| Subject: | Re: [socialcredit] Re: [chdouglas] Public-spirited Banking (was: Re: The Abolition of Interest on Loans) | | Date: | Monday, March 17, 2008 18:33:22 (-0700) | | From: | keith wilde <kwilde @...............org>
|
| In reply to: | Message 5284 (written by Peter Hogwood) |
Hi Peter, You say below that "the theorem that loans create
deposits which function as money...is contradictory to the quantity theory that
there is inherently a scarcity or limited quantity of money." I find that
a very strange statement of the quantity theory. Can you explain or cite an
easily accessible exposition, please? Keith Wilde
Peter Hogwood
<p_t_hogwood@yahoo.com> wrote: "Peter, You only left out two
components--the time
value of money and opportunity for
other
investments..."
---------------------------------------------------
Then,
I take it, you do agree with the three
components that I listed.
The time value
of money theory is related to the
quantity theory. The concept of
opportunity cost to
loans advanced is also related to the quantity theory.
The
more modern position is expressed by the theorem
that loans create deposits which
function as money,
which is contradictory to the quantity theory that
there is
inherently a scarcity or limited quantity of
money.
In the more modern view
interest is fully explained by
the three components that I listed, which are
payments
for financial services rendered by banks to the more
general economy.
I
would value your reply.
Peter Hogwood
--- Claudette Konola wrote:
>
Peter,
> You only left out two components--the time value of
> money and opportunity for
> other investments...
>
>
> On Mon, 17 Mar 2008 09:43:13 -0700 (PDT)
>
Peter Hogwood wrote:
> > There is a significant false premise to your
>
argument,
> >
Ardeshir.
> >
> > "So what would be reasonable in your view, given
> that
> >
it takes your people at most an hour to do the
> > paperwork, and after that,
there's nothing more
> for
> > you to do but collect my monthly payments?"
> >
>
> The false premise here is that the administrative
> > expense in granting
loans is the only expense
> incurred
> > in granting loans. The components of
interest are
> 1)
> > the insurance premium to cover loan defaults,
> which is
>
> by far the largest component of interest received
> by
> > the banks; 2) the
administrative expense, salaries
> and
> > wages paid by banks, etc. and other
ordinary
> business
> > expenses; and the final and least component: 3)
> the
> >
net profit from banking.
> >
> > The default or risk premium
varies by borrower
> risk
> > category. In every risk category the borrowers
>
pay to
> > compensate the banks for defaulted loans within
> the
> > risk
category. Therefore, higher credit risk
> > borrowers pay higher interest rates
than lower
> risk
> > borrowers.
> >
> > Peter Hogwood
> >
> >
> >
> >> On
Sun, 16 Mar 2008 13:58:25 -0400 Ardeshir Mehta
> > wrote:
> >>
> >>> On
16-Mar-08, at 8:31 AM, Claudette Konola
> wrote:
> >>>
> >>>> So, if nobody pays
interest on loans, what is
> > going to motivate those who have money to let
> >
somebody who needs money use it?
> >>>
> >>> WHY WOULD BANKS LEND MONEY TO ANYONE
IF THEY
> COULD
> > NOT CHARGE INTEREST?
> >>>
>
>>> Well, I am not against banks making a reasonable
> > amount of money for
taking the trouble to issue a
> loan
> > to us. Call it a "reasonable profit on
a
> transaction"
> > , for example. If the bank that lends us $25,000
> to
> > buy
a car were to say: "We are willing to lend you
> > this money, but we would have
to make a reasonable
> > amount of profit out of the transaction" , I'd
> say:
>
> "Okay, fine. So what would be reasonable in your
> view,
> > given that it
takes your people at most an hour to
> do
> > the paperwork, and after that,
there's nothing
> more
> > for you to do but collect my monthly payments? A
>
law
> > firm might charge me, let's say, $500 per hour at
> the
> > outside: so,
does $500 seem reasonable to you?"
> >>>
> >>> It sure does to me.
Does it not to YOU?
> >>>
> >>> But does TEN TIMES as much sound reasonable
to
> you?
> > WHICH law firm, no matter how prestigious, will
> charge
> > you five
GRAND an hour? And yet banks get away
> with
> > this, and more, every day of the
week!
> >>>
> >>> However, there's another way banks can make
> money
> > on
loans: they can look upon it as an investment,
> and
> > share in the profits of
that investment. If a bank
> > issues a loan to a company, that company will,
of
> > course, use that money to expand its operations,
> and
> > thereby make
profits. The banks can stipulate, in
> the
> > loan contract, that they will get
a share of the
> > profits.
> >>>
> >>> The same thing can apply to a mortgage.
If you
> buy
> > a house today
for $200,000, and in order to buy
> it,
> > borrow $100,000 from the bank, and
if after a
> year,
> > because of market forces, the value of your house
> >
increases by, say, 3%, the bank can stipulate that
> it
> > will get a 3%
increase on the next year's monthly
> > payments. That seems fair enough, because
it isn't
> as
> > if you did something yourself to cause the value
> of
> > the
house to rise. It was just your good luck.
> >>>
> >>> Of course if that's the
way the bank wants to
> > structure the loan, then if the value of the house
>
>FALLS by 3%, the bank must also agree to take a 3%
> CUT
> > in the next
year's monthly payments. Sharing in
> > profits means also sharing in losses.
>
>>>
> >>> But a bank could make MUCH bigger profits by
> > investing in really
promising ideas than it would
> by
> > charging interest. For instance, had any
bank
> invested
> > in Tesla's idea of alternating current at a time
> when
> >
Edison was promoting direct current, that bank
> might
> > soon have become the
biggest bank in the world!
> >>>
> >>> Of course this idea would make it
imperative for
> > the banks to make sure that the money they are
> loaning
> >
(more correctly, investing) is not going to all go
> > down the drain: they would
have to scrutinise
> every
> > application for a loan carefully, to see if the
>
> activity the loan was going to be used for had a
> > chance to render a profit
down the road. But
> what's
> > wrong with
THAT?
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