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During this little credit crisis, is the money supply shrinking because less borrowers are maxing out their lines of credit?

NO, because all the money (apart from reserves) is loaned out all the time, as I have already said. If it's not loaned out to someone's LOC it's loaned out to someone else. The banks are not sitting on big bags of money.

Isn't it self-evident that if banks are willing to pay x% interest on deposits, they must be lending the money out to somebody?

Money supply is contracting because of loan losses, which reduce bank reserves, which reduce the amount of money they can lend out.

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During this little credit crisis, is the money supply shrinking because less borrowers are maxing out their lines of credit? Are we then in period when money is being destroyed faster then it is being being created?

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Your fallacy is in assuming that the credit union has a bag of money sitting around that it loans out in drips and drabs to people like you.

In fact the credit union loans out all its money all the time, subject to reserve requirements. If it hadn't loaned the money to you it would have loaned the money to someone else. That's what the bond markets all are about. All the money loaned out, all the time.

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My parents and aunts and uncles save some of their money and deposit it in the local credit union. All together, they deposit 10,000. that is the base money supply. I use my credit card to buy a cheap flight to Mexico. The credit union transfers $400 to the bank account of the airline. The credit union now has 9600 in cash plus 400 in debt owed to it. All counts as "money" assets. The airlines bank has 400. Total money supply $10,400. By going to Mexico, I have created money.

When I get back, I get a job with the airline unloading luggage. They pay me $400 from their bank account. I pay that back to the credit union. Now the credit union has $10,000 cash again, the airlines bank has $0. Total money supply is $10,000 again. By unloading luggage, I have destroyed money.

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"Commercial banks and other financial institutions provide the greater part of assets used as money through loans made to individuals and businesses. In that sense, financial institutions are creating money."

Or, to put the shoe on the other foot, borrowers create money when they take out a loan, use their line of credit or credit card. And then destroy money (supply) when they pay off those loans.

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But when people ask how a massive drop in prices could affect some, my friend is a good example.

It is your friend and people like him who were directly responsible for the massive rise in prices in the first place, so why should anyone feel sorry for them?

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That is why I am so wary when then put a nice piece of cheese on these complicated serving platters (mouse traps).

Too good to be true, no free cheese bits out there.

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Sellers who can afford to seem to be waiting it out, hoping for better news – which just won't be coming any time soon.

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Big business leaders in Spain are stepping up their demands for labour reforms following the crash of regional savings bank Caja Castilla la Mancha, the first since 1993. After attempts to coordinate a buyout failed, the Spanish government was forced to inject €3 billion ($4 billion) into the bank to plug a "hole" in its finances and provide €9 billion ($12 billion) in loan guarantees.

The bailout has destroyed the myth that Spain's banking system was "immune" from the global financial crisis. According to economics professor Antoni Espasa at Madrid's Carlos III University, "The Spanish economy is in for a ferocious fall… It's going to suffer more than Europe and take longer to recover."

Dominic Bryant, Spain expert at BNP Paribas added, "The economy is in dire straits… The adjustment will be enormous."

When the economic crisis first broke José Luis Zapatero's Socialist Workers Party (PSOE) government boasted that the country's large budget surplus and tough regulations and controls on financial transactions would allow the country to resist the worst of the global crisis. This nationalist chimera has been burst. This month, the Economist warned, "Back in September Mr Zapatero had expressed his confidence that the downturn would bottom out fairly quickly, helped by ‘perhaps the most robust financial system in the world'. The recent rush of policy action would suggest that the outlook is now not quite so rosy."

Since the beginning of this year one million workers have lost their jobs in Spain, bringing the number of those officially unemployed to nearly 3.5 million. The country's second-largest bank, BBVA, issued a study recently saying that unemployment will rise to 4.1 million by the end of this year and hit 4.5 million in 2010.

Spain's auto industry, which employs 350,000 is in a particularly desperate condition. Whereas Nissan's production world-wide fell by 54 percent "year-on-year," in Spain it dropped by a staggering 90 percent. The drive to cut costs and increase efficiencies in what one government minister described as the "export lungs" of the economy has relied almost entirely on the trade unions. At Nissan the trade unions have agreed to slash 1,680 jobs at its plants in Barcelona.

Last week, the Associated Press carried a report on the situation facing construction worker Antonio Montoya, who until recently "could afford two cars and a nice duplex for his family of six, with a sunny patio and pet canaries singing away. Spanish real estate was booming, jobs were abundant, and as Montoya would drive past the unemployment office, he felt like he was gazing at another planet. ‘I would say to myself, I'd never be in that situation.'

Now Montoya has been forced to go to that same office, "catching a bus to save on gasoline, and joins the sullen, ever-growing line. He sniffs out job offers, signs for his 750-euro ($970) monthly benefit and goes back home, often to meals of leftovers. In disgust Montoya states "Imagine now, here I am at age 54, without a job… I don't know how long I will be able to hold on."

http://www.globalresearch.ca/index.php?context=va…

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