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Symposium 2015

Is Debt Poisonous?

The Challenge

When is private debt an economic essential and when is it a poison? Does economic growth require ever increasing credit? The standard rationale for credit is that the people with innovative ideas for new goods and services are generally not the ones with the money to finance their innovations, and thus credit from financiers is required for innovation-driven growth. But has the growth of credit over the past two decades really been driven primarily by innovation-driven growth? What role has credit played in real estate crises and financial crises?

Under what circumstances can credit markets ensure the efficient coordination of investment and saving? How can this coordination be undermined when credit suppliers have opportunities to exploit people’s ignorance and psychological weaknesses through manipulation and deception? What are the implications for government policy? What rules should govern new debt creation? And how is excessive legacy debt to be handled? How can deception in credit markets be controlled through regulation, financial reform and acquisition of knowledge?