Everything in economics starts with a transaction. Someone has money or credit. Someone else has something to sell — a good, a service, or an asset. They exchange. That's it. That's the entire economy at its most fundamental level.

But here's the insight that changes how you think about markets: One person's spending is another person's income. When you buy a coffee, the barista earns wages. When a company buys software, another company earns revenue. When the government spends on infrastructure, construction workers earn income that they then spend elsewhere.

This creates a feedback loop. Spending drives income drives more spending. Understanding this circular flow is the foundation for understanding why economies grow, why they shrink, and why policy actions ripple through the system.

Total spending in the economy equals money plus credit. Here's where it gets interesting: Credit is far larger than money. In a typical economy, credit is 3-5 times larger than the money supply. This means most economic activity is powered by promises to pay later, not cash in hand. This is why credit conditions matter so much — when credit expands, spending expands; when credit contracts, the whole system slows down.

Track spending to understand the economy. Track credit to predict where spending is going.