The Global Template for Collapse: The Enchanting Charms of Cheap, Easy Credit
Cheap, easy credit has created moral hazard and nurtured magical thinking throughout the global economy.
According to polls, the majority of Greek citizens want the benefits of membership in the euro/EU and the end of EU-imposed austerity. The idea that these are mutually exclusive doesn’t seem to register.
This is the discreet charm of magical thinking: it promises an escape from the difficulties of hard choices, tough trade-offs, the disruption of vested interests and most painfully, the breakdown of the debt machine that has enabled the distribution of swag to virtually everyone in the system (a torrent to those at the top, a trickle to the majority at the bottom, but swag nonetheless).
If we had to summarize the insidious charm of magical thinking, we might start with the overpowering appeal of using credit to ease all difficulties.
Need money to fund various healthcare/national defense rackets? Borrow the money. Need to keep people employed building ghost cities in the middle of nowhere? Borrow the money. Need to keep buying shares of the company’s stock to push the value of each share ever higher? Borrow the money.
The problem with cheap, easy credit is Cheap, easy credit destroys discipline. Thelifetime costs of debt taken on to fund bridges to nowhere, healthcare/national defense rackets, ghost cities, stock buybacks, etc. are never calculated. Theopportunity costs are also never calculated.
When credit is costly and hard to get, marginal borrowers can’t get loans and nobody dares borrow at high rates of interest for low-yield, high-risk schemes.When credit is costly and hard to get, what doesn’t pencil out doesn’t get funded.
When credit is cheap and easy to get, every scheme and racket gets funding because hey, why not? The cost is low (at the moment) and the gain might be fantastic. But even if the gain is unknown, the kickback/campaign contributions make it worthwhile even if the scheme fails.
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