercial devastation.