Why credit needs a golden anchor, by Alasdair Macleod

Credit needs an anchor or you get what you have today: an enormously over-indebted global economy and financial system. From Alasdair Macleod at goldmoney.com:

This article examines the relationship between credit and its anchor in value. Today, that anchor is fiat currency, which is both parochial and unstable. Historically, and in law it has always been gold.

It is a common error to think of credit in a narrow sense, without realising that officially recorded credit in the form of banknotes and deposit accounts with the commercial banks are only a minor part of the total credit in an economy. This article takes a holistic view of credit.

The relationship between credit and whatever provides an anchor to its value is a far larger topic from that commonly discussed in economic journals. It involves an understanding of the relationships between currency credit and commercial bank credit, the consequences of which rarely occur to economic commentators.

There is evidence that changes in central bank credit have a greater impact on prices than an equivalent change in commercial bank credit ­— a new and important topic for our consideration.

This article draws on the history of law as it applies to banking, money, and credit. For both contemporary economists and the layman, it involves some concepts that may be novel to them. But given that they concern the very survival of contemporary currencies, they are worth making the effort to understand.

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