In classical economics the source of new credit should be current savings. The amount of credit should equal the amount of current savings and no more. Any additional credit causes inflation. Interest rates function to keep credit and savings in balance. Today credit is at least ten times available savings.
Savings are necessary to economic growth.
Professor Hans Sennholz explains the long-term effect of lack of savings. Without such new savings, monetary authorities arbitrarily expand credit, interest rates tend to fall, which then misleads business men to invest more funds in the capital goods industries. Thus misled by artificially lower interest rates, they embark upon countless expansion projects that are unsupported by genuine savings. They engage in business activity that causes maladjustments and distortions. Because of the lack of real savings, the investment boom is bound to run aground.