I'll gladly pay you Tuesday
August 28, 2011 1:57 PM Subscribe
This Debt thread over the MeFi has me wondering: Am I completely off the mark to believe that easy access to cheap credit fuels inflation?
Here's how I see it:
Let's say I can get a credit card with a 5 thousand dollar limit with say, 5% yearly interest or something like that (Easy access to cheap credit!). If I am maxed to the hilt my monthly minimum according to one online calculator, my minimum payment is 70 bucks. I can carry that for the rest of my life, paying a crapton of interest, yes, but essentially I will end paying 70 dollars a month to essentially, rent access to 5 thousand dollars worth of goods and services. In my mind I see that as my credit multiplier, and it all depends on a whole lotta shady shit that can change at any time, but for these purposes, let's stick with easy access to really cheap credit.
Now, Let's say I can afford to pay 700 dollars a month towards my debt, I see that as having a credit multiplier of 50,000 dollars. Multiply that by say 10 million people. Now you have ten million people with 70 million actual dollars that can buy up to 500 million dollars worth of goods and services. What I see here that now there is a whole lotta money competing for goods, so prices go up.
Now reverse it, very few people can get access to credit, so maybe now that 70 million dollars before only has a credit multiplier of say, 150 million dollars. With less money chasing goods and services, prices fall.
Am I completely wrong here? Can someone explain it to me better, because I have always heard that printing money causes inflation, but I think it is actually printing "credit" that causes inflation.