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Stefan Claudiu
The Zeitgeist Movement - Orientation Guide
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and all that
money
is put to use for creating these new homes, which are then bought, the inflationary effect is minimal. The increase in the supply of money available in an economy is called
Monetary Expansion, while a decrease in the supply of money is called Monetary Contraction. When both of these forces are in play, you tend to get a cyclical trend, called the "Expansion and Contraction Cycle", also known as the "Business Cycle" or the "Boom and Bust Cycle"(more on this below). Generally speaking, the Expansion period is usually associated with so called "Economic Growth", for more money is being put to use and often more jobs are created. Conversely, the Contraction period is often called a Recession or Depression, for money is drying up and hence there is less money to put to use, so jobs are lost and companies fail. The concept of "Economic growth
" is typically defined as: "the increase in the amount of the goods and services produced by an economy over time". The GDP (`gross domestic product') measurement system, which basically compares the `income' and `output' of an economy in a certain time period, is commonly used to gauge this so called "Economic Growth". Now, before we go any further, let it be noted that the whole idea of Economic Growth, as it is traditionally interpreted, is nonsense with respect to true human development. There is no such thing as true economic growth in and of itself, for the underlying mechanism is based almost entirely on the amount of liquidity (money) in the system. In other words, if I counterfeit 100 million US dollars and give it to you to start a business (you don't know it's counterfeit) and you buy and fix up an old building, hire a team of employees and start to produce a product that the public buys, this would be considered an `expansion' of the economy. You have invested in real estate increased the employment rate and created new products that others buy, therefore exciting the circulation of currency (the `consumption cycle'). Now, what if it was found out that all that money you had was counterfeit, and the whole operation was shut down? This would be a `contraction' of the economy, for the money thus vanishes; your employees would be laid off, the building foreclosed upon, and the production halted. Given the above scenario, one should ask: What was the real growth? If the increase (expansion) in the supply of money can result in the creation of jobs and production, while the decrease (contraction) results in the loss of jobs and production, what exactly was the point? To understand this more clearly, we need to look at how money is created and regulated by the government and/or its central bank. For this example, we will use the United States and its central bank- The Federal Reserve.
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