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According to the “wise” and the gullible, the U.S. is enduring a “credit crunch” right now. Isn’t it obvious? Interest rates are higher. Statement of the obvious, right?

While the above is what passes for reason in modern times, readers should be skeptical. The accepted wisdom has quite a lot of holes in it.  

First is the popular notion that higher interest rates mean tighter credit. On its face, the idea is a simplistic one. That’s the case because banks, money market funds, and financial institutions more broadly don’t pay more for savings (as they’re doing now) so that they can sit on the money. The simple, undeniable truth is that they pay a little or a lot to “rent” money so that they can lend it to others.

It seems “interest rates” blind the pundit and economist class to the basic reality that there are two sides to every transaction. Put another way, in order for borrowers to borrow, savers must save. Get it? Absent individuals foregoing consumption of their surplus, there is no credit. In which case, higher interest paid on savings would logically be a lure for the – yes – savings without which there is no credit.

To which some will say that in raising rates, the Fed is shrinking available credit by essentially selling bonds to banks in return for dollars. Tight credit! See above to consider the absurdity of such a view. Whatever the Fed is doing doesn’t seem to be working with banks. They’re presently upping what they’ll pay for deposits that they must lend as an incentive for savers to save.

At which point, it’s useful to remember that the economy is global. And dollars circulate all throughout what is a global economy. Remember this truth with interest rates well in mind. They’re a price like any other. And in the capitalist system, businesses are rewarded for pushing down the cost of everything.

Indeed, pundits and economists imagine that businesses are looking for that special product with certain special features that make demand for it wholly elastic. According to the wise and gullible, businesses seek “pricing power.” Except that they don’t. Businesses eager to thrive in order to win the favor of investors work feverishly to bring down the price of everything. If you doubt this, note the valuation of corporations in Silicon Valley. They’re the most valuable in the world precisely because they’ve staged what Rich Karlgaard describes as a “Cheap Revolution.”

The reality is that high prices are blood in the water for the profit-motivated. It’s where margins are high that opportunity for big profits is most impressive. Why then, would it be any different with credit? The answer is that it’s not.

Never forget that while credit is invariably difficult to come by, those skillful at providing it are able to make a lot of money off of their skill. It’s a sign that if credit is expensive now, or if the Fed has “overshot” on rates, what’s expensive is what lures substitutes into the void allegedly created by high costs. Basically, the high cost of anything (including high rates of interest) is self-correcting. Basic stuff.

Can credit ever become costly or hard to come by just because? Yes, of course. The remarkable power of compound returns is a reminder that the cost of mis-allocating funds or lending toward or investing in troubled business ideas is enormous. At the same time, the previous truth hopefully opens readers up to a bigger truth: tight credit is market consequence, not an effect of an austere Fed.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.

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