[DuncanWaring]

Isn’t credit supposed to increase productivity?

Some credit does.

If a manufacturer uses credit to buy a new new machine to increase productivity by more than the loan costs him, that's good.

If a person borrows money to buy a reliable car so they can get to work on a regular basis, increasing their income by more than the total-cost-of-ownership of the car, that's good.

If a person borrows money to buy a new car because they want a new car even though they've got a perfectly servicable car, that's not good.

If a person takes out a second mortgage, which they can't really afford, to take the kids to Disneyland, that's bad.

Karl Denninger at the Market Ticker periodically covers things like this very well

[palmer]

If a person borrows money to buy a reliable car so they can get to work on a regular basis, increasing their income by more than the total-cost-of-ownership of the car, that's good.

If they borrow from a local bank at a realistic rate to improve their house to match local demand (their own or what the local market will bear) that's good.

If some multinational bank borrows from a low rate country to build 10,000 new condos in sunny Spain, that's very bad although it may seem great during the bubble.