What I have noted for the most part is that when we use credit cards, we usually buy things that are outside of our normal reach, luxury of some kind. What is interesting to note is that if I told a friend that I put 1000€ on a credit card for a holiday, they would understand it completely. Yet, if I said to the same friend that I put 1000€ on a credit card to buy Bitcoin, they would think me absolutely insane. It is a interesting conflict as people seem to emotionally treat credit as disposable income, while it is anything but, as there is a cost incurred to take the debt and then, this expensive money is happily spent on something that likely has no chance of a positive ROI. I don't recommend using credit cards to invest with - but definitely don't use them to consume valueless with either.
I absolutely hate to use my credit cards to buy consumables, although I do like having lines of credit available to me for emergencies. Credit is much like alcohol. Temperance is the best policy.
But if you look at the economic cycle, credit is necessary for the economy to expand. Suppose a new factory is built. Credit will usually be needed to fund the investment. But how could consumers buy the products, making the investment worthwhile in the first place, if all they had was salaries paid ultimately out of profits from earlier investments? Large purchases such as cars or homes are paid for with credit (newly minted money in case of mortgages not car loans). Credit has a crucial role in the entire cycle. The main problem with debt is that it creates cycles on its own and if those cycles become too large in volume, they become a hindrance to the economy.
Yes, and pretty much all of the debt creation is in the hands of organizations that are calibrated to maximize profits for themselves, not balance the economic outcomes for sustainable growth. The setup incentivizes activities that lead to poor outcomes.
They're also wary of losses, or at least they should be. Trouble is they have so much leverage that they need to be bailed out from time to time causing a moral hazard because by that time their managers will have cashed out their bonuses.
Why be wary when the bailouts are taxpayer funded?
Tax payer funded but not gifted by tax payers. There is a big difference for shareholder value.
But managers do not need to concern themselves with the difference.
I wonder if after the last 12 years, shareholders are seeing the value in letting the economies be screwed so they get a bailout.
That's a coordination problem. Shareholders are concerned with their own value first and foremost.
!ENGAGE 15