Skip to main content

The Price of Capital: Serving Your Interests, Incidentally

The assumption that credit ought to always remain cheaply available for the spurious investment, business or otherwise, is predicated upon the belief that advancements are linear, that they occur as a function of time, not as a consequence of thoughtful deliberation. 

Of course, it is the latter which determines a worthwhile investment, whereas the former simply creates busy work which was rendered feasible by the aforementioned easy access to credit and the artificially low costs of failure. 

Of course, credit creation is a luxury of savings, neither an entitlement nor an absolute benefit to the economy realized through its mere transition through the spending phase. 

The political Left tends to construct an emotionally-appealing narrative to establish the illusion that lives would improve if credit were only made more widely available for those mired in misfortune. 

Well, the theories of economics are not alone in disproving this fallacy, as even real examples of recent history illustrate the risks of artificially manipulating credit to pave the road to the purported American dream. 

After all, this was precisely the cause of the long-forgotten housing bubble and the ensuing financial crisis, and it has remained an insidious agent in the falsification of the U.S. bond and stock markets, in addition to auto loans, consumer credit, college tuition and even the reflation of an out-of-whack real estate industry. 

In summary, economic improvements take time to develop, and there is only so much savings to justify credit. 

The only way that this credit, and the risks attending its extension to hungry bidders, can be adequately assessed is through the appreciation developed through the laborious acquisition of said capital and thus the commensurate exposure to its potential loss. 

This is the point at which loss is most palpably evaluated, where the object acquires its incipient human appraisal. 

So while the sophist may produce a compelling diorama of what is possible, he is always far more likely to exhaust limitless resources to the sensational tune of promising nirvana, while the disciplined businessman operates within the reality of scarcity and shoulders the whole loss and thus conducts due diligence to ensure that resources are not going to waste, that the recipients are appropriately positioned to seriously manage the costly resources and pay back the principal and interest of the loan: this justification, known as profit potential, is the mark of a worthwhile venture, as buyers and sellers progressively coordinate services and supplies where they are most highly valued. 

This is the most objective measure by which we can reliably gauge the efficacy of resource allocation: not by what people say or promise, but rather by what they execute and deliver. 

And this is precisely why the price of capital is so profoundly important to the whole structure of an economy. 

It must be priced, first, to represent its own scarcity and its time value; second, it must act as an organic gatekeeper, preserving the capital for use based on risk, both economic and monetary, and the historic credit quality of the debtor. 

Finally, it must be priced to represent the real demand of the market, to favor viable business investment over reckless consumer extravagance. 

Incidentally, the economic community is far more handsomely rewarded by the careful employment of resources in such a way that it yields value beyond its mere cost of production than it might otherwise be by spendthrifts squandering it into oblivion. 

As renowned economist Milton Friedman once said, “Nobody spends somebody else’s money as wisely as he spends his own.”

Comments

Popular posts from this blog

Free Money: The Tech Secret Even Silicon Valley Doesn't Know

In July of 2015, Vitalik Buterin officially released the game-changing technology of Ethereum, an immediate competitor to its now-popular and relatively better-known counterpart Bitcoin. A cursory evaluation of the following chart might lead the reader to some wild conclusions, so continue reading to acquire a better understanding of the trajectory of this new-age abstraction of online currency that, despite its massive gains in recent weeks, hasn't remotely become a household name in even Silicon Valley, the tech capital of the world.


A variety of formal and informal polls suggest a lagging familiarity with the increasingly popular cryptocurrency giants. Those who claim awareness are most likely to recognize Bitcoin, while Ethereum has still flown largely undetected in even the heart of Silicon Valley. One might assume with a chart like this, with its major parabolic upswings and indefinite streams of free money, that awareness of the blockchain medium of exchange would have surg…

Hurricane Irma Reveals How Nationalistic America Really Is

It's interesting how the Weather Channel seems to treat the devastation of the Caribbean, even American territories, as precursors to what they have identified as the event, otherwise known as landfall upon the continental United States.

For the people presently facing Irma, the event is happening now.

The reason this is important is that it implies a lot about the way we view the world and its inhabitants.

Although the political map clearly illustrates borders between nations, views from the International Space Station reveal that these boundaries are mere imaginary lines drawn by history's political pundits whose self-interested motives altogether failed to represent the unanimous consensus of the time, and yet they fail even more miserably in that capacity today.


Notwithstanding the fact that we are all inhabitants of this earth, of the same species and familiar family dispositions, we are subliminally inculcated by political representations of this terrestrial world to ass…

Market Manipulation: Mirages in the Desert of Economic Despair

An article published today by MarketWatch, entitled The world is becoming desperate about deflation, reveals the astounding truth that interest rates would not have remained as low as they are today if the American economy had truly recovered from its most recent recession.

Economists of the political ranks tend to support lower interest rates and inflationary measures because they advance spending, boondoggles and measurable economic activity to the limited timeframes of their active administrations, at the real expense of future output and thoughtful investment that simply affords no benefit to present-day headline economic indicators and the intellectuals who wield them.

In an anemic economic climate, infrastructural change is the antidote to misinvestment, while monetary manipulation is the politically-convenient mirage in the desert of economic despair.


While wanderers across that desert perceive advantage in continuing to chase elusive returns and public policy tacitly rewards t…