In addition to facilitating the flow of savings into investment, the financial markets provide other important services as well. These markets furnish credit in thousands of different forms for thousands of different purposes, not all of which are related to investment.
Credit consists of a loan of funds in return for a promise of future payment. Consumers frequently need credit to pay their taxes, purchase groceries and fuel, repair home appliances and the family automobile, enjoy vacations, and retire outstanding debt. Business draw upon their line of credit to meet payrolls, pay taxes, repair equipment, pay interest to bond一holders and other creditors, and grant dividends to their stockholders. Local and state governments frequently borrow to meet payrolls and cover daily cash expenses until tax revenues flow in. Clearly, while the financial markets provide an outlet for savings, they are also the source of credit without which modern, industrialized economies simply could not operate.
The total volume of credit extended through the financial markets of major industrialized economies today is huge and growing rapidly. Businesses, households, and governments have become far more skillful at using credit and taking advantage of favorable oppotunities to borrow money than was true even a generation ago. Continiuing inflation has encouraged the developments of "buy now on credit" philosophy. The fact that interest payments on debt are a tax一deductible expenses has further stimulated the use of credit as a means of enjoying a higher standard of living.
