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starbucks4ever (97.87)

Who needs credit and why?

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October 02, 2008 – Comments (0)

As tape worms are doing their best to brainwash you into believing that you can't live without tape worms, that is, as Paulson and his friends are trying to convince you that our economy will perish without financiers, let me pose the following question.

Name one kind of business activity that you would be willing and able to start once the bailout drives interest rates lower and that you cannot start now, at current interest rates.

Explain how that business activity will benefit the rest of us. Explain why this activity is not profitable now and why it will become profitable at the lower cost of capital. Your argumentation must take into account the fact that the competition will be using the same low-interest loans to bid up the price of inputs that your business relies upon. Explain what makes you think that lower interest rates and higher input costs will not in fact cancel each other. By the same token, explain why the effects of higher interest rates you're seeing today will not be fully neutralized by lower input costs once your suppliers give up their hope that cheaper credit will soon increase your purchasing power.

Estimate if your business will be able, by squeezing the margins of input cost suppliers, to bring down the cost of the final product to the point when customers can purchase it with cash, and if yes, justify the need for employing financial intermediaries and explain what exactly their intermediation contributes to the production process.

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