The point is that economic growth has to take place to enable both the principal and the interest tobe repaid.
Why? If the interest rate is lower than the real return on investment in terms of consumables (that is, if the investment sustainably yields more - say - grain per year than is required to pay the interest), then no economic growth - that is, increase in the amount of stuff produced each year - appears to be needed.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
It is true that at a minimal interest rate which covers the costs of defaults and reasonable system operating costs (ie without insane banker salaries and perks), and with serious constraints on credit creation, then the system can actually burble along reasonably well for quite some time before strains would become apparent.
Unfortunately that's not what happens, because in a "For profit" system greed always gets the better of people, whether shareholders, managers, or both.
Greenspan's triumph was that he enabled the system to come crashing down many years to early by letting greed rip. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Retail banks should not be run for profit.
Retail banks are unnecessary - and in fact moribund - intermediaries. Retail banking - ie credit creation and clearing - is a necessary utility function.
JakeS:
Retail banks are utilities and should be run by the government, like all other utilities.
I do not believe Government should run utilities. I think that an optimal enterprise model for utilities is a cooperative of service providers in partnership with a cooperative of service users, within parameters set by government.
I believe that such a "Not for Loss" utility model is both possible and necessary. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
In a well-run society, it is not clear that it is trivial to distinguish between "government" and "non-government" - witness the role of labour unions as a kind of quasi-government in 20th century Scandinavia. So what I meant to say was "should be run by an entity that's more state and/or collective than private and/or individual." Your model would certainly qualify as that. Although I'm not convinced that it's necessarily the optimal model for things like water and railroads (and to some degree electricity) which are by their very nature large, integrated systems that must be micromanaged to a considerable extent by a central hub.
Your model would certainly qualify as that. Although I'm not convinced that it's necessarily the optimal model for things like water and railroads (and to some degree electricity) which are by their very nature large, integrated systems that must be micromanaged to a considerable extent by a central hub.
Ummm...good point, but a strong management core need not necessarily mean hierarchy,just a much more significant node on the network. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
It's about direct routing of information, disintermediation, and flat, rather than multi-level structures. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
The enterprise model - legal XML, if you like - is only just beginning to adapt to this.
For physical networks, different rules apply. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
