On CBC Radio One (which in Western Newfoundland is usually “Radio Only”) there was a discussion on a talk show lately about the credit crises, the debt ceiling and the like. Was credit a negative thing really? As the guest noted, so that as I discussed in a recent post, the GOP has tried to bootstrap people’s feelings about personal debt to their feelings about government debt. We have to repay our personal auto loans and bank cards, the thinking will go, so the federal government has to repay its bad debts as well.
But as the commentator noted, debt is greater than a promise little. I promise to pay you, and you, in return, deliver goods or services. In business, this form of credit is the lubricant that makes things stream often. I promise to pay you for raw materials, that you provide.
I make a product from the recycleables, which my customer promises to pay me for, down the road. Day On any given, in the business world, people owe other people thousands, tens of thousands, thousands, or even Millions and Vast amounts of dollars. 40,000 of “Accounts Receivables” which represent promises to pay me in the future. Getting people to uphold these guarantees is comparable to tugging tooth often.
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And one problem I have, is that my suppliers often don’t accept these promises. Patent fees have to be paid in cash, unless I take advantage of credit cards – which is another promise – and pay a hefty fee in interest payments. I am going to an all-cash basis – getting money in advance, when compared to a promise to pay rather. It increases results than promises.
Which begs the question – why do we use this credit system rather than a cash-basis for business and federal government? Wouldn’t this “promises” concept are well if people made their guarantees by means of Hundred-dollar bills instead of credit records? A hundred-dollar costs is, after all, only another guarantee from the federal government, right?
It is an interesting idea, and I think the short answer is that credit frees up Capital. If we visited an all-cash system, with no credit, then a great deal of Capital – cash – would be tied up in payments between venders and sellers, retailers and wholesalers, customers and merchants, and so on.