The Economic Mirage

The economy, at its core, is nothing more than the sum of countless transactions taking place every day. A transaction happens whenever money or credit is exchanged for goods, services, or financial assets. Whether it’s an individual buying groceries, a business hiring workers, or a government funding infrastructure, each exchange contributes to the broader economic picture. Together, these transactions form the foundation of economic activity.

What fuels this system?

Total spending, which comes from two sources: money (what we already have) and credit (what we borrow). This combination drives demand for goods and services, shaping the economy’s growth—or decline. But beneath this simple structure lies a hidden truth about how credit, when misused, can distort and destabilize the very economy it powers.

Let’s discuss Credit

Credit is often praised as a tool that helps people and businesses get things they want or need, even if they don’t have enough money right now. It seems helpful on the surface, but if you dig deeper, you’ll see a different story. Credit is like a double-edged sword. While it can boost the economy and give people opportunities, it also traps many in a cycle of debt, making the rich richer and leaving everyone else struggling. Banks, which control much of the system, are not just helping—they’re running a profitable scam.

Let’s break this down simply so you can understand how it works and why it’s dangerous.

What Credit Really Does

Credit isn’t just borrowing money—it’s a system that creates money out of thin air. Banks lend money they don’t actually have, which makes the system grow but also creates risks for the general people.

Why People Borrow:

Imagine you want to buy a house, but it costs $300,000, and you don’t have that much saved. A bank offers you a loan (credit) so you can buy the house now and pay them back over 30 years. This sounds good at first, but by the time you’ve finished paying, you’ll have paid the bank closer to $500,000 because of interest. That extra $200,000 is the cost of borrowing.

Why Banks Lend:

Banks lend money because they make money from interest. For every loan, they collect payments for years, sometimes decades. What many people don’t know is that most of the money they lend doesn’t exist until the loan is created. This process, called fractional-reserve banking, allows banks to lend much more than they actually hold. For example, if a bank has $10,000, it can legally lend out $100,000. They profit from the interest on money that wasn’t theirs to begin with.

Interest Rates—A Clever Trick:

• When interest rates are low, borrowing seems easy. People take loans for homes, cars, and businesses, which makes the economy grow. But this also makes people take on more debt than they can handle.
• When interest rates are high, it becomes harder to pay back loans, and people end up losing their homes, cars, or businesses. Banks, however, still profit because they take your property when you can’t pay.

How Credit Creates a Trap

• When you borrow money, you spend it on something like a house or car. That spending becomes someone else’s income—for example, the builder who made your house or the car dealership where you bought your car.
• This makes the economy look strong because money is flowing around. People think they’re doing well because incomes are rising.
• But this is an illusion. The money isn’t real—it’s borrowed. And eventually, borrowers must pay it back with interest. Over time, this takes more and more money out of their pockets and sends it to the banks.

When too many people are in debt, they can’t spend anymore. This causes the economy to slow down, leading to job losses and financial crises. Meanwhile, banks and wealthy investors are protected because they own the loans and the assets.

The Forces Driving the System

Three main forces shape how the economy works: productivity, short-term debt cycles, and long-term debt cycles. Let’s look at how they play out.

Productivity (Real Growth):

Productivity means how efficiently we create goods and services. When productivity improves—like when farmers use machines instead of hand tools—it raises living standards. This is the only real way economies grow. However, productivity grows slowly, so banks use credit to speed things up artificially.

Short-Term Debt Cycle (5–8 Years):

These are the ups and downs we feel every few years:

• Booms: Banks lend easily, so people borrow more. They buy houses, cars, and other things, causing prices to rise (inflation).
• Bubbles: Eventually, people have borrowed too much, and prices get too high. For example, house prices might double in just a few years.
• Busts: Banks stop lending, people stop spending, and the economy shrinks. This is called a recession.
• Recovery: To fix the recession, central banks lower interest rates to make borrowing cheaper, starting the cycle all over again.

Long-Term Debt Cycle (75–100 Years):

Over decades, debt builds up to dangerous levels:

• The Boom: Everyone borrows heavily. Governments, businesses, and individuals all spend like there’s no tomorrow. This creates a false sense of wealth.
• The Crash: Eventually, the debt becomes too much. People can’t make their payments. Businesses go bankrupt. The economy collapses.
• The Cleanup: Governments try to fix the mess by cutting spending, printing money, or restructuring debt. But this often makes the rich even richer while ordinary people lose their savings, jobs, and homes.

How the System Hurts General People

When too much debt piles up, something has to give. Here’s how the “solutions” to economic crises often make things worse for the general people:

Austerity (Spending Cuts):

Governments cut budget from public services like healthcare and education to save money. This hurts general people but doesn’t solve the root problem—too much debt.

Debt Restructuring:

Banks and businesses renegotiate loans to lower payments, but this often means small businesses and workers still lose jobs, while big corporations survive.

Money Printing:

Central banks create new money to stimulate the economy, but this mostly helps the wealthy. For example, when central banks print money, stock prices rise. Who owns stocks? The rich. It also increase inflation and decrease the currency value.

Wealth Redistribution:

This sounds fair—take money from the rich and give it to the poor. But in practice, these programs are often too small to make a real difference or are blocked by political systems controlled by the wealthy.

How to Escape the Trap

While it’s hard to change the system, there are ways individuals and businesses can protect themselves:

For Individuals:

• Don’t take on more debt than you can afford. If possible, save for what you need instead of borrowing.
• Invest in things that hold value, like gold, real estate, or skills that can help you earn more money.

For Businesses:

• Avoid relying too much on loans. During economic downturns, businesses with less debt are more likely to survive.
• Focus on building a strong foundation, like good customer relationships and quality products, instead of chasing quick profits.

For Governments and Policymakers:

• Stop relying on credit to boost the economy. Invest in real growth, like better education, healthcare, and infrastructure.
• Reform banking systems to reduce the power of big banks and make lending fairer.

The Bottom Line: Break Free from the Illusion

The current economic system is like a magic trick. It looks like it’s helping everyone, but in reality, it’s designed to benefit banks and the wealthy. Credit creates the illusion of wealth, but it often leaves general people trapped in debt and struggling to stay afloat.

The key to escaping this trap is understanding how the system works and making smarter choices. Save when you can, borrow wisely, and focus on building real value in your life. And as a society, we must push for changes that prioritize people over profits. Only then can we create a fairer and more stable economy.