Is the mechanism of credit creation, still capable of moving society forward? Much depends on whether credit origination is mostly used to tap already existing income (housing and other consumption), or whether credit provides additional means for output gains. Increasingly, credit origination is associated with the wealth capture of already existing income, rather than capital which builds new wealth. Yet the loan origination which contributed to output gains in recent centuries, played the vital role for long term growth and prosperity.
As many traditional economies of scale were tapped in recent decades, central bankers began to move credit origination into holding patterns - a process they also believed could maintain important asset values. These holding patterns included a growing emphasis on income based wealth capture, as possibilities for wealth creation appeared less certain. While wealth capture roles for credit origination might prove capable of maintaining economic stability, this development is nonetheless a dramatic shift. In the meantime, the role of central banks as central to sustained prosperity, has become less certain. Can this institution continue to thrive, if it does not remain actively involved in long term growth potential?
Here, a bit of clarification is perhaps in order: I've described tradable sector activity as holding a first mover position in terms of wealth creation, However, central banks hold what is also termed a first mover position for monetary aggregates. A nation's central bank provides the context for the money which is available at any given time in a national economy, in relation to other banks within the system. In other words, even though individual banks appear to "create money" with the stroke of a pen (new loans), this money exists in terms of what has already been established as feasible. Individual banks thus holds a secondary position, in relation to the first mover monetary position provided by central banks.
Yet even though today's central banks are the first mover for monetary origination, they still follow another lead: one established by the exchange of resources which define real economy output. For example, if central bankers do not adhere to this representation in terms of aggregate spending capacity, individual banks are limited by the same circumstance. If monetary representation is insufficient, this can negatively affect the scope of real economy production capacity, as well.
Envision the secondary action of an originating loan, as the defined monetary setting which individual banks can draw from. Expansion in growth is feasible, should year over year loan origination aggregates contribute to greater production output. In this sense, individual banks can help to "grow the pie". Whereas mortgage loans and credit card expenses are more closely related to claims on prior income. The latter is also wealth capture, since it stakes a claim, on an already finite amount of time value. In other words, one cannot duplicate personal time commitments, so as to engage in other economic activity. While consumption loans have their place in terms of aggregate demand, they are not a direct means of contribution for long term growth potential.
Imagine the wealth creation process as beginning with mutual exchange, which in turn gains the further representation of money and credit systems. In all of this, one also needs caution when debating fiscal policy and other processes which downplay or even leave out the actual element of exchange. Like loan origination, any multiplier potential on the part of fiscal policy, depends on whether it reinforces wealth capture, or wealth creation.
Time arbitrage could provide new long term growth, by bringing a new element of exchange to the marketplace on real economy terms. The use of time value via incremental units, could provide a building block structure with greater strength and less risk for sparse or sporadic income, than traditional loans. By building wealth slowly and incrementally, both skills acquisition and asset formation can accumulate gradually. Hence time arbitrage could contribute to long term growth patterns, at a time when traditional credit structure is increasingly oriented towards the spending patterns of upper level incomes.