[paimei01]

http://cryptogon.com/?p=2183
$this->bbcode_second_pass_quote('', 'T')here is no clean way to sell the home that would guarantee “clean title” hence a foreclosure is the only means to separate the property from the dead-beat speculator/squattor. Banks do not want to spend the $50,000 required to take a home through a foreclosure and clear the title — only to put the house back on the market for a deeper loss afterwards. Most likely, they have not revealed these owner occupied defaults to their shareholders, thanks to the sheer numbers of non-performing loans on their balance sheets, and the daunting task of foreclosing on all of them. This is the ultimate seizure and full stop of the market whereby everyone is standing in a stalemate. As one broker said to me, “these bums sitting in $3,000,000 homes overlooking the water are likely to be left alone by the banks for 2 years before the banks even get serious about foreclosure.”

[lawnchair]

This theory was popular, particularly in Canada, for decades. Usually it was known as "Social Credit". Never fully implemented anywhere. Interesting ideas, for sure.

[mattduke]

Interest is a free market phenomenon. As long as an apple today is desired more than 2 apples 12 years from now, there will be interest.

[I_Like_Plants]

$this->bbcode_second_pass_quote('paimei01', '
')What would happen if everybody would stop paying taxes or their debt ?

[Kingcoal]

The original money system in the American Collonies was what you describe. It was called Collonial Scrip and it was highly sucessful, leading to full employment and prosperity. However, like all good things, it came to an end. In fact the British Government's imposition of British money in the Collonies is oftentimes regarded as the single biggest cause of the American Revolutionary War. One year after the British Pound was imposed, the major cities in the new world began to resemble London; beggars in the streets, massive unemployment, etc.

The problem with scrip money is that it is only good inside of the jurisdiction that issues it; no one in their right mind would exchange gold for it. However that was a problem with alot of currencies of the time. The Collonies had no gold, but they definately had real wealth in the form of food, raw materials and manufactured products. The scrip money was backed by realestate. You got a loan from the government based on the value of real estate in your posession. The government "bank" would lend you twice the apraised value and charge 5% interest per year until the loan was paid off. If you didn't repay, the government would sieze your colateral (your land) and then sell it. The penalty for counterfiting was death.

[bodigami]

Your proposing an idealised version of a Central Bank. And you're assuming that goverments are: competent and have good intentions.

[mattduke]

If money was easy to get, it would be worthless. Zero interest loans is a terrible idea, just look at the housing bubble. If you want to kill the banks, just (try to) withdraw all your money.

[paimei01]

Money would not be based on gold or anything. But they would be all paper, so nobody would be able to make more, unless the state decides so. Yes I am assuming a good state, that works for the people

Interest free loans would not make money worthless. You would still have to pay them back. Who does not pay them back do not gets any more loans forever, until that loan however small it's paid. And like banks do today (I heard they did not do this in USA recently) the state would not give $1000000 loans to people who obviously can;t pay

I am sure they have some indicators that show them if there is need for more money- then they create more and just send them to people. And people buy more stuff, and the economy grows and then they make more money and send them to people and so on.
Even if I hate this consumerism thing.
But at least people would not pay any taxes, the entire state would run itself. Imposing taxes only when there is inflation - almost never in case of endless oil and endless economic growth

Here I was talking about an ideal system in some ideal world, not anything that could be done. It would be easier to make the world renounce nukes than implement this system.

[MacG]

$this->bbcode_second_pass_quote('mattduke', 'I')nterest is a free market phenomenon. As long as an apple today is desired more than 2 apples 12 years from now, there will be interest.

[Tyler_JC]

Then how exactly are you supposed to save money? (Or rather, why would anyone want to save money?)

Moreover, it would encourage people to spend money as soon as they got it. It has the exact same effect as rampant inflation.

Think about it. Demurrage means that money would become less valuable over time...how is that different than inflation?

[MacG]

$this->bbcode_second_pass_quote('Tyler_JC', 'T')hink about it. Demurrage means that money would become less valuable over time...how is that different than inflation?

[mattduke]

Well it's good to see the ancient misconceptions about the nature of money are alive and well. The only way to reduce the prevailing interest rate below that which would be set by a free society is to inflate the quantity of money. It baffles me you want to destroy the "store of value" capability of money. How will we calculate profits and losses? Believe me, you will have no problem whatsoever depreciating your paper. If one more person tells me to "think about it" I'm going to jump off a cliff. Money (and the physical goods which it buys) may be lent only after those goods have been produced but not consumed, i.e., only after after someone "saves". Without savings, the interest rate must be high. With savings, the interest rate is lowered. Forcing the interest rate down by expanding the money supply without prior savings leads to the disaster we are experiencing now. Seek your free lunch elsewhere.

[Tyler_JC]

Sorry about the "think about it" comment. I try to type in the same style that I speak and I drop that line every now and then.

I agree with your overall sentiment, Mattduke.

The purpose of money is to provide for a medium of exchange and a store of value over time.

People need to be able to save money for a rainy day. Forcing everyone to spend their money as soon as they get it encourages the kind of rampant speculation that occurred in Germany in the 1920s.

If money is rapidly losing value, people have an incentive to buy commodities that they believe will hold value. In order to purchase real goods, people will trade those commodities as if they were currency.

In effect, demurrage replaces paper money with a gold standard or a silver standard or a coal standard or whatever we decide to use instead of the useless paper notes.

I can't imagine anyone voluntarily lending out money at zero interest when they could buy real assets instead.

[Tyler_JC]

$this->bbcode_second_pass_quote('MacG', '')$this->bbcode_second_pass_quote('Tyler_JC', 'T')hink about it. Demurrage means that money would become less valuable over time...how is that different than inflation?

[MacG]

$this->bbcode_second_pass_quote('Tyler_JC', '
')I have 1000 units of currency and a computer costs 500 units of currency.

In one year's time with 10% inflation, I will need to spend 550 units of currency to get the computer. I can afford 1.8181 computers.

In one year's time with 10% demurrage, the computer still costs 500 units of currency but I only have 900 units of currency. I can afford 1.800 computers.

[Tyler_JC]

How do you separate good business ideas from bad ideas?

Charging interest forces firms to consider the opportunity cost as well as the accounting cost of an activity.

Those who are most efficient at turning capital into profits will be the ones most able to borrow money.

I can borrow $100,000 to open up a bakery that yields a 2% annual return.

You can borrow $100,000 to open a lumber mill that yields a 5% annual return.

Who should get the loan?

In the free market, the interest rate is 3%. I cannot open my bakery, sell my muffins, take my salary, and pay back the loan. The interest rate prevents me from opening my shop because it is not profitable enough.

You, on the other hand, can operate your business profitably and thus will get the loan.

Without some kind of metric to determine the cost of capital, both of us will demand the loan and no one will supply it.

The only way for you to get the interest free loan instead of me is to offer more money in return for the loan. You have to create an interest rate in order to out compete me for the money.

In a world without interest, I could get to the bank first and get the loan before you. Then I would open my bakery and you would not get to open your lumber mill. The world would be worse off because the capital was not allocated efficiently.

[MacG]

$this->bbcode_second_pass_quote('Tyler_JC', 'H')ow do you separate good business ideas from bad ideas?

Charging interest forces firms to consider the opportunity cost as well as the accounting cost of an activity.

Those who are most efficient at turning capital into profits will be the ones most able to borrow money.

I can borrow $100,000 to open up a bakery that yields a 2% annual return.

You can borrow $100,000 to open a lumber mill that yields a 5% annual return.

Who should get the loan?

In the free market, the interest rate is 3%. I cannot open my bakery, sell my muffins, take my salary, and pay back the loan. The interest rate prevents me from opening my shop because it is not profitable enough.

You, on the other hand, can operate your business profitably and thus will get the loan.

Without some kind of metric to determine the cost of capital, both of us will demand the loan and no one will supply it.

The only way for you to get the interest free loan instead of me is to offer more money in return for the loan. You have to create an interest rate in order to out compete me for the money.

In a world without interest, I could get to the bank first and get the loan before you. Then I would open my bakery and you would not get to open your lumber mill. The world would be worse off because the capital was not allocated efficiently.

[Tyler_JC]

What about financing of a wind power project?

Borrowing money in order to finance a project that will create energy will be more profitable than ever before. These kinds of projects will be able to afford to borrow money at the expense of a theme park that won't be able to cover the cost of capital.

I think that the coming energy crunch will make capital more expensive (and thus reduce the number of new loans), but it won't make the cost of capital infinite.

[AdamB]

$this->bbcode_second_pass_quote('', ' ')
Central bank credit that supports markets - is not just creation of the Fed, but by central banks and institutions around the world colluding together. Global markets are too deeply connected these days to consider the Fed in isolation. Since last month’s correction, the world has been watching the Fed because its policies have global implications. And worldwide sell-offs sent a clear sign to Fed Chair Powell to relax with the rate hikes. When fears arise that central bank QE will recede on one side of the world, we see more volatility and rumors of hawkishness. To counter those fears, there will be a move toward dovish policy on the other side of the world. Central banks operate in collusion. When the Fed signals it is raising rates, or markets over-react negatively to the threat, another central bank steps in. By colluding, other