CREDIT
This one simple word has the power to create wealth on a national scale.
But its potential must be recognized and properly directed.

A loan from a bank or other financial institution gives the borrower credit which in turn creates instant purchasing power.

Take that credit and use it to buy goods now, a car for example, or the mortgage on a house. Or it can be invested in research and equipment which can produce better goods more cheaply.

Credit has enormous potential to create growth and productivity. When applied productively credit can create new business, expand and improve existing business, finance apprenticeships and infrastructure, creating employment and maximizing national prosperity.

But its potential is frequently neglected and under-utilized, giving rise to unemployment, un-used talents, and a reduction in potential national wealth and prosperity.

This may be due to primitive, over-cautious, or corrupt banking practices. Or it may be the result of ideological opposition, an attitude found widely in free-enterprise capitalist economies of the Anglo-American variety where it is preferred to let markets take the initiative.

In many developed, and developing economies however, the view is taken that free markets alone may not consider the economy’s wider needs, and cannot always be relied upon to make such investments as may be necessary to ensure the proper and productive functioning of the economy as a whole.

A National Investment Bank can ensure that the full potential of credit and investment is directed so as maximize productive employment in industry throughout the nation, and to ensure the proper function of the nation’s infrastructure.

The total quantity and duration of credit/loans/investments undertaken by the various financial institutions overall is then regulated and directed so as to maximize the productive capacity of the economy.

Under-use of investment potential will result in pockets of unemployment, and industry ill-equipped for world competition. When the economy is under-utilized, investment should be increased, and longterm investments given priority.

As the economy expands, unemployment and under-utilization of productive capacity will be reduced, so investments of shorter maturity may be undertaken.

Etcetera etcetera. So much for the Ideal World and the Ideal Economy. But of course we don’t live in an Ideal World or an Ideal Economy.

So let’s look at Economics in the Real World.


The Economic Cycle

Like much, if not everything in the so-called science of Economics, it all boils down to plain, simple, down-to-earth facts. The Economic Cycle is no complex esoteric phenomenon revealed only to the Initiated, and it can be defined in the simplest possible terms:

GREED - SURFEIT - RECKONING

Under-utilization of a nation’s economy does indeed provide an amazingly rich opportunity for creative, productive investment, which could and should be used wisely if the nation, its economy and its good citizens are to prosper.

But this doesn’t happen, and in times of economic expansion credit is simply let loose without qualification or limit, and the result is disaster. It won’t look like disaster. Disaster isn’t always obvious. And when credit flows like water, with no qualifications and no apparent limits, it looks more like paradise.

Mortgage Sir, Madam? No problem. Deposit? We don’t bother with those. 80% of market value? Not a bit of it. Well’ll give you a mortgage of 125% of your home’s market value. No problem. That was Northern Rock back in 2007. The first of many to follow in a spectacular financial crash.

Not always so dramatic, or so disastrous, thank goodness. But the same thing happens quite regularly, in a milder form admittedly, but, and here’s the rub (Shakespeare), equally unproductively, equally wastefully, and equally dicing with disaster.

Put simply, the credit flows. Verrily the Cup of Credit runneth over. And we all drink of its bounty. Credit Card Sir? That’ll do nicely. But make sure you give the salesman the right card. Because you’ve got eleven in your wallet, all stretched to their maximum. But not a problem, because they’re all due at different times in the month, so you can phase settlement among the cards so the debt keeps rolling and you never actually have to pay any interest.

The Economy’s booming. But beware, take care, and enjoy it while it lasts, because when production capacities come close, and near-full employment makes labour tight, the Chancellor puts the brakes on by raising interest rates. That’ll slow your spending down, if you’re not already too deep in debt that is. For those really up to their necks, it could spell default, possibly bankruptcy. And one disaster can so easily lead to another. And another. So softly softly, Chancellor!

And so endeth the Good Time phase of our up-down Economic Cycle. For the time being anyway. And what have we achieved? For the consumers among us, a brief buying spree which we’ll still be paying off for some time to come. For industry, a really good production run, profits rolling in, fun while it lasted. So long as you didn’t get carried away and order more equipment which is now under-used but still has to be paid for.

And that’s your Economic Cycle. Credit. Help yourself. No strings, no limits. As much as you like for whatever you like. And here we go: Greed unleashed. But sooner or later, when we and our economy become surfeited with the joys of buying, cometh the Day of Reckoning.

And what’ve we got to show for it? Have we built a yet more prosperous country, investing securely in new industries, services, and infrastructure? Answer came there none.

Which rather brings us back to Square One:

CREDIT
This one simple word has the power to create wealth on a national scale.
But its potential must be recognized and properly directed.

Britain Forward


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