Imagine having to pay for a new home in cash; we’d be in a bit of a housing pickle then, wouldn’t we?

It’s a similar situation on the business front. Companies need credit to fund production, which, in turn, generates cash flow to pay back creditors while generating net profits for investors.

Whether it’s 30-, 60- or 90-day terms for payment of input goods or services or gaining credit to acquire property, plant and equipment, no credit means no business.

That said, credit isn’t something to be taken lightly. It’s a two-way street; it’s not just the borrower that has to work on using credit effectively and responsibly, but the lender as well.

“Credit” isn’t a bad word. That’s contrary to most of the messages delivered these days by the pop financial media. Talking heads are saying that all this credit is the root cause or our current market woes, and if left unchecked, who knows what might happen to the economy.

But enough’s enough. The credit market got a bit out of whack at the fringes, and now we’re seeing debtors and creditors that didn’t do their jobs getting their due.

The subprime issue is just one minor example. Some mortgage lenders and their investors were lending money to the lowest end of the market. Many weren’t good borrowers because they didn’t take the time to get to know what they were doing. That didn’t take long to come unglued, and now many neighborhoods around the US are littered with foreclosure signs.

But subprime comprised a small chunk of the credit market. And the real losses of that end of residential mortgages aren’t that huge. Not that you’d know it judging by all the hoopla. Just about anyone who has anything to say about it is throwing out “subprime” as the excuse for nearly everything.

The trouble with the subprime market was that borrowers never could cover their credit obligations. They knew it, and the lenders knew it. As happened to those who bought into some of the ridiculous dot-coms in the late 1990s, money went back where it belonged, to stable businesses with identifiable revenue.

That’s not what’s happening right now in the markets.

The real trouble in the markets has little to do with subprime mortgages. It has to do with perceptions of credit.

Look at some of the companies under attack in the stock market. They’re not having issues paying their expenses. And even with the reality of higher interest rates on bank lines and even new bond issues, even a 100-plus basis-point jump isn’t going to be backbreaking for them.

But at the same time, investors aren’t looking at the internal business operations of any of the companies deemed threatened. Instead, from institutions to individuals, it comes down to this: What if they’re credit’s cut off?

Should it happen, it can and will crush any company or household.

We’re left with how to get through this. We have a few options. The first is to simply pull out, put your cash in the mattress and be done with it. But that’s not a realistic option; when would you know when and where to reinvest?

Too many folks are perpetually bearish on the markets. They sit in cash and scream over and over again that the sky is falling. They may be right for a few weeks out of many years. And along the way they lose out on a lot of earnings and a lot of appreciation.

Let’s take a look at a company that’s been fired upon in the stock and bond markets over the past few weeks, Thornburg Mortgage (NYSE: TMA). Some have called for it to bite the dust. (Personal Finance subscribers can follow our ongoing coverage in the Market Update at www.pfnewsletter.com.)

If you look at the performance over the past year, it’s been a loss of about 10 percent or so in total return. The mattress does look good in comparison--for the short haul.

But let’s take a longer view, the past five years. And let’s not just use cash in the mattress for our comparison but US Treasury bills. Over that time frame, including all the ups and the recent downs, Thornburg has generated a total return of more than 117 percent, or about 17 percent per year on average. Short-term Treasurys would have earned a total of around 21 percent, or about 3 percent per year.

This highlights a difference in investment philosophy. I like to find companies that pay well and have the goods to keep the cash coming. Others might say cash is better. But cash won’t cover inflation, and it won’t do much to build wealth or pay the bills.

Another way to make credit market woes pay involves shorting a few of the genuinely troubled financials, but that’s for another day--unless you’re an Inner Circle reader and are in on my current short pick, which is already down about 40 percent and is destined for court protection.

Infrastructure Cash Keeps Coming

The credit crunch is even bringing out bears in one of the most lucrative of cash generating businesses, infrastructure.

This is one of those boring words that I’ve loved to type out, even back when the Microsoft Word spellchecker didn’t recognize it.

It’s only recently become recognized by investors as big changes have hit the underpinnings of the US and global economy, beyond the credit market. Roads, bridges, water systems, airports, seaport facilities and other massive stuff that carries and enables all of us to go about our lives and commerce: Usually it only gets noticed when some part of it fails.

We need more investment in the underpinnings, as the tragedy in the Twin Cities and lesser issues such as clogged airports and gridlock on our roadways have painfully reminded us.

And private money has been fixing what the public won’t put up the cash for. At the same time, the leaders of the movement, Macquarie Bank (Australia: MBL, OTC: MQBKY) and its subsidiaries Macquarie Infrastructure Group (Australia: MIG, OTC: MCQRF) and Macquarie Infrastructure Co Trust (NYSE: MIC), have been caught in the credit crunch issue.

We’ve heard about a couple of the bank’s speculative hedge funds writing down some of its corporate debt holdings, with resulting fallout for the bank. Although the bank had bupkis to do with the funds, the market felt like dumping and shorting the stock.

But is comes down to cash flow. And cash flow is what infrastructure companies generate very well and very predictably. Based its water assets--the third-largest collection on the planet--to its toll roads, airpoirts, parking garages, seaports, Macquarie Bank and its brethren have paid and will continue to do so.

Unless, of course, its credit gets pulled.

Dead Guys

Nothing is more of an underpinning for us than good, old terra firma. But for many, the good earth can indeed be improved. That’s especially true when there’s millions of dollars on the line, or 100 yards of territory.

Such is the case with football, collegiate and professional. Those players get a little finicky over what they’re running and falling for those four quarters each Saturday or Sunday in the fall.

This is where science got involved. We’re talking not of real grass, not even the bioengineered kind from the likes of Monsanto (NYSE: MON), but the plastic stuff, popularly known as Astroturf. The problem with Astroturf was that, although it looked great for television, it wasn’t so good for the guys on the field.

Enter John Gilman, who died recently at 65 years. John looked out at the hallowed fields where the Nebraska Cornhuskers played and wanted better. So he came up with the replacement for Astroturf--and on some levels real turf--with what he called FieldTurf. This hybrid turf surface has since been adopted by numerous sports facilities and has even reached my sport, golf. Driving ranges now sport the stuff, keeping ranges open even during less-than-desirable weather conditions.

At the end of a bad market day or--heaven help us--even a good one, after that first martini there’s nothing better than opening a great bottle from Chateau Lafite-Rothschild.

And the family leader of the Chateau that kept the great vintages coming even after the ravages of World War II, Baron Elie Robert de Rothschild, died at 90 years.

Speaking Engagements

If you’d like to hear firsthand about some of our investments, particularly those in some of the more-interesting markets beyond the usual Wall Street fluff, join me on one or more of my upcoming conferences or travel opportunities--see below for the various opportunities available.

Head out to the East Coast, and join me and PF Associate Editors Roger Conrad and Elliott Gue at the Washington, DC, Money Show, September 6-8, 2007. The conference will take place at the Wardman Park Marriott, located in downtown Washington DC. Click here to register for free. Be sure to tell them I sent you.

Noble palaces, historic villages, stunning natural vistas and indispensable, one-on-one conversation: I’ll be cruising down the blue Danube Sept. 8-16, 2007, along with PF Associate Editors Roger Conrad and Elliott Gue. You’ll have unfettered access to talk about your portfolio or any other topic that comes up as you take in Central Europe’s rich culture and historic beauty aboard the River Cloud, a “five-star floating hotel.” Interested in exploring Europe and your portfolio? Contact Joseph H. Conlin Travel Management toll free at 877-814-6502 or via e-mail at nycimpresario@mac.com to finalize your plans.

I’ll also be appearing at the following events:

• The Investment Advisors Conference, Chicago, Oct. 8-12, 2007
• American Association of Individual Investors, Los Angeles, Oct. 13, 2007
• Lakeway Men’s Breakfast Club, Austin, Texas, Oct. 17, 2007
• New York Wealth Expo, Oct. 19-21, 2007
• International Living Ultimate Event, Panama City, Panama, Oct. 24-25, 2007
• San Francisco Hard Assets Conference, Nov. 18-19, 2007
• London Money Show, Nov. 30-Dec. 1, 2007

If you’re interested in having me or one of my cohorts address any investment or professional groups, please e-mail me at bygeorge@kci-com.com with ideas or suggestions.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by e-mail at bygeorge@kci-com.com.