Why have today's purveyors of credit, so greatly reduced their presence in the marketplace? Banks in the U.S. had long since cut back on providing support for local business formation - a pattern which now extends to housing as well. The "parked" mechanism of interest on reserves is not just a problem for reduced credit access in the U.S., but also for other nations. Of course, central bankers are hardly the only the only institution "sitting" on money, instead of putting it to better use. Could some of the lack of interest in lending, be due to secondary market constraints? This post is in part further thoughts from a recent discussion, as to the coordination difficulties of services capacity.
Consider the widespread arguments about a lack of investment opportunities. Besides the standard explanations of economic gridlock, how might one think about this problem? After all - as long as anyone could remember - the ample investment opportunities of primary markets for tradable sector activity, meant plenty of investment opportunities for secondary market formation and its associated non tradable sector activity. The 20th century in particular, experienced vast opportunities for growth and development in the latter: markets which included financial product, valuable formats for knowledge application, and of course the asset formation which followed nominal income potential.
Even though (at least until the Great Recession) services appeared to have a bright future, it is becoming apparent, how dependent their present structure remains on the fortunes of primary market formation. Indeed, the fact that knowledge use and service formation are not (yet) organized to generate first mover roles as primary markets, greatly contributes to the present global backlash. So long as populations do not have a true marketplace for time value, future policy makers could become more likely to treat the existing trade of manufacture, as a zero sum reality for economic policy. Hence the challenge, to create organizational capacity for human capital on primary market terms, so that the existing global structure of tradable sector wealth is not lost.
However, changes in organizational capacity, also means knowledge based divisions of labour which are not dependent on meritocratic structure. In order for primary market formation to be possible, knowledge use needs to be as interchangeable as any factory component, in local organizational capacity. The good news is that this process can take place without need of additional debt formation, which is all the more important given the reticence of today's central bankers and their lack of support for continued growth. Instead, wealth can be built incrementally, as formal education is gradually integrated into monetarily compensated mutual assistance.
In many ways, it was the widespread availability of credit which lent further credence to the meritocratic structure which prevailed for knowledge use, in the 20th century. One reason it was so difficult for emerging economies to evolve towards services in times of premature industrialization, was the fact that so much human capital investment was required for every individual in a secondary market time based services formation. An incremental growth pattern for knowledge use, could make it possible for emerging economies to continue their path towards prosperity, even though premature industrialization has already begun.