Quote from Cache Landing:
NO!!!! That is absolutely false!! Your lack of math skills is becoming incredibly frustrating. The 1% I lose is axactly offset by a 1% gain of the bank. The money just changes hands, it doesn't change the quantity of money in circulation.
Money can be printed by whatever entity people trust to protect against counterfeiting. Interest has nothing to do with the value of that money. How much money is printed is the only thing that determines the value of that money if the quantity of goods stays constant. Allow me to present a situation to demostrate. Their are 10 people on an island making up the entire economic situation on the island.
One is a banker who owns a house.
Another eight are entrepreneurs who either make goods or provide services, and each of them owns a house, but one of them also owns a second house.
The last is an employee of the banker who sleeps in a hammock because he can't afford a house because he only has $50 in the bank, but he knows he'll have saved an extra $100 by the end of the year.
The total value of each house is $100. The remainder of the economy is valued precisely at $9000 which includes the value of the services offered by the banker, as well as any currency already on deposit at the bank.
So the entire economy is valued at $10,000 and there are 10,000 $1bills printed at the bank.
The employee of the banker decides to take a one-year loan from the banker at 5% to buy the extra house for the market value of $100.
So from the 10,000 bills in the economy, 100 of them just went to the employee in order to purchase the house, who then gives it to the man with the extra house, who deposits it in the bank. At the end of the year the man pays the banker $105 for the house which has the effect of reducing the man's personal wealth by $105, and increasing the banker's personal wealth by $105.
The man who sold the house received $100 for the house, but lost the house and thus has seen no change in wealth.
The man who bought the house loses the $105 he paid the bank, but gains the $100 house for a net change of $5 loss to the bank.
The banker lost the $100 for the purchase of the house, but was repaid $105 for a net wealth gain of $5.
All houses are still only worth the market value of $100.
To the buyer, all other goods in the economy just got more expensive because he is $5 poorer. This is the inflation you speak of.
This is where your problem is.....
It will have the effect of a reduction in demand of all other goods because one of the buyers is now poorer. This will result in sellers dropping the price of goods and making them more affordable. That sucks for them but...... fortunately for them, another citizen just got richer by the same $5.
To the banker, everything got equally cheaper in the same amount because he is now $5 richer which causes an increase in demand from him to exactly balance out the reduction in demand on the part of the home buyer.
To the other 8 people, prices have not changed because they are neither poorer nor richer and since demand was exactly offset, prices of goods have not changed.
The interest simply caused a distribution of wealth. It didn't make goods more expensive, nor did it cause the entire population to become more poor.
Quote from slider123456:
The problem with what you are saying and with our economy is that there is $100 dollars in circulation and $105 owed. If only a $100 exists you could not pay back $105.
Banks do not spend money they lend it out. In our system that 5 dollars will never be in circulation unless their is an interest attached. Which would reduce it's value.
Quote from scriabinop23:
Watching this thread was a total waste of time ... but I couldn't take my eyes away watching this trainwreck of damaged intelligence.
Conclusions: Slider needs to get off the pot, and take principles of economics classes, then followup with some monetary economics.
My own (some regurgitated) ideas to contribute:
- Expansionary monetary policy is responsible for boom/bust cycles and long term inflationary trends.
- With a deflationary trend, business has no incentive to invest/operate as its future earnings will be less than its capex to make/sell product.
- Quality of life isn't so bad. Yes, people often work 2 jobs now, but those jobs are hell of a lot easier than 50 years ago. Additionally, nowadays they need more money because they -consume- and -borrow- more. I know plenty of people who drink $4 starbucks products daily, use $100/month cellphone plans, etc. None of these things are absolutely necessary. In fact, if you revert to a 50 yr ago lifestyle, you'll find that you can easily live off 1 job.
- Banks are good at blowing out on leverage and misrating debt historically. Just look at savings and loan crises, South american debt crisis, subprime, etc. Nothing new. Bankers look boring, but they are out of control gamblers. (paraphrasing Taleb)
- Anyone who is 'anti-interest' has no experience in finance obviously. Why would anyone want to lend you money if you won't pay to borrow it? Think a little harder, and you'll quickly come to the conclusion that economic activity, growth, savings, investment, etc would all stop if interest payments ceased. For the practical folk, that means no investment in resource we consume (water, food, energy). That means no innovation, death of technological growth, and everything else.
- Boom/busts are the price we pay for the long term productivity growth and paradigm shifts we enjoy that result from monetary policy and interest.
OK. I can't devote any more time to this... something about this trainwreck was attractive... like doubling down on a losing trade.
Quote from sjfan:
When you say a loan with no interest, do you mean that the bank lend you $100 with a term of 5 years, and you just have to pay back the $100 at the end of the 5th year with no additional fees or costs? If that's the case, can you point to a single bank that will you point me to that bank?
Again - if you believe what you say, then lend me $100k at those terms. I'll be happy to pay your legal and due dilligence costs and will happily pledge assets (my house, for example, which is worth FAR more than $100k) as collateral.
Quote from slider123456:
I can guarantee you I would be much much happier in a slower system than having to work 2 hours extra every week that goes by to have the same quality of life. Our quality of life is worse now than it was 30 years ago. 30 years ago 1 man could support his wife and two kids easily now both parents have to work in order to get the same quality of life and it keeps getting worse. If the money the banks get stayed in our pckets that would rapidly reverse. As I pointed out above the banks make $300,000 dollars on a &200.000 loan half of our production goes to them. If we got rid of that interest we would only have to work 4 hours a day to pay of that house instead of 8 or we could work 8 and pay it off in half the time.
Quote from affan:
People are MUCH better off today then they were 30 years ago. Back then many families used to live together, had one car per family or so, our standard of living and that of most countries is much higher today.
Quote from Cache Landing:
You don't understand, there is no such thing as no more interest. Opportunity cost will be compensated for somehow. Generally, it is with taxes in your system. So which system is more fair, one in which the borrower pays interest, or one in which the public pays interest as tax?
Quote from slider123456:
Answer this question for me. When everything starts collapsing like it is now and lets say hypothetically it becomes a depression.
Why do people stop working and go hungry. People could start some sort of barter system in a community. Our production capacity does not disappear because there is no paper money. Our production capacity has the same potential with or without paper money.
Why do people decide to go hungry and suffer because the paper money ran out?