What is credit in the fundamental sense? I want to build a house and to do that, I have to pay now for the resources used to build the house but I will earn enough only in say 20 or 30 years. There is a farmer with excess wheat production. He could lend it to you now for paying later in instalments. You borrow the wheat and give it to the people who will build your house. Everybody benefits in this game as the farmer would have thrown away his excess wheat without somebody borrowing it and giving it to the people needing the wheat. Instead of one farmer, this could be a bunch of farmers pooling their excess production to lend it. They would rather lend it than just give it away for free to some needy poor people. By my borrowing, I employ the needy poor people to build a house for me and earn the wheat that way. This borrowing has now created new assets in the economy compared to the option of just giving away the wheat for free to the poor. This borrowing doesn't create inflation in the economy as there is enough supply to satisfy the demand. and good assets are being built with excess savings.
If there are excess resources in the economy, you want to grand credit to people to use those resources. credit tries to soak up the excess resources to build new assets for the economy. granting credit is not easy - have to avoid the moral hazard. If credit is not given with strings attached, it won't be used to build assets. asset building is very essential to an economy to raise the standard of living. If I get a $ for free,, I could just use it to pay somebody to massage my body. I don't have the pressure to use the $ to build something that will increase my earnings power. This is where collateral comes to play in credit granting.
What are assets doing to us - making life easier for us. With an asset called a house, we don't have to keep looking for a cave every night to sleep in or be afraid to sleep the night in fear of dangerous animals hurting us. Same thing goes for roads - helps us get from X to Y faster and comfortably.
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