Douglas Carswell's Blog

Credit shortage explained

There is a shortage of credit - and has been for some time now.  At the same time, the price of credit - interest rates - has been kept very low.

Might it be that the way to increase the supply of credit would be to stop keeping prices - interest rates - quite so low? 

In fact, might the answer be to allow the price of credit to rise?

For most products, an increase in prices ensures that more of that product is produced.  It's called the pricing mechanism.  But why do mainstream economists not seem to think the pricing mechanism should apply to deal with the shortage of credit?   

If the price of credit - interest rates - was able to rise, it would encourage more people to save.  (Indeed, I get lots of angry constituents complain that they're unable to get good returns on their savings).  If the amount of savings rose, there'd be more credit to lend out. 

It's a thought, eh?  I wonder if it has ever occurred to the folk who earn their living inside the Treasury...

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