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What If Credit Tightened By Even 1%?

This week I read an article about a company that offers personal loans to folks who are seriously down and out. One of their strategies involves mailing checks for $2,000 to these people’s homes and if the check is cashed it activates a loan agreement that calls for the borrower/check-casher to repay the loan with interest at the incredible rate of 32% per year. Apparently, this is not uncommon and there are many companies engaged in similar business. Of course, like many, my first reaction to this article was dismay or disgust, thinking that these poor and obviously desperate borrowers are being taken advantage of. Then, I began to think to myself what this says about the health of our financial system. I wondered to myself, if this lending were indeed curtailed, thus depriving these borrowers from access to credit, what the impact on the economy might be. I thought: Is it possible that we NEED these people to borrow and spend, lest the economy not achieve targeted growth rates, whic…
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