Deflation is the problem, not inflation; Social Credit is the answer, not gold.

Social Credit as American as Apple Economic Pie

“Calling investment a bubble is simply a rhetorical trick to place the blame of recession and depression on the investment and not on the deflationary interest and principal  payments that exceed the amount of the loan and really the cause the crash.  Creditors always want deflation and they always want to blame all of the damage done by deflation on inflation, that is on our investments and enterprise.  It is time for that process to be clearly spelled out for the average citizen. —  Dick Eastman

This essay is placed in the public domain by the author, as is everything else he has written.

Identifying the wrong part in our malfunctioning national economic engine and the right part needed to replace it.

Dick Eastman

Let’s assume we beat the international organized crime conspiracy and are not quick frozen in the new ice age, so that we actually do become  free to change our system of money and credit to better satisfy our needs.  Immediately two questions arise.  What part of the current system is causing the middle-class destroying depressions and what is a true cure that would set us free to build a great and good future free of debt and high taxes  and where the household sector is sovereign and government serves the people?
This note focuses on the one problem from which all other national economic problems flow  – and on the solution which will eliminate that problem for good and open the door to the kind of happy future for all mankind which most of us have stopped thinking would ever be possible.

You all have read a thousand articles about the Fed and the crimes of the financial elites — but this message identifies they flaw in our lending system, the flaw which gives birth to all of the evils that inflict us.
If it is still worthwhile to know what part of our malfunctioning economy is the wrong part for the engine  and to know what kind of part the economic engine really needs — then this article people need to read.

> Ardeshir Mehta: If Tom loans Dick $100 today, and then Harry loans Dick $100
> tomorrow which Dick then uses to repay Tom, would not the original
> $100 Tom lent Dick remain in the system? Or do you think it will all
> vanish into thin air somehow?

Nothing will happen to money in circulation if they all use their checkbooks and Tom is not a bank.

So let us ask the right question:  Where does our debt-money system fail us and what can we do about it. 

First understand what is meant by money remaining in the system and by money being withdrawn from from the system.


Money “not remaining in the system” means either:

Loan principal and interest being paid into  the black box of the financial sector and never coming out again.  Say for example, if Dick pays back principal on a zero-interest $100 bank loan and the bank does not make a new loan to anyone to replace the debt retired.

Also grandma may have a $100 bill in her old mattress which has been there for years and she lends it to Dick who after two weeks pays it back to her and she sews it back into her mattress where it is buried in a landfill 8 years latter. 

And the final one —  the bank lends Dick $100 which he puts in a Swiss bank account or uses to buy an import from a country where people keep dollars in safes to hedge against inflation of their own currencies.  etc.

Now let us take a look  at  money coming and going into “thin air” versus money being “in the system or not in the system”

Money “in  the system,” I suggest, should be considered as being a deposit in a checking account or being currency in a pocket or handbag or grocery store til, or in a company’s payroll safe, but not currency in a bank (financial sector).

Now we need to consider the important notion of “first spender” and “last seller”

A man is a first spender when he writes a check on a new bank loan.  He is also a first spender when grandma gives him a dollar that has been in her mattress.   In either case  the that new money entering circulation (entering the system of buying and selling among households, businesses and government (consider government  as a branch of the household sector  — collective buying and selling – however poorly managed)   – that new money when first spent — is then deposited in the bank of the seller who first accepted it — from then on it will always be in someone’s checking account — jumping from person to person as check writing dictates.

That money as a rise in the water line of total checking deposits in the economy will only exit the system when the bank loan is repaid.


A “last seller” is a man who gets money and then exits it from circulation  — either by using it to pay interest or principal on a loan or by depositing it out side the country or into a mattress where it will not be spent for a long indefinite period.

Now we come to the source of our troubles. 

New money entering total national checking deposits tends to multiply after it is deposited.  How much it multiplies depends on banking rules about how much deposited money  must be held in reserve against the loans a bank makes.  Let us look at the so-called   “money multiplier” which determines how much “thin air” money will be created under fractional reserve banking rules.


Say $100 in new money is added to total checking deposits in the country.       Because that $100 has risen the water line in the great tub of deposits  (remember the new first spent $100 is always either one one persons checking account or another — our real money is not “checks” but rather “transfers of balances from one account to another”)   — now the fractional reserve system allows that however high the tub of deposits in the bank a certain fraction of that total can be lent.   It is easier and quicker to understand when we forget individual banks and talk about the water line of all deposits in all banks. 

Start with new banks that have no money deposited.  Then Tom, Dick and Harry get a sum of money from their grandmothers’ mattresses as birthday presents and deposit them in these banks.  Now the water level on all this banks together has risen to a certain level.  And as Tom, Dick and Harry work taking in each other laundry paying with checks – the amount of money in checking deposits does not change.   But low and behold!  the bank has been given power to issue loans up to a fraction of their bank deposits.  (This is a safe bet since Tom, Dick and Harry are not likely to withdraw their money from their accounts and put them in their own mattresses or to deposit them in a Swiss Bank or Cayman Island offshore bank.)   If the fractional reserve ratio is 10 percent that means that the system can lend — that is create new “thin air” deposits for borrowers up to 90 percent of what they have on hand.  This of course will increase the water line in the total deposits tub by 90 percent.  Now this rise in the water line from the old level to the new level  is new deposit that can also be considered new reserves against which new loans can be made  — so 90 percent of that 90 percent of the original Tom Dick and Harry can be loaned by those banks, loaned to Tom Dick and Harry to expand their laundry facilities.  But this 90 percent of 90 percent itself raises the water line of total deposits — and the additional deposits from the old water line to the newest line is also new deposits which can by the fractional reserve banking rules can back new loans up to 90 percent of that rise in the water line.  And this is the money multiplier effect.  Each new loan gives birth to new deposits that have a life of their own being transferred between Tom, Dick and  Harry.

But we are forgetting that each of these loans must eventually be paid back to the bank.  Which means taken out of the system.  And that lowers the water line  — and of course the total amount of loans cannot reach higher than 90 percent of water line of total deposits.  So if a loan is repaid, then all of the fractional-reserve-based loans that came from thin air because of that loan must now go back into thin air because that loan is being retired.  Now we have a money multiplier of contraction.  Because as the reverting back to thin air of 90 percent of the repaid loan, will force loan calls of 90 percent of that amount  — which in turn will lower the level of the total deposits tub once again requiring yet more loan calls.  And so it goes  — except it is goes even further than that — because we have so far not mentioned the interest payments that also are draining the tub.

Tom, Dick and Harry must end up turning their laundries over to the bank  because while they started with their grandmas’ mattress money to stake them in their laundry business —  they took out loans that were far more than that to build their laundry’s.

Each 100 from a grandma led to a 90 dollar loan which led to a .9 of 90 loan which led to a .9 of .9 of the 90 dollar loan  and so on, until Tom, Dick and Harry are owing the bank far more than $100 for each $100 of grandma money they deposited.  And on top of all of this that is owed in principal on multiple loans  there is also interest on each of these loans.  So if the bank after it is all loaned out simply collects the interest and the repayment of principal  Tom, Dick and Harry will loose all of their checkbook money and their laundries will be foreclosed too  — grandma’s stake and all of the work they have put into it.

And of course the bankers will own the laundries and the land they are on.

But the bankers have to save their reputations in all this  — so they offer to loan the government of Tom Dick and Harry that will be used to put Tom Dick and Harry to work building wind generators to power the laundries now belonging to the banks.  Of course the money loaned to the Government of Tom, Dick and Harry will have to be repaid with interest.  Now since the government of Tom, Dick and Harry has no laundries  what it can do is tax all of the work that Tom, Dick and Harry do as they try to dig themselves out of their hole.  But as more and more interest is needed and more and more loans to make up for the net drain on money from the system — the debt slavery and tax slavery of Tom, Dick and Harry consumes all of their lives  — they and their children and grand children will inherit the slavery in the form of the Government of Tom, Dick and Harry and their progeny forever.


And notice this about what has been explained above.  Inflation was not the cause of the problem.  Inflation is simply another word for investment.  In fact “economic bubble” is just another word for people investing (smart or stupid) with borrowed money.  The trouble enters in when “anti-inflation” that taking back of that loan money and yet more than the amount of the loan in the form of payment to the banks of principal and interest  causes deflation — causes the money multiplier of contraction (collapse) of loans.  Actually inflation is not bad at all.  It is deflation that kills us.  Only the holders of financial wealth, the lords of the financial sector, like deflation because it is when they take back what they created out of thin air and then more — which is a drain that is multiplied so that the lender/creditor ends up owning everything the borrower had before he came seeking a loan and the business that the borrower built up with the loan.  Borrowers are farmed and fleeced and so are entire nations. 

Now of course the answer to this is social credit — which just gives every person money debt free to go out and spend and build an economy without fractional reserve banking building up their debt and then, by deflation because of interest drain, taking away everying they build and then some.

If Social Credit is the real answer, shouldn’t you learn more about it?



Dick Eastman
Yakima, Washington



About oldickeastman

Born 1949 Oakland High School 1967 Lake Forest College B.A. Western Michigan M.A. Texas A & M University M.S. and two years completed in the doctoral program in economics, passing prelims in Macroeconomics I am living in Yakima, Washington and spend much of my retirement writing on public issues.
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One Response to Deflation is the problem, not inflation; Social Credit is the answer, not gold.

  1. Feder and Soddy: Anti-interest and international Jewish finance capitalism.

    Kitson: Anti-Gold Standard, pro-national credit, and fiat money

    Douglas: New money originating free and clear exclusively in the household sector.

    Eastman: Two-loops, the international creditor loop feeding on the lower loop of chronic deflation punctuated by debt-financed loan bubbles where the new businesses build up in the bubble eventually succumb to interest payment and ownership of the assets are transferred to the Eliteworld loop. (More or less Hobson imperialism practiced at home.)

    Hobson: The upper-loop’s use of accumulated interest earnings to pursue Imperialism ventures (take over the economies of the world — now through IMF and World Bank loans, in the so-called “developing world.”

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