The Credit Crunch

A Credit crunch is when there is lack of availability of loans and credit this can also be applied to a sudden reduction of the availability of obtaining loans from the banks. A Credit Crunch also involves the rise of official interest rates. During a credit crunch lenders or investors make less risky investments.

 A Credit Crunch is mostly caused when careless and inappropriate lending is occurred in a continuous manner over a long period of time which therefore results in major losses for lending and investing businesses that end up in debts.

The BBC reveals Northern Rock has asked for and has been granted emergency financial support from the Bank of England, in the latter’s role as lender of last resort. A day later depositors withdrew £1bn in what is the biggest run on a British bank for more than a century. They continue to take out their money until the Government steps into the guarantee their savings.

The symptoms of the problem is that banks are reluctant to lend to other banks, institutions reluctant to lend, and other organizations, because they may not be rewarded. In other words, the banks have a "strike." Why is this? This is because many banks have to lend money to people, their assets, but no one Lenders worry that they have made ​​a lot of loans to inability to pay, so they are reluctant to lend them any more cases by default, along with some old new loan. The fundamental problem is that a large number of non-performing loans, structured bank but because of the financial system and do not know who holds the non-performing loans. It sounds incredible, but it has happened, because regulators have allowed the complex restructuring loans and people to make new loans, support of non-performing loans - because of the government's inflation target.

An estimated how much money lent by the increase in the money supply. The compound annual growth rate of about 11%, in Australia, in the past 30 years, the money supply increased. The money is a reflection of some form of assets. When we borrow money, we expect it to be repaid, if there is no money to pay, we expect to get the return on the assets. The most fundamental problem is that too much money has been created, we now have money, there is no access to assets.

How could this happen? We allow bank loans loan support. As a risk mitigation strategy or insurance, it is a wise idea, but the loan when the loan when it falls as a commodity in their own right. That is, as long as we start the money as a commodity with intrinsic value of the assets to support independent, it is almost inevitable system operation control. It does not bankers greedy or incompetent government, it is a system, an inherent defect.

The built-in defects, we put all the money, it seems to be the same, as long as we have created some of the money, and we want it to pay interest. We treat all of the money, although it has a separate asset-backed value. We let the money you want to create an asset-backed case, we charge interest immediately. Every day, the government and Australia's major banks to create the new currency of approximately $ 500 million as a measure of the increase in the money supply. More and more, they have to create more money than the increase in our total wealth. They not only create more money than we need to pay more money before interest earned what. Our productive assets will not produce more wealth to pay this interest; we have to create more money, which in turn generate interest, which in turn requires more money to pay interest. In fact, we have created a classic Ponzi scheme, the loser is society as a whole unit known as inflation targeting. The government sanctions to encourage this practice a wide range of tax equivalent to the rate of inflation. Of course, this government, because it does not see that as a tax, it said, it promotes economic adjustment, the relative change in value of the different asset classes is rationalization. This rationalization is true, but there is other tax, us through inflation adjusted. A simple rule changes, we can solve the problem immediately and overnight. Allows the creation of new money, but do not pay interest until it turned into a productive asset. This is not a radical idea. It does every day, every week, as people invest in the new joint venture. When you invest in something terrible, something until it is earned, you do not expect the return on your money.

The currency issue is not a new idea to the actual asset-backed. The new idea is that the system does not have the issue of asset-backed currency. Need money, supported by the assets of the reasons why there are so many people called for a return to money backed by gold. Unfortunately unrealistic, because we need more gold than exists, but the proposals we put forward the same principle. Do not create interest-bearing money, unless it is behind an asset. There are a variety of ways for the community to become social investment, rather than a consumer society. In other words, we will not let the interest of the new funds, retained until it is income. Here are a couple of ideas.

Create interest-free money to first-time homebuyers, but it takes money to build a new house. Any interest earned until it has turned into a new house money. The money can be used to buy a second-hand housing, but it does not earn interest until.it is used to build a new house, thus increasing the asset base of. As a side benefit, this policy for those who do not have an affordable housing.

Create interest-free money; it consumes very little energy (the way a few greenhouse gas emissions) as a reward. Interest-free money as a reward frugal people. These people as a side benefit, the need to eliminate the emission permit trading, if we create enough investment incentives in infrastructure, which will reduce emissions - such as wind farms, the use of solar thermal energy production, solar cell, geothermal energy plant, insulation and other incentives, we will be in a few years, we have invested billions of dollars in renewable energy infrastructure money, zero interest rates and zero emissions.This approach will not lead to inflation of special money without interest, until it is invested in productive assets, will go back in time more money, rather than its cost of construction.

The credit crisis can be avoided, because the government has brought obvious need of new capital investment to create real value and real wealth. The Reserve Bank can control the issue of special money, you can use it to keep the inflation rate is zero. The rest of the economy can continue to be safe in their own way the money will not be eroded by inflation in the value of knowledge systems.