ABSTRACT
This chapter examines consumer credit, corporate credit, and interest rates charged on credit. It discusses how credit expands and why it creates increased fragility in financial markets; and what effects a credit expansion has on the real economy. The chapter also discusses what a bubble is and how it sets the stage for a panic or a crisis; and what impact a credit crisis has on the real economy. It examines the behavior of consumer and corporate credit in the periods of the Golden Age and the Global Age—including the dramatic increase before the Great Recession. Consumers use credit when they do not have enough income to sustain their present living standard. The chapter focuses on the credit behavior of corporations, excluding farming and financial corporations. Although unincorporated, small business does play a major role in the US economy; corporations play a bigger role, especially in determining the dynamics of beginning of a recession or the beginning of a recovery.
