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Is borrowing and lending money a big evil confidence trick?

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    #11
    Originally posted by VectraMan View Post
    But perhaps a business that constantly relies on credit isn't actually viable, and so isn't a business at all? In that example, being more prudent with the money in the good seasons should be enough to ride out the bad seasons.
    The argument goes that if the cost of borrowing is less than the profit that can be made, it makes sense to borrow - a a lot of private equity "leveraged" buyouts work this way. Not saying it's ideal, but it's what we seem to have come to.

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      #12
      borrow borrow borrow it's the only way

      Milan.
      Last edited by milanbenes; 16 September 2009, 09:09.

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        #13
        Originally posted by TimberWolf View Post
        Example: a woman on Newsnight was wittering on about how her business wouldn’t be able to grow or survive seasonal variations in demand without credit, which is fair enough. But if her competitors, suppliers and customers hadn’t also been provided credit, the money she’d need to borrow to compete and pay for goods would be less.

        Another example: Most people need to take out mortgages to buy houses. So house prices rise and the amount needed to borrow to buy a house goes up. If people didn’t borrow so much, the need to borrow would be less.

        Example 3: The countries that borrowed the least, e.g. India, Middle-East and China, are about to overtake those that borrowed the most, e.g. you and me.
        Actually she is correct. The lack of credit IS a real problem, because the credit she is asking for is for productive investment into her business. This is good credit.
        The problem, and the reason she has been declined credit, is because much of the credit excesses of the past 5 years or so have been consumer credit that has been spent on consumption - i.e. not productive investment.
        So now the banks expect an economic depression, which means that ALL entities will find it harder to pay back loans, including her.

        The Quantitive easing just makes it worse, by pumping up the economy temporarily, devaluing the currency, yet still resulting in the very same deflationary collapse after the stimulus is removed.

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