Credit Markets

credit-markets measures structural power over the creation and pricing of the world's credit — whose yield curve the rest of the world prices off, who governs the banks that create credit, and who can act as backstop and lender of last resort. The structural question is: who sets the terms on which global credit is created, regulated, and priced, and who can rescue the system when it fails? — not who holds the largest stock of outstanding paper.

Strange places credit creation at the centre of the Finance structure, and locates the structural power in who governs and backstops it, not in market size:

• "The power to create credit implies the power to allow or to deny other people the possibility of spending today and paying back tomorrow, the power to let them exercise purchasing power and thus influence markets for production" (Strange 1994, p.90) — credit creation, not market size, is the structural lever.
• "under the paper dollar standard the structural power of the United States made it safer for the US banks than for, say, German banks… to run risks… The US government, when Mexico was unable to keep up its payments to the creditor banks, came to the rescue… not only itself provided funds 'up front'… but also used its influence with the IMF and other central banks to provide new money to keep Mexico solvent" (Strange 1994, p.110) — the backstop is what structural power buys.
• "It is the financial structure — the credit-creating mechanisms — that should take the main credit for the 'golden years' of the 1950s and 1960s" (Strange 1994, p.104) — the credit-creating mechanism is the engine, not the stock of paper.
• credit creation is a government-bank bargain: the financial structure's first aspect is the arrangements "through which credit is created… the power to create credit is shared by governments and banks (and much will depend therefore on the political and regulatory relation of the one to the other)" (Strange 1994, p.90) — regulatory control over credit creation is itself a structural lever.
• the bargain made concrete: "a particularly delicately balanced" relation in which banks need "some confidence in the willingness of the central bank as lender of last resort" yet must "obey the spirit as well as the letter of its prudential regulations" (Strange 1994, p.41) — whoever sets the prudential terms and backstops the banks governs credit creation.

The Mexico-vs-Poland contrast is the decisive image: the US could backstop its banks' exposure; "when Poland got into the same difficulty… the German government was unable to come to the rescue and the German banks had to write off their debt and absorb their losses" (Strange 1994, p.110). The structural variable is the backstop and price-setting capacity, not the nominal size of the bond pile.