Credit inflation - Economics Dictionary

Credit inflation is often used to refer to the case where excessive credit expansion causes water prices . Excessive credit refers to a situation in which a borrower who is unable to pay is credited and the bank provides credit beyond the limit of the deposit, indicating a credit expansion that corresponds to the output level. In the boom period, the credit expansion and the price of the ears occur at the same time, but the credit expansion at this time reflects the expansion of the reproduction and the increase of the transaction amount. Even at the end of the boom, when there is a limit to the accumulation of capital, credit still continues to expand.


At this time, excessive credit occurs, and such credit brings the price of water for a certain period of time. In times of depression, if credits to be shrunk in response to shrinking reproduction are sustained at a high level supported by low interest rate policies or bailouts, excessive credit will prevent price declines for a period of time. However, such a credit expansion causes a credit depression as a reaction and intensifies the panic of the reproduction process. The problem of credit inflation is that it contradicts the neutrality of the price of credit . There are arguments to affirm credit inflation by acknowledging depreciation of the banknote as a credit currency, but this is generally not recognized. However, if credit expansion realizes the expansion of reproduction, credit may act on prices.


The credit provided by the bank to the business is provided in the form of monetary on the one hand and as lending capital on the other. The fluctuation of the commodity price occurs inside the commodity and here only the amount of money corresponding to the total commodity price is absorbed. Loan capital provided to businesses is called real capital, which increases product demand and increases reproduction. Therefore, the market price is rising and the output is increasing. As a result, the total price of commodity is increased and the amount of money required for the distribution of commodities is increased. Therefore, the credit money (part of which is paid out in cash) provided to the enterprise corresponds to the increase in the distribution requirement and does not exceed it. If it exceeds, it will not be a means of purchasing, but a bank deposit. Thus, credit expansion stimulates the price of water, but it can not cause inflation. However, when it points to the expansion of the public service, things are different. This is because it induces banknote inflation.