Why? So why did all banks turn me down, when I founded my business during the pandemic in 2020? Still, when I came to the United States as a new immigrant, I got the highest credit scores. I could get the loan I wanted for personal consumption.

The answer is that the central bank needed to carry out different policies during the recession and the inflationary period.

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It is because of the monopoly of the central bank. The base interest rates are the principal power of central banks. They set the amount and type of loans given. They must protect this ability of setting the interest rate just like any other monopoly like Google or Microsoft.

Still, the interest rate is just a systemic medicine. Investment banks, retail banks, small businesses do the individual decisions. Investment risk depends on how cracked is the marble of the society.

Their interest rate definition drifts away from the original definition of risk premiums. The original says, if I have $100, I want to invest it in 164 different projects. Some may default, but 100/103 will succeed and return the principal with interest. My target risk premium is 103/100 minus the principal becomes 3%.

The bank asks for a bit more to cover their expenses and margins, but not too much. The bank does not want to risk defaulting their debtors. Those paying more interest will invest in duller paints on higher debt, and they are outperformed by any competitors. Any default is the loss of the bank. The importance of painting is usually the number one lesson from property managers.

This is what I explained in an earlier article as anyone who borrows at 2% and lends at the double 4% is going to go bankrupt. The numbers are just set for marketing of course, but the thinking is easier to understand this way.

The central bank protects the value created during past governments keeping the dollar stable and equity holders happy. They raise interest rates, if the government starts spending. The government is the primary client of the central bank. In fact, the author thinks it may be the only client of a monopolistic central bank in the future.

Governments are about providing basic services, rather than jobs directly. If government jobs become a major part of the economy, it is dangerous. Elections may not be about democracy anymore, but who gets the money.

The central bank protects the stability against foreign governments and institutional investors holding the dollar as a reserve. Sometimes the central bank piles up assets on its balance sheet. These assets can cover any dollars suddenly dumped on the domestic capital markets. Such an asset buildup happened in the past few years.

The central bank protects against extensive competition that tries to disrupt energy, datacenter, and real estate investments. See the case of Evergrande in China. It defaulted getting excess investment without immediate demand for housing. Higher interest rates protect against defaults of existing and new management.

Communist governments sometimes say, we now have the young workforce. Why not invest their work now to build the houses for the next generation, when young workforce will be scarce, and the workers retire. Such projects probably require special financial papers matching the goal of long term investment with short term assets handling short term negative cash flow. Default gets bad press.

The central bank protects against current account imbalances. Any excess imports and exports will pile up assets outside the reach of the central bank. Those assets weaken the power of the bank. Convertible currencies protect against this by allowing currency arbitrage that gives profits to those, who punish projects causing risk premium differences. Such differences slowly fade away.

The central bank protects against individual mistakes. They say, we give you $100, if you put down $3 or $20 of your own money. The issue is that this Basel standard brings in differences that increase interest rates. Laws were enacted in the US to protect against discrimination of racial communities such as declines, higher rates, or down payments.

Traditional community leaders may opt for better terms. Differences affect the serviceable available portion of the total addressable market. This makes risks, rates, and premiums of new projects higher. Countries with equality can invest safer.

The central bank participates in "parental control". Numerous licensing, listing, educational and other barriers set, who gets the credit, and who must be employee or unemployed. The Basel standard requires a farmer to choose a cab driver job first, collect the 20% down payment, and buy the land and the tractor six years later. The standard also sets that they need to get the loan at a premium. Should the farmer dare to work overtime under the official minimum wage for cryptocurrencies to pay with those, they risk litigation, even criminal lawsuit. Customers wait for the carrots.

Imagine the case of an enterprise retailer to analyze credit money vs. statistical money. An example, Amazon is a company providing exceptional service due to customer obsession putting them first. What do the company and investors say? That is how the revenue comes in. They do not tell a customer, that the driver has not earned the down payment for a truck, yet. They just issue a bond, 100% debt, and serve the carrots.

The enterprise credit money model is all about consumption and fulfilling any demand. Accepted economics research describes the decision between debt vs. equity is about avoiding income taxes. Interest is paid from net income, dividend is paid after taxes. The weighted average cost of capital is smaller with more debt.

Looking more debt is cheaper targeting a share of a fixed market vs. growth. Starting a franchise from debt requires that both the franchise licensor, and the bank checks the profitability of similar shops nearby. They risk neither existing business, nor the principal repayment. Growth projects that may disrupt will likely be financed from venture equity of past profits. Higher down payment requirements redirect investment from growth to handle depreciation and economic churn.

Money becomes an educational tool, and an entry barrier instead of the driver of consumption and growth. This is why stable enterprises grow, filling the gap having access to cheap financing.

The difference can easily be described with the model of the Eye of the Tiger. This describes the income distribution curve, and it's complement as an eye. It would take three generations to build a town in Nevada from ever-growing assets extended with debt. Similar projects are financed by construction conglomerates from near 100% debt in Asia. Once the equipment and expertise is there, the companies can just keep building. This may be one key to the growth model of many countries in South East Asia.