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As I understand it , in order for our economy to continue to grow and remain
'healthy' banks must create more and more loans every year - as the main way
new money enters the economy is via the banking system (I understand that the
money base is then increased by Central bank so as to target the Fed funds rate
etc.)
This being the case, I was just wondering if businesses really do take out more
and more loans every year (i suppose they must be doing so as the economy does
grow). Also , as the cost of doing business declines due to technology etc.
wouldn't businesses (both incumbents and start ups) now need to take out less
loans than before in order to expand/grow ? If so, then would this not mean the
economy would grow at a lower rate - because less new money is entering the
economy via the banking system?

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Let's think of growth as coming from a larger number of viable business plans more valid knowledge in a larger number of heads. If we start off where only a few people have assets and the knowledge of how to build a company to serve some particular need or desire, only a small amuont of credit (lending) will take place too those people. But the people who work for those initial ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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