Sunday, 8 March 2009

Credit and Growth

In Business Spectator - Living on borrowed stock - Alan Kohler states:
As we are now learning for the umpteenth time, the lending of money – AKA the credit creation process – is necessary for economic growth.

We know that because credit creation has now stopped because too much money had been lent simply to buy land instead of productive assets, thereby temporarily and artificially inflating the price of land and then dissolving bank capital as prices fell. As a result, economic activity has now stopped as well.

A simple, but effective, description of the current economic environment.

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