Credit

You ever think about "credit"? That is, what the word really means, what it implies, the assorted usages of the word, and the derivatives, like "creditable" and "credentials"?

One problem we have these days is that it is often forgotten that credit, like dollars, has to be earned. When I cite a report as a creditable source, it is because I trust that source, and the reason I trust it is because it earned my trust by being right in the past. Unfortunately, oftentimes sources are considered creditable because they have been often cited before, regardless of whether or not they were actually right about those matters. Time and again I have found in researching the history of scientific matters that the Establishment View can be traced back to one (or two) people, or a few papers, that presented a strong opinion on (whatever -- cold-bloodedness of dinosaurs, the Clovis culture). And then, due to continuous parroting, the opinion gradually became "a fact everyone knows" even though it remains an unconfirmed conjecture that is putting on airs. Decades can go by before these views are overturned, because the research money lies in going with the flow, not in opposing it.

Likewise, credit, the sort that you need to have before you buy a car or secure a mortgage, also has to be earned. The way you are supposed to do this is by starting with small loans (credit card purchases will do) which you then pay back, demonstrating that you will make money for the creditor. As you prove you can be trusted with small amounts, it becomes easier to secure larger ones, and most people have no difficulty earning credit. You get a job, you pay your bills on time, you take out loans, you repay them with interest -- easy as that.

But there has arisen a view that credit need not be earned after all; some might even treat it as a right, though they seldom put it that way. Because of this, banks and lending institutions were forced by law to provide substantial loans to people that were way beyond what would have been allowed given the credit they had earned. What kept this process afloat was something called insurance, which in blunt terms meant that the loans were not as risky to the bank as they would have been because, in the event of default, the taxpayers would pay for it.

The world economy is currently in collapse. A simple explanation for why is this: If you have a credit card with a $10,000 limit, but never carry a balance of more than $1000, and make your payments on time, you are being fiscally responsible and will not run into trouble. But suppose that, while you're being responsible, someone else is running up debt on that remaining $9,000 worth of credit. Then comes the time to pay it back, and they can't. And you can't.

When a financial system becomes complex, it is easy to siphon off a few dollars here and there that will not be missed, much as you can recover some of the waste heat from a steam engine. But you can't really get something for nothing, and if you start to steal too much heat from the steam engine, it will lose efficiency and soon enough won't be putting out much work at all.

And that is what has happened worldwide -- we have siphoned off all the heat we needed to run the engine, and it is grinding to a halt.