Herman School of Business
"Creditalism" not Capitalism...Wimpy Won!
Capitalism means that the marketplace is determined by those with capital. You are limited by the money you have which overshadows your dream of spending more, or investing more…just because you have a good idea.
Capitalism has a structure where supply and demand set prices, Creditalism throws all that out the window. Creditalism sets prices on a fairy airy basis of how much false buying power one can infuse into the marketplace. The government has long been told to “let the marketplace work” and stay out of the way so that buyers and sellers could decide values which will determine profits and losses. Capital would determine who can make what and who can buy what.
Creditalism crept into Capitalism and it all went down the tubes. You see people at the top of the banking system said they wanted to book more loans which they could run to the Federal Bank window and sell for cash so they could make more loans.
Ahhhh…leverage. That nasty old rule of buying a chicken with the ten cents you have became buying five chickens with the ten cents and a promise to pay off the other forty cents you owed after you sold the extra chickens for a profit…to people who could put down two cents for a chicken with a promise to pay off the other eight cents later. It became tough times for the chickens. Since more could be sold once actually paying for them went out the window…we needed more chickens to slaughter and the chicken farmer went to the banker and got a loan to buy feed to raise more chickens. The farmer got the loan from the banker who was also lending money to the people buying chickens with two cents down. Those people liked getting chickens for two cents and putting off paying for the meal until later. So rather than take another two cents and pay down the debt they asked the banker to let them put down another two cents and buy ten cents worth of potatoes to go with the chicken. The banker ran to the government window and borrowed more from the Fed to lend the people wanting potatoes credit to buy potatoes. The chicken farmers were busy and soon other farmers went to the bank to borrow money so they could grow potatoes.
Nobody was paying for anything. They were just putting two cents down and doing business on credit. As Wimpy used to say, “I would gladly pay you Tuesday for a Hamburger today.” Even the cartoon writers saw the stupidity of that logic as Wimpy never seemed to get his hamburger. Today he would have feasted on Prime Rib and Tuesday would never come.
Creditalism spirals up and up until everyone owes everyone and no one has money to pay off that debt.
Pop goes the weasel!
- Posted: 7 October 2008
- Comments: 0
- Category: Business failure
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