What is Credit?

By Tim Jenkin

What is credit? Most of us will answer this in three ways: it is getting something and then paying for it later ("I didn't have enough money but the shop gave me credit"); it is borrowing money to pay for something we can't afford ("I got R100,000 credit to buy the car"); it is what a shop gives you if they don't want to give you money ("The shop gave me credit when I returned the faulty goods").

Credit is one of those words with multiple meanings. It can even mean its opposite! ("The credit I received from the bank appeared as a -R10,000 debit in my account" or "My debit card credited the shop but debited my account that was in credit because of the credit from the bank, which amounted to my biggest debit")

Let's not get confused with all these multifarious meanings of the word credit. Let's just consider credit as in the credit you get from a bank when you want to buy something expensive that you can't afford right now. Let's consider, for example, what happens when you ask for credit (a 'loan') to build a new house .

The bank would have you believe that the money they lend you comes from their other customers' savings accounts, that they are lending you money that is already in existence. If this was the case you would expect those savings accounts to be reduced in order that your account can be increased, but in reality none of those savings accounts are altered in any way. All that happens is that your account goes up and, hey presto, the total amount of money making up the bank's liabilities (i.e. all the money they owe their customers) goes up. So too do the bank's assets in the form of the 'loan' you receive. The books balance!

Bank credit is created in this totally fraudulent way. There is no difference between this 'money' and notes printed by a counterfeiter. Both of them are fake money issued into the money stream and both of them dilute that stream because they add no extra value to the social product. Apart from a small amount of cash deposited at the Reserve Bank, the only thing backing the 'loan' granted to you by the bank is the house itself! The loan itself consists of nothing more than a ledger entry in an accounting program on a computer. Nothing of substance or value is loaned to you whatsoever. Yet the bank, on the basis of the 'loan' that they generated out of fresh air, can lay claim to your hard assets should you fail to miss a few installments.

The 'loan' you receive from the bank is no more credit than the 'loan' is a loan. Both are purely figurative. Real credit is receiving something of substance and value before you have delivered back to society something of equal value. It is the work put into your house by bricklayers, carpenters, electricians and plumbers before you have delivered value doing what you do for others. As has been said many times before: only goods and services can pay for goods and services.

The bank's 'credit' is not something of substance and value, it is simply an authorisation for you to issue money by writing cheques against the 'loan'. When the cheques are accepted by the builders new money is created. That money circulates in the economy and when you become a seller you are able to recapture some of it and so eventually extinguish the 'loan'. On capturing an amount equal to the principal sum your 'loan' is extinguished, but that is not the end of the story. You still have to pay the interest, which after twenty years will be two or three times the amount of the original 'loan'. So simply through manipulating the figures that represent your account on their computer, the bank can not only 'repossess' your assets but it secures a long-term relationship with you where you hand over the fruits of your labour for many years after you have paid off the 'loan'. This is how wealth is transferred to the already wealthy.

How would credit be different in the Talent Exchange?

The Talent Exchange is known as a mutual credit trading system. This means that every member, when acting as a seller, grants credit to their buyers. This is real credit. The numbers on the computer come after the granting of the credit and simply record the amount of the credit. The numbers are not the credit, as the banks would have us believe when they grant their kind of 'credit'.

You could get a house built on the Talent Exchange and the building of it would be the credit you receive. You would extinguish that credit by giving back to the community of Talent Exchangers goods and services to the value of what you received from the builders. There would of course need to be some kind of 'creditworthiness' check to ensure that you are in a position to be able to 'pay' for the house. If you did not fulfill your obligations then you would be ripping off the entire community. As there would be no interest to pay your house would be paid off in half or a third of the time it would take using bank 'credit'. No parasitic class of 'financiers' would be sucking your blood for years and years!

From Community Exchange News, No.22, 19 June 2005

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