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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: forceOfHabit who wrote (78107)	1/25/2007 11:19:15 AM
From: GraceZ	Read Replies (2) \| Respond to of 110194

Ummm...do you have any evidence to support that conclusion? Having a net worth of $5,000 puts you ahead of 98% of the world's population. What do you think is the median household net worth in the US? The average? Hilarious! Most places on the planet where people have never flown on an airplane are extremely poor. Does it follow that taking airplane rides made/makes/will make us rich? Even when you are trying to be ridiculous you actually reveal a little truth. Trade makes countries richer than they otherwise would be. Access to efficient travel options gives individuals a huge trade advantage. There is a reason that England once ruled half the planet....boats that could travel the high seas. Poor countries tend to have few laws securing clear title to private property which makes lending and credit difficult to impossible, it also makes the transfer of RE assets extremely difficult. The richest countries have long standing, clear laws and institutions surrounding property rights. This makes lending based on RE easier and more secure for lenders. I think you'll find that a lot of loans used by Americans to create or expand business opportunities are secured with RE assets simply because it is an asset which stays put and is easily assessed. Credit allows for more efficient use of capital. The reason for this is very simple it allows you to use the whole of your resources (this was known 231 years ago as well) and allows for savings to flow to those who would use it most efficiently. Imagine a business that has a 25% margin. In a country where only cash can be used for transactions this particular businessman might employ 100% of his capital, let's say he employs 100k for a profit of 25k. He probably wouldn't use 100% in a world without credit because he'd hold some in reserve... but for argument sake let's say he does. The transaction might take 2 months to clear, from inventory build to final sale. So for 2 months he was without his 100k which is tied up in inventory, so now he has lost 2 months worth of return on 100k and made 25k minus the cost of his own money being tied up for two months. In a country where he could use his 100k and borrow 300k, he could do a transaction 4 times larger and make 100k minus 2 months interest on 300k, let's say 5k in a 10% interest rate environment or 95k profit on the exact same pile of accumulated savings. The guy who lent him the 300k is happy because he now has 10% interest on what was idle savings. In a world where idle savings is borrowed and interest paid, the capital flows to those who would bid the highest for it, to those who would use it most efficiently.