Money and credit seem similar — both let you buy things. But they're fundamentally different, and that difference explains economic cycles.

Money settles a transaction immediately. You hand over cash, it's done. No one owes anyone anything afterward. Money is a store of value and a medium of exchange that doesn't create obligations.

Credit is a promise to pay later. When a bank makes a loan, it creates credit — new purchasing power that didn't exist before. The borrower gets spending power now, but they owe debt afterward. Credit creates a relationship: a creditor and a debtor, linked until the debt is paid.

Here's the key insight: When credit expands, spending power increases FASTER than money supply grows. The economy booms. But that spending was borrowed from the future. Eventually, the debt must be serviced or paid back, which reduces future spending power.

This is why credit is the biggest and most volatile part of the economy. Money supply grows slowly (2-5% per year typically). Credit can grow 10%, 20%, or more during booms — and contract just as fast during busts. The Fed controls money, but banks and shadow banks control credit creation, and their willingness to lend fluctuates wildly based on confidence.

Understand this: In a credit-based economy, boom and bust are features, not bugs. Credit pulls spending forward (boom) then demands payback (bust). The cycle is inherent to the system.