Credit? not in commodity trades

When items such as the discussion of ‘did the credit crisis affect world trade adversely?’ come up the ignorance of the questioners becomes plain.

Whenever a large order of iron ore or other such commodity is set into motion the ‘seller’ will not release the goods onto a ship until a valid ‘letter of credit’ comes into his possession. The letter is more like a certified post dated check than a loan, for it represents that money has been locked down or set aside for the seller from the buyers accounts and that the funds will transfer upon arrival of the goods so shipped. No check is in the mail will do in such situations.

Only for transactions involving IMF or other national import/export banks is there any borrowing going on, and even these transactions – since they are backed by either a national central bank or entity such as the IMF they were not affected in any way by the financial crisis.

The affect on the commodity marketplace came from the heavily cut buying power of consumers and industrial clients then having their order volume decrease. The banks and financial meltdown of 2007-2010 brought about a recession that dragged down all business cases for durable goods and the commodities needed to manufacture them, there was no direct impact on the ‘financing’ for such goods and commodities as they are all forward paid before shipment.

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