Nobody knows how to handle the Humpty Dumpty for two main reasons, IMO: 1) it plays hell with monetary policy, and 2) it plays hell with any attempt to control it.
Market forces are very strong. Governments control them at their peril, and cannot control them for long.
Governments printing money is much more problematic than banks creating credit, again IMO. Banks and merchants have been creating credit for as far back as we have written records. We think probably the Romans did it, maybe the Babylonians.
One problem with studying the history of credit is the medieval prohibition against usery. Bankers had to be creative in finding instruments that got around the prohibition, like discounting loans so that interest was built in. In fact, one of the ways we know the history of credit is by reading religious polemics decrying the practices.
Eight hundred years ago merchants and bankers distinguished between "banco," money created by banks, and other money, but they both spend pretty much the same.
Credit involves risk, and risk is something real. However, without credit, the modern world as we know it would not exist.
So, we have volatility, we have risk, we have spectacular defaults. It's amazing it works at all. But it seems to. |
