Defaulting On Your Debt
The History of Credit
Let's get one thing straight: Credit is not money.
Understanding the history of money, lending, and credit will help you get a better sense of how you ended up in the position in which you currently find yourself. To get started, let's take a quick trip back to the Dark Ages (I promise we won't stay long).
From the period between 500 A.D. and approximately 1,000 A.D., the idea of an "economy" as we know it did not exist. Money was largely nonexistent. Most people used barter to trade goods and services. The average loan was made with goods, and interest was charged with goods: if I borrowed twenty bushels of wheat, I paid back twenty bushes plus a bushel or two in interest. The barter system, and loans based on barter, helped people survive lean times and make it through the natural swings of feast and famine common in agricultural economies.
After all, sometimes the harvest doesn't come in but the kids still need to eat.
Next, certain objects such as gold coins became imbued with intrinsic value and were traded for goods and services. However, as anyone who has carried around a pocket of gold coins knows, they can be quite heavy as well as difficult to keep safe.
So strong-houses (banks) were built to store and protect these deposits of gold. In exchange for your deposit, the bank would give you a paper receipt. Soon, these receipts—being much easier to carry around—were exchanged in lieu of the gold coin backing them up in deposit.
Thus, the first paper money was created.
Then the bankers started to notice an interesting phenomenon. Given their daily deposits and withdrawals, there was always a certain amount of gold on hand in deposits. Since the receipts for these deposits were as good as money (and indeed functioned as our modern currency does), the bankers started issuing more deposit receipts than they actually had gold in deposit. Why?
Because the bankers knew that by issuing extra deposit receipts, there wouldn't be enough gold in deposit if everyone were to cash their receipts at the same time. However, the bankers also knew they could always count on a certain percentage of gold to remain in deposit and therefore banks could literally print money for themselves, based upon other peoples' gold, by simply creating these additional flat receipts!
This original deception by bankers was the genesis for the credit and fractional reserve system that we have today.> Ethical Lending