At one time in my life I was a very young man. As I’ve grown older, I often harken back to that time when, well, I didn’t know what I didn’t know. If we could only go back in time with the knowledge we know now. 20/20 foresight seemingly can only be learned.
One of the hardest lessons anybody learns is how to manage money. It’s a challenge for other too. Isn’t it always about money, money, and money, even here within the cyber pages of philipshaw.ca? Or is it more about the “availability of capital”, something which I wrote about with Dr. A.K. Enamul Haque this month in “East West?”
“Availability of capital” means having the real opportunity to earn the right to access or borrow money. I think about it all the time, mainly because I think barriers to accessing capital are one of the biggest impediments to economic growth regardless of where you find yourself. Getting a loan shouldn’t just be for the rich.
My first experience with borrowing money from a bank was a good one. The banker at the time I’m sure felt a bit sorry for me. He was an older type and I think for whatever reason he didn’t think me much of a risk. I wasn’t borrowing a lot of money, so I got out without much of a hitch. However as those dollars rolled my way, I knew they had to be paid back. In my youth, “getting out from under” was a very real feeling.
The only problem was my timing. That first operating loan for my fledging agricultural business was at a time when interest rates headed for the hills. My interest rate topped out at 23.25%. I was able to pay back what I had borrowed. However at that time those ultra high interest rates hurt many borrowers. Many still harken back to that time as a make or break moment in their business career.
Still for many in those days, the “availability of capital” dried up abruptly. It was exceedingly difficult to get money and especially hard to pay it back. Fast forward to today and its still a problem. However is it as much of a problem as it once was. Our world in 2006 is permeated by big and little ticket consumer goods only a down payment away from being ours.
What you say? Well think about it. Each week I am inundated with flyers in my mailbox from several “big box” businesses from either Sarnia or Chatham. Whether it is a 42-inch Plasma TV or a $99 personal DVD player, it can be bought weekly, on approved credit. Put a small down payment down and you are out the door with that TV or DVD player. Ditto for several other consumer items coming to a flyer at your door.
The credit-induced economy doesn’t stop there. In fact when it comes to the automotive industry it’s all about the credit. It’s not how much the car or truck costs. It’s all about the monthly or weekly payment. Without a credit system making capital affordable to the adoring public, the auto sector could never sustain their revenues.
Clearly though, cash is always king. As a society we shouldn’t forget that. Canadian and American savings rates are near zero. That means we are living in a society where people are living for today. Our grandfather’s stories about the “great depression” seem to be a distant memory.
Some of you surely must be saying, “There has got to be a better way.” If you read East West this past week you would have learned about micro credit and Dr.Muhammad Yunus. Last week he spoke at the Global Microcredit Summit in Halifax. Foreign Affairs Minister Peter MacKay showed up. He pledged our government to fund three Canadian non-governmental organizations for microfinance projects in countries such as Sri Lanka, Afghanistan, Benin and Nicaragua.
Whether “microcredit” loans of $20 to $200 find there way into Canada I don’t know. In our culture it may not work like it does in a place like Bangladesh. However, two goals were announced at the conference. The first goal is to supply 175 million of the world’s poorest families with financial services by 2015, compared with about 82 million clients now. The second goal is to lift 100 million people who are subsisting on less than $1 (U.S.) a day out of poverty in the next nine years. Those are noble goals. Making capital available to these people surely will take some innovation.
Back in Chatham-Kent everybody is scurrying around making those payments. Over top it all is Bank of Canada Governor David Dodge. He’s keeping the overnight lending rate to our banks at 4.25%. Pray for us if he ever puts a 2 in front of that 4. Don’t say it can’t happen. I’ve been there before. Making capital available to everyone sometimes isn’t for the feint of heart.