”Neither a Borrower nor a Lender Be”
That was probably good advice in William Shakespeare’s day, but is not applicable in a modern society. Advanced economies require liquidity and seamless credit, which in turn requires responsible lending and borrowing.
At any given time, nearly all of us are either borrowers or lenders, often both at the same time. If you have a bank account you are lender, if you have a credit card, even if you pay the balance every month, you are a borrower. If you have a retirement plan or investment portfolio with a fixed income component, you are a lender. If you are buying a residence, building a business or going to school, you probably are or have been a borrower. Individuals, businesses and governments lend and borrow. The examples are endless. Suffice it to say, borrowing and lending have become the grease that keeps a modern economy moving.
When it comes to borrowing and lending, individual and company activities are dwarfed by government. The US Government is a major lender, largely as a guarantor (think insured deposit), government backs student and mortgage loans to name a few instances. In addition, the US Government is a very large borrower with almost daily new issues of bills, notes and bonds.
In order to maintain a credit dependent society, lenders have to be willing to lend and borrowers have to be willing to borrow. Both should act responsibly and heed the rule of law to provide clarity with respect to the obligations of each party. Government can be most helpful by acting as the guardian of the rule of law and supporting a level playing field for both lenders and borrowers.
The Government risks becoming part of the problem when it seeks political advantage by attempting to choose winners and losers.
Your comments and thoughts are welcome.
Walter J. Kirchberger, CFA