(Dan Morin wrote:-))
By the way, declining prices is good for everyone because the poor can now
afford things that were too expensive before. Think of the price of
computers which have been going down every year - it is good for all of
us. Now imagine if prices of houses, cars, food and tuition would go
down every year. You could now afford a bigger house, better car, eat
higher quality food and get bonus education for the same
money.
(Joe replies:-)
‘Declining prices’, while ‘good’ for everyone as ‘Consumers’, are
currently a disaster for ‘Producers’, taken as a whole. The ‘lower limit’ of ‘price’ is
determined by financial cost, while only the ‘upper limit’ is governed roughly
by the ‘quantity’ of money available.
When a producer cannot recover his previously incurred financial
‘costs’, plus the minimum amount of ‘profit’ necessary to provide an incentive
for him to produce, he ceases to produce.
If ‘prices’ for his product keep
falling, he goes out of business. It is not necessarily a case that he,
as a producer considered ‘individually’, has done anything wrong. His plant and product may be
excellent, the product may be something that’s needed, but the contraction of
credit has been disastrous to him.
It is a delusion that producers can all
can effect manufacturing efficiencies that will
overcome this simply by ‘stepping-up production’, and thereby trying to lower
‘unit cost’. While they may be
able to do that ‘individually’ for a time, and indeed lower their per item ‘unit-costs’ and consequent selling price,
it is the TOTAL costs of this production that must be recovered from the sale
of ALL the units produced. If
this extra production doesn’t ALL sell, the ‘costs’ of the unsold inventory
are carried forward into the next cost-accountancy cycle, increasing
them. Do this enough times, and
you’re out of business. The effect on
the overall economy, and ‘producers’ as a whole, will be
disastrous. As it has
been, in each ‘recession’ or ‘depression’ we’ve witnessed. With a tremendous ‘waste’ in scrapped
plants, abandoned farms, ‘destroyed’ product, and broken lives~ the cost of
which has been borne by consumers in the needlessly high prices of everything
we buy.
This is one of the
reasons why Social Credit calls for ‘compensated prices’. With them, we can lower ‘consumer
prices’ to reflect the ‘true’, or ‘actual, physical’ costs of production. (Think about it. The ‘true’ cost of production, of
anything, is ‘consumption’ ~ what was actually ‘used up’ in the whole process
~ and this is what the final ‘financial cost’ or ‘price’ to the consumer
should be.) With a continual
increase in ‘efficiency’, the ‘true’ cost of production is continually
falling. But for consumers to
gain full benefit from this currently all too often involves the ‘producer’
taking a ‘financial’ loss. Social
Credit can correct that. An
inefficient producer or inept businessman could still ‘go broke’ ~ as he
probably should. But the greatest
cause of individual business failure~ a ‘flawed’ money system ~ would be
removed.
.
(Dan continues:-)
If you increase the
money supply, prices will increase according to the increase of money supply
and the interest rates will raise to adjust too. For
instance, let say I lend you $100K for a house and ask you to pay me
later.
(Joe replies:-) How
has this’ increased’ the money supply?
You didn’t ‘create’ any MORE ‘money’ in doing this, you already HAD the $100K to lend me. Only the ‘banking
sector’ can INCREASE or DECREASE the money ‘supply’.
(Dan continues:-) It is obvious that I expect to get
$100K back plus an extra for the risk and trouble. If in the
next 10 years the price of houses has doubled, then I will have to ask at
least $200K so I preserve my original purchasing power (buy a
house).
(Joe replies:-) But
you are recovering your $ 100K OVER the ten-year period, not in one lump sum,
plus interest, at the end of that period. By way of monthly payments, if the
loan is structured like most mortgages.
So you are receiving ‘interest’ income you can spend or invest
throughout that whole period, and do. And likely the greater proportion of it
in the first years after the mortgage has been made. When the principal
re-payment portion is the smallest. So the decline in your purchasing
power, while still possibly present from other factors, is not nearly so dramatic as illustrated.
(Dan continues:-) Another
important factor driving down the interest rate is
high savings.
(Joe replies:-)
Interest rates are currently way lower than they were in the 1970’s and
1980’s, yet the personal ‘savings rate’ in the
USA is supposed to be in
‘negative’ territory nowadays.
How do you explain that?
(Dan continues:-) If I
have extra money that I don't need, I will be willing to loan my
money at a lower interest rate. If on the other hand I
really want (or need) to spend my $100K, then I may not be willing
to loan it for 10 years for a mere $20K profit. A low interest rate is
good for the borrower, but most importantly it is beneficial to the
society. The entrepreneur may use that money to invest in
production tools and create additional jobs. Pumping money is not
good for exports either. The conclusion is a stable money supply is best
for everyone, that is consumers, borrowers and
lenders.
(Joe replies:-)
Most mortgages are not made by private individuals such as yourself lending their savings to a
would-be home buyer. They are
made by the banking sector, which does not ‘lend’ YOUR ‘money’ at all, but
creates ‘new credit’. If we were
totally dependent on the lending of ‘savings’ to finance the economy, most of
us wouldn’t be here today. Which would undoubtedly suit some people, (the ‘‘Earth
First!” Crowd, and other assorted ‘nuts-and-berries’ ditz-brains), just
fine. Fortunately, for those of
us who are rational individuals, the modern economy is ‘creditary’.
Correct the ‘flaw’, which is relatively simple to do compared with the
massive economic dislocation the ‘single-tax’ ideas, or other communist-style
economic prescriptions would engender, and ‘free-enterprise’ and individual
initiative can finally come into full flower.
RE: [socialcredit]
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