Credit makes the world go 'round. It's part of the modern world, like electricity. In the banking crisis of the last year, the lights went out. Credit went away. It's what made the recession as deep and as scary as it was.

Lots of people think credit is evil -- that borrowing is a sin. They quote Shakespeare, saying "Neither a borrower or a lender be." I've never understood what was supposed to be so damn profound about that statement -- except that Shakespeare wrote it, so I guess it sounds impressive to say. It doesn t say what's so bad about borrowing or lending. It just says don t do it.

You can see what happens when you follow that advice. It's not so virtuous, is it? Recession. Near-depression. The world almost ended. Now the world is recovering, in large part because the ability to borrow and lend has come back. The lights of the world are coming back on.

It's not that people are borrowing their way out of recession. Yes, governments -- especially the U.S. government -- have run up a lot of debt in the name of "stimulus. But so little of that money has been spent, we can't rationally give it -- or the borrowing that made it possible -- much thanks for causing the recovery.

In fact, ordinary people have cut back on their borrowing. Consumer credit is currently declining at three-month annual rate of more than 7%, the worst such decline since the early 1940s!

Surveys show that the problem isn't that they can't borrow more -- they just don't want to. That's actually typical during recessions. As soon as the recession is over, borrowing resumes. I think this recession is over, and we should expect to see more borrowing in the coming months. Let's not say it's a bad thing when it happens -- it's a symptom of getting back to normal, an indicator that good times are coming back.

Mortgage borrowing will probably recover more slowly than standard consumer credit -- by which I mean credit cards, auto loans and the like. In fact, it may never "recover," if by that we mean going back to the frothy peaks of four or five years ago when you didn't have to put any money down, or even supply any financial information about yourself.

That is not just because banks are scared to lend after the housing meltdown of the last three years. They've just learned that loans work out better when the borrower has some skin in the game in the form of a down payment. And what do you know -- it's a smart thing to be sure that the guy you're lending a couple hundred thousand dollars to has a job. So now you have to do a little working and a little saving before you can borrow to buy your dream home. Is that so bad?

For the overall economy, the biggest news in credit is that so-called "toxic assets" -- the risky credit-linked securities that collapsed in the panic last year and took the balance sheets of all the world's major banks down with them -- suddenly don t seem so toxic anymore. Of all the asset classes in the world, risky credit instruments have rallied the most over the last six months of recovery.

Think what that means for the big banks. A year ago, many of them were "technically insolvent" because the toxic assets on their balance sheets had reduced the value of their holdings to below the value of their liabilities. Banks literally had a negative net worth. So to get back in balance, they had no choice but to sell toxic assets, which made their prices fall even further, which made the banks even more insolvent.

At the time, we heard lots of arguments about how wrong it was to have to "mark to market" these toxic assets. Their prices were seen as unfairly low, reflecting not intrinsic value, but rather just pure panic. They were fire sale prices, not market prices. Maybe -- but those were the prices, and we can't very well let banks or anyone else decide which prices they think are "unfair" and just make up their own values for them instead.

But now all that has changed. Toxic assets are in a huge bull market. Now all the banks are falling all over themselves to "mark to market," to get the investing public -- and the government that had to invest money in these banks to bail them out last year -- to realize that they are very much solvent now. If they can prove that to the government, then they can repay all that bailout money and get out from under the government's control over such vital matters as executive compensation. In a nutshell, that's the reason why the banking sector has well more than doubled in the last six months. They used to be broke. Now they're rich.

This has another implication. Remember you bond arithmetic: Prices higher means interest rates lower, and prices lower means interest rates higher. Six months ago when the prices of credit instruments were being crushed in the bank insolvency panic, their interest rates were being driven sky-high.

For example, the interest rate for a small non-investment grade company to issue a bond was 25% earlier this year. No one can afford to issue bonds with such a usurious rate, so almost no bonds were issued -- which means some companies had no way of financing themselves. That's pretty much why General Motors and Chrysler folded.

Now that toxic assets have rallied as much as they have, the comparable interest rate is about 10%. That's not exactly a bargain. But there are plenty of companies that can still make a profit even when they have to borrow working capital at 10%. That's not the end of the world like 25% was.

So we're back to a point where we can do business again. It sounds great for banks to get 25% interest on loans. But it's not great, because no one will borrow at that rate. Everyone wins when rates are high enough so banks make a profit, and the borrowing can make a profit too because the interest is within a reasonable range. That's just where we are now.

I still think stocks are overdue for a sharp correction. Maybe we ve already seen it starting with the two big down days we had on Wednesday and Thursday. But it will only be a correction. Stocks will recover and ultimately move higher because, now that credit is affordable again, it means both that the banking system is solvent, and that businesses and consumers can do the borrowing they'll want to do as things improve. And that means that things will continue to improve.