We set forth, first, that there is a natural inclination of catch-up economies to lending booms; second, the stipulated market-oriented macroeconomic policy may push such booms; and, third, there are political-economic incentives for governments in these countries to press ahead with excessive credit expansion in the private sector.
Although this line of argument seems to be in contrast to the existing literature, it reveals a new perspective on the root causes of lending booms in emerging market and transition economies.
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April 21, 2008
ilyas m mohsin, ppp, Platinum Contributor (250)
The Capitalistic societies live of promoting consumerism besides allowing free trade rights with discrimination to member states of the International community. It also appears to include the adoption of protectionist policies by design and keeping the labour costs low of industrial production by measures like out-sourcing, aid etc.
As such societies suffer from stratification, almost like more repressive societies, some Trojan horses have to be devised most of the time to make the people oblivious of the ground realities. Lending boom appears to one such implement.
In US, for example, average people live of credit, be it cards, huge loans arranged from banks etc. Most people, particularly, the lower-income groups spend their lifetimes as debtors and many, perhaps, die with the same status. It is believed that by such antics, the rich keep them on board.
Not surprisingly the number of bankrupcies in the US is stupendous but the system manages to, generally, weather such storms. It could be some version of 'to rob Peter to pay Paul' but it must be moot to designate, for sure, as to who is Peter and who is Paul.
The current bust of economy appears to be very daunting for the US but in a uni-polar world anything goes, at least, in the short-term.