What Are The Dangers Of Credit?

There is not an iota of doubt that credit is a great boon to the business community but it has also some dangerous potentialities. If the delicate weapon of credit is not properly regulated and controlled, it has its inherent dangers too.
The expansion of credit beyond safe limits usually results in over-investment, over-production and the rise in prices. The concentration is generally leads to recession and depression in the economy. Boom or depression period have their own evil effects on the economy. So liability to excess is the greatest danger of credit.
If an individual customers, a business or a nation is not careful in the use of borrowed money and rash and reckless enterprise are undertaken which proves failure; the loans will not be paid to credit institutions which will create panic in the monetary circles and the whole superstructure of credit will collapse. It is called bad debts in the banking term.
Another inherent danger of credit is that money may accumulate in the hand of those entrepreneurs who are finally weak and are running uneconomic concerns. In case they are pushed into bankruptcy, all the firms which had trade relations with them will suffer. It will also cause panic in the business circles.

It must be remembered, that credit has some inherent dangers, which are as under:
1 it conceals financial weaknesses. Credit enables losing concerns to continue. Thus, people know their weakness only when they ultimately fail, spelling disaster not upon themselves alone but on the related concerns as well
2 over issue of credit leads to price inflation and ultimately to trade cycle
3 it has helped in development of monopolistic organizations of the detergent workers and consumers

4 possibility of earning higher rates of interest includes banking institutions to raise a huge structure of credit on the basis of small reserves. Hence, if anything happens to shake public confidence, there is a run on the banks.
5 it encourages wastefulness on the part of individuals commercial concerns and government.

In spite of its dangers, which can be controlled by suitable credit policy, credit has become so important that to imagine a modern economy in existence without credit is a misnomer. It has excited labor, stimulated manufacturers, pushed commerce on over sea and brought every nation, every kingdom and every small tribe among the races of men to be known to all the rest. It has enrich countries than any other thing in the world