Does the availability of credit & loans drive up the costs for everything since everyone can “afford” to pay?
Filed in Credit on Oct.26, 2009
web_trace asked:
If the market is saturated with bankers willing to finance just about anyone, doesn’t that create more demand than supply and hence drive up the prices on nearly everything? If supply is more than demand, the opposite effect should apply as well. Would people be able to actually afford more if they weren’t suddenly empowered with financing?
I suppose one’s initial reply might be “Welcome to capitalism” but who really profits off this and are we willing to sacrifice our fellow humans to gain the world? People who finance everything certainly aren’t gaining anything, otherwise there’s no profit for the financier. And the people who can’t “afford” to finance are left out in the cold with cardboard signs. So why is this a success again?
If the market is saturated with bankers willing to finance just about anyone, doesn’t that create more demand than supply and hence drive up the prices on nearly everything? If supply is more than demand, the opposite effect should apply as well. Would people be able to actually afford more if they weren’t suddenly empowered with financing?
I suppose one’s initial reply might be “Welcome to capitalism” but who really profits off this and are we willing to sacrifice our fellow humans to gain the world? People who finance everything certainly aren’t gaining anything, otherwise there’s no profit for the financier. And the people who can’t “afford” to finance are left out in the cold with cardboard signs. So why is this a success again?
Doesn’t success of a chain depend on it’s weakest link?
Douglas
October 29th, 2009 at 9:03 pm
Edwin
There are those who deserve to be sacraficed as they have never contributed a red cent to the system. Those are the same people who drive up the cost to the ones who do pay and are a part of the give and take systems in this country.
Entitlements drive the costs up.
October 31st, 2009 at 7:25 pm
Micheal
Inflation has been the same or lower in recent years since credit has become more available as it has been historically, so there is no evidence that easy access to credit inflates prices.
Your hypothesis would only work if you assume that suppliers can’t or won’t increase the supply of goods to meet the increased demand. For nearly all consumer goods, supply is not limited in any meaningful way by anything other than suppliers’ ability to produce and sell the goods. And the availability of credit has pumped money into the market that has made new goods available that might never have been made available otherwise, by making capital available to producers to finance the invention and production of new goods.
Credit has always been available to the rich, and it has allowed them to get richer throughout history. In recent years, its availability to the poor has helped to give them access to the tools that allow them to get ahead, like education, starting their own businesses, and home ownership. It can also help to smooth out tough times for people by allowing them to borrow during lean times and pay back during times when they have more money, meaning that they don’t go hungry during months when money is tight. Some people use credit unwisely, sure. But it’s a tool, like anything else, and it has been an amazing wealth-building tool for many people at many income levels.