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The Evils of Inflated Credit

 


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The questions of currency and credit are closely interlinked. The inflation of credit does not necessarily lead to inflated currency, and deflated credit does not necessarily lead to deflation of currency, provided the balancing act is done carefully. A spanner in the works can cause all sorts of problems.

It could be argued that the inflated credit, a phenomenon which came in handy some ten years ago, helped the wheels to go round particularly creating rising costs in house prices, notably in the UK and USA. This is the culprit, which is now causing a sharp reversal towards a deflated credit period.

For instance, if an inflated credit situation made for house prices to rise to start with, an unsound currency period can follow, and thus carry the evils further.

Is it reasonable to expect that it is safe to extend credit to someone when that someone is borrowing constantly somewhere else against mere IOU notes? If currency was to follow the same path, it would become very unsound.

When problems start to build up in the private and public sector, steady and determined self denial is prescribed as a medicine. However, the condition of the world today is one, which cannot allow uncontrolled severe restrictions on expansion of credit with an easy heart. What is likely to be needed is justifiable expansion of credit which sanctions the demands of the manufacturing and trading sections in particular. Such credit of course, cannot be given without careful monitoring, since the tax payers cannot be expected to bail out banks if unworthy allocation of credit is continued.

Mostly, people are interested in the housing front. We are getting to the point where houses are hard to sell because the lenders might have problems as well as the borrowers. Often, a house would sell and is just the one the buyer wants, but he cannot get it because he cannot sell his house, as money is not made available to his buyer. Where it was possible to find a solution in the past, today it is not all that easy.

In other words, it is not the price of the house that is necessarily the problem, but the difficulty of finding someone who will give approval to lend, as well as possibly someone who actually has the money to do so.

If everybody had their houses fully paid for, cash indeed would be king, and business would be brisk. To find a buyer and a seller who both have their houses fully paid for and have cash to spare, can and does happen, but not often. That type of buyer and seller is the dream for the real estate companies, because they know that the only hurdle needed to jump, is whether the buyer likes the house and not whether he will get the money to be able to purchase it.

So, is it all gloom and doom or is there a way out? In due course things will improve like they mostly do, but until that can happen maybe it is best to fasten our safety belts for a bumpy ride. Things were good for many years and now there is a price to pay for that easy credit given so freely.

The boat is in high waves with more on the way, but it will sail into calmer waters as time goes by. Everybody will be that much wiser, and any damage will be eventually repaired. After all, things do run in cycles.

Paul Dubsky is director of Foreign Currency Exchange & Transfers Ltd . The company is focused on being able to offer really friendly currency exchange rates. We believe we are the only Foreign Currency Exchange company which offers special rates to Senior Citizens.

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