Money as Debt

by ChrisCook Wed Mar 28th, 2007 at 08:12:12 PM EST

This fairly recent Canadian animation sets out the facts in respect of our current monetary system better than anything I have seen.

http://video.google.com/videoplay?docid=-9050474362583451279

Money as Debt | 30 comments (30 topical, 0 editorial, 0 hidden)

Re: Money as Debt (none / 1)

Interesting. The idea from the film, if I understood it at all, is that money is, ideally, an "easier than barter" method of exchanging goods and services between individuals. The amount of money needed in a social system is the total amount of (non barter) exchange being practiced. A govt. can print more money in order to generate more goods and/or services--paying people to make the steel that is used to build (for money) the bridge that connects two communities. The bridge = the new good and the work done to create the bridge = the new services. Without the bridge there would have been no (need for the) money....?

So...my questions.

Are UK Building Societies outside of this system. I understand that they can only issue money backed by assets (property) and the difference between the interest paid on investments and the interest charged on loans (about 1.5%) covers the cost of administering the Building Society. Have I got that all wrong.
The CCCP and the People's Republic of China (historically) didn't have reserve banking (did they?) What errors did they make in their management of money?
If a govt prints money, this is inflationary because it adds money to the system and so reduces the transaction value of the money already in the system (this assumes, correctly?, that there are a finite number of goods and or services which this money can purchase, so more money = higher prices for the goods/services. So, as per my understanding, what makes the printing of money by the govt. anti-inflationary is that the new money is used to create new goods/services. The more people, and the more goods/services they want or need, the more money is needed (beyond barter exchanges.) So, regardless of what the private banks get up to, what is to stop a govt. printing money to, say, build a new hospital or school, (I mean, get people to build hospitals and schools using zero interest govt. loans). Or, if raw materials are not available, to loan zero-interest money to people to offer services of various kinds. Again, there is a "too many people" problem, where the basic food supply can't support everyone. But within the limits of food production and, say, housing and energy supply, where's the problem? Another example might be building windfarms. Or, in short, why does China need U.S. money to open a factory and pay the workers?

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Wed Mar 28th, 2007 at 09:59:03 PM EST

Re: Money as Debt (4.00 / 2)

This is only one of the many scams we perpetuate on ourselves.

You can't be me, I'm taken

by Sven Triloqvist on Thu Mar 29th, 2007 at 01:53:19 AM EST

Re: Money as Debt (4.00 / 3)

The writing for this video was superb - the Flash animation execution less so, and may reduce its effectiveness with certain audiences.

I could imagine (and would highly recommend) the BBC doing a Lord Clarke 'Civilization' or a James Burke 'Connections' type program/series on Money as Debt. It would blow the collective mind of the middle class.

A friend of mine did a Yentob-commissioned series on money in the Nineties - 'Scenting Money'. I never saw the whole series, but it never got down to the nitty-gritty IMO.

You can't be me, I'm taken

by Sven Triloqvist on Thu Mar 29th, 2007 at 02:31:14 AM EST
[ Parent ]

Re: Money as Debt (none / 1)

I agree totally. The writing was not really supported by the quality of the animation.

But if you think for one minute that the BBC or any other UK or US channel would ever produce such a documentary or even show it if it had been financed and produced independently, then I think you underestimate the "Money Power" of the Establishment.

Someone like Al Jazeerah, maybe, or perhaps a Scandinavian public service Channel?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Mar 29th, 2007 at 07:54:18 AM EST
[ Parent ]

Re: Money as Debt (none / 1)

I am no longer 'in the know' as far as the BBC is concerned, though some of my old friends are still in the business in UK. But I think you would be surprised how much subversive stuff still makes it on to the screen.

You are right though - AlJazeerah or one of the Nordic public broadcasters would be more likely program commissioners. I might even think about making a proposal on it myself, after I've finished this current 4 month marathon which seems to demand that I write, direct and edit all at the same time. ;-)

You can't be me, I'm taken

by Sven Triloqvist on Thu Mar 29th, 2007 at 12:08:31 PM EST
[ Parent ]

Re: Money as Debt (none / 1)

Provided we do it as an LLP ;-)

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Mar 29th, 2007 at 12:54:36 PM EST
[ Parent ]

Re: Money as Debt (none / 1)

Of course! ...That is actually a serious thought. Interesting to explore. If the current series in production goes well, I may have an easier sell for something else. And we now have an organization set up for the production (in Finland) - bluescreen studio, HD Camera, HDedit room and full crew - somewhat untrained in guerilla work, but they are getting better every day. Thanks to a complete oversupply of young media people trying to enter the industry, it is possible to get up-and-coming camera/sound/studio crew rather cheaply - especially if it is something for their CV. I know it is exploitation - but they seem a happy bunch.

We also found a cracker young editor who has never done a series before, but has turned out to be a genius. I'd like to continue to give these people work if it is possible.

BTW One-off programs are a hard sell these days. 28 min x 8-12 shows seems favourite. So we'd have to propose something wider than simply Money as Debt. "Why aren't you happy?" is a series I'd like to make ;-)

You can't be me, I'm taken

by Sven Triloqvist on Thu Mar 29th, 2007 at 01:15:16 PM EST
[ Parent ]

Re: Money as Debt (none / 1)

Seems to me that a series on the whole subject of Sustainability, including Money as Debt, Peak Oil and all that, "Not for Loss" enterprises and so on.

Why aren't you happy covers it I guess...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Mar 29th, 2007 at 01:22:28 PM EST
[ Parent ]

Re: Money as Debt (none / 1)

It's worth talking about as a potential project anyway. Maybe a better angle would be 'The Great Capitalist Swindle': that would cover your subjects above.

You can't be me, I'm taken

by Sven Triloqvist on Thu Mar 29th, 2007 at 01:54:27 PM EST
[ Parent ]

Re: Money as Debt (none / 1)

"Deconstructing economics" might be a good 8 to 12 part series.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Thu Mar 29th, 2007 at 01:38:53 PM EST
[ Parent ]

Re: Money as Debt (none / 0)

A series title suggestion, which, though accurate, could restrict the audience to people with indoor anoraks ;-)

You can't be me, I'm taken

by Sven Triloqvist on Thu Mar 29th, 2007 at 02:04:42 PM EST
[ Parent ]

Re: Money as Debt (none / 0)

You do the marketing, including the title.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Thu Mar 29th, 2007 at 06:01:41 PM EST
[ Parent ]

classic goldbug nonsense (none / 0)

the presentation preys on those who already have a suspicion that "the man" or "the rich" are screwing over the proletariat. I kept waiting for someone with a hook nose to pop up as the banker.

The key to this argument is the Gold Buggy idea that all money has to be instantly convertible back into gold (or some other hard commodity). In the video, when there's a run on the bank, they show a vault containing many mortgages and other debt instruments but only a little gold. So when depositors demand hard commodities they all cannot be satisfied. Obviously this is correct but only part of the truth.

All those debt instruments have value too. They represent the houses built, stores built etc that the loans went to fund. The depositors own those as well. Which is pretty much the same thing as setting up equity partnerships to build a house or whatever else someone wishes to borrow from others to achieve. People just hate the idea of middlemen getting some of the profit without recognizing that handling all the paperwork and spreading the risk of default has value to savers as well.

Consider what banking would look like without fractional reserve. All deposits would be locked in a vault. Instead of interest being paid, you'd have to pay the vault to keep your gold safe or otherwise keep it in your mattress and hope no one breaks in. You have to hope your stored up work remains valuable to the rest of society or continually live hand to mouth.

To get a house, you either have to save until you have the entire amount or do the third work thing and build it slowly over decades in order to avoid inflation eating up the value of your savings. Or build it from scratch yourself. Might have worked when people lived in huts, but a bit tougher if you want heating, bathrooms, kitchens etc.

The third world multi decade model is the worst. Half finished houses all over representing a lot of work product sitting idle for ages. No shelter being offered. This is the same as leaving cash in the mattress just a little more difficult to steal. Does no one any good.

Instead, you pay to use someone else's savings to build the house now and start getting shelter immediately. If the someone else is Mother Teresa perhaps she'll loan you her work product for nothing. That may work in small tight communities like the Amish. I don't see it in the modern world. If you wish your neighbor to defer his gratification (spending) in order to accelerate yours, you will have to give something back -- interest.

Religious types who view interest as evil are often the targets of this sales pitch. Hence the business of designing Islamic finance to enable people to gain the same benefits as Western finance while keeping the bearded mullahs happy.

by HiD on Thu Mar 29th, 2007 at 07:07:20 PM EST

Re: classic goldbug nonsense (4.00 / 2)

Goldbug nonsense it most certainly is not: it contains an analysis of the problem which makes clear the shortcomings of gold and every other commodity backing for "money", but it is a bit short on alternative solutions, that is true.

Essentially yours is the TINA argument - ie "There Is No Alternative" to fractional reserve banking.

But actually there is. Banks are simply unnecessary as credit intermediaries/middlemen, as are Central Banks.

A "Clearing Union" or "Guarantee Society" enables the unsecured credit or "time to pay" - essential to exchange/circulation of commodities, goods and services - to be provided without the "super-profits" currently extracted by banks.

In this model bilateral "peer to peer" credit is provided interest-free but not cost-free, since a payment is necessary to a service provider (ie a bank or similar) for the provision of the risk and system management service, and a provision is also necessary into a "default fund".

Banks put no capital at risk in this model, since they are not a counterparty to the credit.

So much for money in circulation. But most money created doesn't actually circulate. It is tied up in productive assets - particularly property, which accounts for over two thirds of the money created.

Here we are looking at the need for "investment", whereas what we have got is debt created by banks and secured by a mortgage ie "Deficit based" but "asset-backed". Banks no not "invest": they lend.

There is no reason why banks are necessary for this other than as service providers bringing together investors with investments. The only thing lacking has been the legal mechanisms for investment.

For instance www.opromark.com shows how such "peer to peer" investment has been done using a limited company set up for each house in which investors buy shares,

It works - technically - but the model is simply not scaleable and is flawed in many other respects.

One could use trusts as a legal wrapper for investment in property, but of course, I believe that the inadvertently created "Open Corporate" partnerships offer an optimal mechanism for investment in property rentals exactly analogous to REITS and which allow investors to receive a share in the rental returns instead of fixed "interest".

If investors want a fixed return, then they can buy a guarantee. Which a bank could sell, or an insurance company etc etc

Finally, I couldn't agree more about current Islamic Finance -it's complete bollocks - and I am speaking at a conference in London in June on that very subject alongside the guy who wrote "Islamic Banking - the $300 billion deception".

But the new partnership-based solutions I am outlining are consistent with Islamic Values at a very basic level.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Mar 29th, 2007 at 08:58:44 PM EST
[ Parent ]

please point to one largish (none / 1)

society or group that has made anything like you describe work for any length of time. These proposals have been out there in one form or another since the beginning of the modern age.

That video is precisely the language offered by gold bugs. Sorry if you find that offensive, but it's a fact.

A "clearing union" or a guarantee society is a bank. Period. You can put all the wrappers on it you wish, but they are means by which large groups pool funds to achieve goals they cannot achieve on their own. The difference is purely in the compensation.

In this model bilateral "peer to peer" credit is provided interest-free but not cost-free, since a payment is necessary to a service provider (ie a bank or similar) for the provision of the risk and system management service, and a provision is also necessary into a "default fund".

And here we are at the key point. This is the bank of Mother Teresa. People are expected to loan money at no interest. And I say most people will not defer their own expenditures for the benefit of others with no payment. Except perhaps in small groups held together by strong family or religious relationships.

by HiD on Thu Mar 29th, 2007 at 09:10:19 PM EST
[ Parent ]

Re: please point to one largish (4.00 / 2)

A Clearing Union in effect is a Japanese-style (or the UK TSB's as they were before Maggie privatised them with depositors' own money) "Trust Bank", but without the Bank as intermediary.

And I must contradict you (for a change), because a disintermediated "Peer to Peer" Clearing Union has never yet been tried because the legal forms permitting it have never existed.

The point you are missing is the distinction between unsecured and secured "Asset-backed" credit. Most money which has been created is not in fact circulating at all but is tied up in productive assets, which do actually produce streams of value eg rentals or energy which may be exchanged for other value on a clearing network.

This "tied up" money is virtually by definition non-inflationary and demonstrates Monetarism for the bollocks it is. It's only when credit is created ad lib for consumption that inflation becomes a problem, and this is generally a fiscal problem eg in Zimbabwe right now.

Wherever credit is granted on an exchange network the result is "money".

Money need not be the bank-issued object we are all accustomed to. It is actually a relationship. Money is the result when value is exchanged with a time lag between exchanges.

I advocate interest free, but not cost-free credit, on the one hand and debt-free "asset-based" investment rather than secured credit, on the other.

Investment has a return on capital, which doesn't make it a Mother Teresa by any criterion.

The current system conflates the two into one single, exponentially growing and inherently inequitable and toxic deficit-based and hence "Money as Debt" monetary supply.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Mar 29th, 2007 at 10:28:37 PM EST
[ Parent ]

I did some further reading as well (none / 0)

This site has some interesting info laid out for non-finance types

http://wfhummel.cnchost.com/nonbanks.html

their description matches your view of credit based money . So on that point I must concede. And thanks for making me get the education.

However, the proviso is that the credit based expansion of money is strictly controlled by regulatory rules. It is not some sleight of hand trick which is how that video casts it. There is no "exponential" growth. It's linear. My gut feel that the monetary system is fine as is has not been shaken one iota.

Banks are not ordinary intermediaries. Like non-banks, they also borrow, but they do not lend the deposits they acquire. They lend by crediting the borrower's account with a new deposit, and then if necessary borrowing the funds needed to meet the reserve ratio requirement. The accounts of other depositors remain intact and their deposits fully available for withdrawal. Thus a bank loan increases the total of bank deposits, which means an increase in the money supply. When the loan is paid off, the money supply decreases.

emphasis mine.

Obviously if a bank makes a loan for something large like a house, the funds are immediately withdrawn from reserves. If they are at their reserve limit, they must raise funds by selling off the loan, taking in new deposits or some other step.

On another page http://wfhummel.cnchost.com/bankingbasics.html

they lay out a typical balance sheet. What this sheet says to me is while a bank can indeed lever its original shareholder equity, they are very much under the thumb of the regulators such that they can't lever much beyond 10X. In other words, the first 10% of losses on loans will be absorbed by the bank's own equity before the insurer/depositors takes a hit. While we saw banks lose more than that in the S&L debacle in the late 80's, it's pretty rare if the bankers are paying attention or aren't crooks.

I advocate interest free, but not cost-free credit, on the one hand and debt-free "asset-based" investment rather than secured credit, on the other.

You can advocate zero interest money all you want. What I am suggesting is no one who has money to lend will be very interested in playing. If choice A is Rothschilds paying 5% or Mother Teresa's at 2% (to cover costs), I think I'll deposit with Rothschilds.

"debt free asset based" investment seems to require the existence of an asset before you can create a loan against it. How do I fund a green field single family home building project with your system? I see no cash stream for LLC investors to tap. Just rent or loan repayments.

The rest of your models seem to be little more than re-labeling the common approaches used today using the simpler LLC legal relationships. The insistence on asset only investing seems to be a requirement that business only start/expand by selling shares and have no debt on their balance sheets. That's not magic. It just forces individuals to own shares rather than just lend money. Many of us would prefer not to have our money at risk in companies we have to pay attention to. You are tying my hands in how I invest.

as for your contention that credit based lending is "toxic". That strikes me as a belief rather than a fact. Any system where people get to have stuff before they can pay for it will have unpleasant consequences if they cannot follow through on their obligations to re pay when the time comes. If you find a way around that, let me know.

by HiD on Fri Mar 30th, 2007 at 05:26:32 AM EST
[ Parent ]

Re: Finally (none / 1)

Great stuff HiD, I really do enjoy this, though God knows what the rest of ET thinks! ;-)

Firstly: exponential v linear growth in money supply. Now I have always thought that compound interest is based on an exponential function.

Migeru, if you haven't given up, please confirm this - your maths credentials outstrip mine (I only have a crappy degree in maths from Sheffield University).

You only have to look at the Money Supply curve - it HAS to keep on growing, because when Money is created through the creation of a loan, the money doesn't yet exist to pay the interest on the loan. And compound interest is an exponential function.

If you got that far in the video before giving up in disgust at perceived (rather than actual) gold-buggery, then you would have seen a good explanation of THAT as well.

Secondly, you are forgetting the growth of the credit derivative industry.

This exists to allow banks to outsource the only thing of value that they DO provide (and which IS worth paying for) THEIR Guarantee of MY credit.

My Guarantee Society proposal shifts the Guarantee to the community of providers and users of "trade credit" rather than to other "investors". And it does so simply, not through Rocket Science.

So banks are now de facto totally unconstrained in their lending - as witness the whole sub-prime fiasco and the appalling packages of "toxic waste" credit derivatives now quietly laying waste to someone's assets.

The trouble is it's all so opaque no-one, least of all the Central Banks who have totally lost control of the Money Supply - have a clue.

Thirdly, there is an underlying point concerning the creation of credit in the first place. The video did refer to a possible solution.

It actually is quite simple. All credit necessary for productive investment should be provided by the Treasury - interest-free.

There's no problem with a Treasury issuing credit interest-free in this way. They do already. It's called cash.

Naturally this process needs to be tightly controlled which is done through - guess who?

Banks.

Not as intermediaries, but as service providers: as Investment Institutions formerly known as Banks.

"Neo-Banks" perhaps.

The rental streams generated by the productive assets invested in would cover the depreciation of the asset built.

In other words there has to BE a payment - a Capital Rental - to cover the degradation and depreciation of the asset.

Land itself - in terms of location - does not degrade, but maintains its value: it is also a "Commons", but that is another issue.

So I advocate - as a policy - a land BASE for money.

John Law

http://cepa.newschool.edu/het/profiles/law.htm

it was who was the first, three hundred years ago, to analyse Money correctly.

Money is not the value for which Goods are exchanged, but the Value by which they are Exchanged

He presented to the Scottish parliament a proposal for a "Land-Backed" money. ie notes against the security of land.

It could have worked.

But he then went on to try again in France (by a back-door method using US land as base) , but cocked up the implementation, which led to the "Mississippi Bubble" and, some say, in due course to the Louisiana Purchase and a USA that does not have one third owned by the French!

My proposal is to start initially with "Public Land Investments".

The government would provide - to anyone who wants them - Credits issued by the Treasury which are used to acquire Land and put it into a "Community Land Trust/Partenership".

These credits are free of interest (they cost nothing to create), and free of debt (ie they don't have to be repaid, which is why they are "investments" or "Equity", rather than "Debt").

However, it would be possible to provide, as a policy option, that those who use such credits do in fact pay (say) a proportion of their income into a "Land Pool". ie a Land Value Tax by any other name.

If this were initially applied to allow anyone to pay off mortgages (one of the proviso's being that no mortgages therafter could be granted against Land in Trust), we would actually see a large chunk of existing "Debt Money" being replaced by "Equity Money" instead, and the growth of a "National Equity" to repace most (not all, the Debt covers value in circulation) of a "National Debt".

Naturally the process would have to be controlled, with values to be determined professionally, and mortgages paid off and not replaced.

But the policy could IMHO work quite simply.

Investment in the Capital invested in the Land (ie improvements and buildings) is where "neo-Banks" would come into their own as managers, appraisers, and introducers of investors to investment. The necessary return on capital has to take account of the depreciation of the asset, and the creation of a parallel non-toxic "investment" system, in place of the existing banking system.

Needs thinking through for sure, but I have to thank you, HiD, for applying my feet to the toaster, to come up (at least in my own mind - it may well make little sense to you) with a holistic policy proposal (which is actually implementable without national governments being involved, through local councils, for instance) that COULD, with a little help from a few friends, result in a simple alternative to the unsustainable one we have.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Mar 30th, 2007 at 07:38:42 AM EST
[ Parent ]

Re: Finally (none / 0)

Firstly: exponential v linear growth in money supply. Now I have always thought that compound interest is based on an exponential function.

Migeru, if you haven't given up, please confirm this - your maths credentials outstrip mine (I only have a crappy degree in maths from Sheffield University).

Yes, of course. "Continuous compounding" is the exponential function. The standard presentation of period compounding with yearly, monthly and daily periods followed by continuous compounding, parallels the mathematical process of taking

lim (1 + rT/n)^n = e^rT

as n goes to infinity.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Fri Mar 30th, 2007 at 07:48:39 AM EST
[ Parent ]

compound interest is expo (none / 0)

lending is limited by the capital ratio and is therefore linear. Banks cannot loan an infinite amount of money and stay within the rules.

Now if you assume all profits are plowed back in, the growth is exponential and infinite. However, this fallacy assumes that there is infinite demand for money. There isn't.

by HiD on Fri Mar 30th, 2007 at 06:14:43 PM EST
[ Parent ]

Re: compound interest is expo (none / 1)

You are ignoring credit derivatives, I think, which essentially removes any restraints on banks capital by allowing them to outsource their only REAL value add - the guarantee.

Now I've looked at many money supply curves and I've never seen one that looks linear.

Must be something wrong with my glasses.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Mar 30th, 2007 at 06:35:53 PM EST
[ Parent ]

apples and oranges (none / 1)

population growth has not been linear. Money follows population
productivity has also been non linear. Money supply has to follow that as well.

If more people are working with ever greater efficiency to create things of value, Money, the measure of that value has to grow. People don't take loans creating bank money to just pile up bills at the their cave. They use it to buy things.

My point is the histrionics the gold buggy types have about interest compounding in an exponential way such that money supply goes off the charts ignores reality.

the fallacy is the old "if my ancestor 2000 years back loaned out $1000 in then current funds at inflation +2%/year and never withdrew, then today I'd have more money than the rest of the world combined."

I got 1.6 X 10^20th or on the order of $10 billion per inhabitant of the earth. but don't hang me if I blew the calc. It's a huge number regardless.

The fallacy then states " since this is clearly impossible, money must be some scam and interest is the means by which this evil is perpetrated upon us ordinary folks by the man." Gold bugs then argue we have to shift back to commodity money (gold) because it's obvious a tiny slice of metal has real value compared to a piece of paper (/snark).

If you step back, you realize that when bank money loans are repaid, the mechanism by which bank money is created is reversed and the money disappears. If the bank cannot find a new taker of loans then he cannot make any more interest. If his money pile grows huge, in order to attract a new borrower he must cut interest rates. As rates approach zero, the e function Mig put up approaches 1 and the pile of money freezes in size.

There is no infinite demand for borrowing and therefore no infinite demand for money creation.

Credit derivatives don't create new money. They are bets between players on the movement of those underlying measures. The risk there is massive default if some players have much bigger bets on than they can cover. Robert Citron comes to mind. It is imperative that the regulators get on top of derivatives as unregulated bets with insufficient cover could be a problem. Same as allowing banks to loan money with no to low capital coverage. If the lender has no risk of loss, why not loan to any and all comers on any pretense and just hope. If all of his capital is lost first, it sharpens the mind a bit.

It's a stability issue, not some grand supply of even more money. Their is legitimate fear that the tearing down of the walls between commercial and investment banking, insurance etc is putting the system at more risk. I'm not going to pretend to be smart enough to know how well the system is regulated or whether Glass-Steagall should have been let alone. My gut says yes it should have. If that is your argument, we agree.

BTW, deposit insurers like the FDIC essentially function in the same way as your guarantee network. They take in fees to cover the screwups. They ran out of funds in the 80's when regulation of S&Ls failed, but afterward, they jacked up fees (raising costs to all of us) and repaid the loans the Treasury made to the system. If safer banks cost us more, so be it.

by HiD on Sat Mar 31st, 2007 at 05:35:28 PM EST
[ Parent ]

Re: apples and oranges (none / 0)

Guys, I fail to see the point of dissecting the exponential function. Yes, it is exponential, that is a simple marhematical fact with no significance that I can see.

Continuous compounding makes a whole lot of sense, and so does the interpretation of interest as the time value of money. In fact, if you think of bond yields as measuring the time value of money, the ordinary term structure (higher yields for longer marurities) corresponds to superexponential growth. Thank god for fiat money, then, because that way we can inflate our way out of our own unrealistic (implicit) expectations of future returns.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Sat Mar 31st, 2007 at 06:50:35 PM EST
[ Parent ]

I agree with your math (none / 1)

my argument is that money doesn't just keep flowing out in some uncontrolled exponential way in real life. Which I believe is embedded within some of Chris' statements. Fiat money is neither a scam nor toxic nor leading us toward a giant downfall.

But thanks for pointing out the other reason CC sees non linear growth in money supply. Inflation is another non linear input.

by HiD on Sun Apr 1st, 2007 at 06:01:18 AM EST
[ Parent ]

And I note (none / 1)

you continue to avoid addressing the key point that in order to drive a no interest system you must have a large group of people who will play along.

When you get right down to it, do you believe most people will lend out their excess earnings for no return?

by HiD on Fri Mar 30th, 2007 at 06:16:24 AM EST
[ Parent ]

Re: And I note (none / 1)

Yes, the "time value of money" is real.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Fri Mar 30th, 2007 at 07:13:19 AM EST
[ Parent ]

Re: I don't think I do (4.00 / 2)

I'm not ASKING them to "lend" them for no return, but to "invest" them in new "quasi-REIT" asset pools for a very reasonable return.

eg 2 to 4% index-linked (and don't forget UK 50 year index-linked gilts were issued at 2% and sold down to 0.4%, before bouncing back.

I think I forwarded Mig a spreadsheet with an example, I'd happily forward it to you.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Mar 30th, 2007 at 07:43:28 AM EST
[ Parent ]

and I asked my dad for a Ferrari (none / 0)

didn't happen.

Your idea of a reasonable yield seems to be about 50% of market. I wish you well, just doubt that it happens.

by HiD on Fri Mar 30th, 2007 at 06:11:40 PM EST
[ Parent ]

Re: A Nissan Micra works for me (none / 0)

I think you have been exposed to Wall Street too long! ;-)

There is so much money piling into commercial properties that yields down to 4% (NOT index-linked) are not unusual these days.

I was in Norway talking to a big pension fund who liked the idea of a Scottish property paying 4% index-linked.

And the Scottish charity liked the idea of 4% quasi-equity money and are happy with index-linking rents.

Of course, I don't aim to finish with one charity/ social enterprise or one property, but to create a pool of them.

Got to start with a pilot scheme or two.

Equally the end-game is a "pool" of such property -based investments (quasi REIT's) - plenty more where the Norwegian money comes from looking for BOTH a decent return AND a warm feeling.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Mar 30th, 2007 at 06:28:36 PM EST
[ Parent ]

I drive a Nissan Pickup (none / 0)

4 cyl, 27 mpg, $13,500 new. Cheapest thing I could find with a truck bed. Even used ones were nearly as much unless I wanted the same wreck I was getting rid of. And that only because I couldn't take a broken AC in Hawaii and couldn't see $1000 for a new AC in a truck with an iffy trans worth only $1000 in total. Have to have a truck as we have to haul our garbage to town and I am still working on the property and have to haul materials etc. Otherwise I'd have a hybrid. The Ferrari is just a masturbatory fantasy. TVR Cerbera used to do it for me too.

4% Index linked is not 4% I'd argue. What index are you referring to anyway? Inflation? those flat 4% yields on commercial real estate don't surprise me if they are equity investments. They are counting on capital appreciation to get their total return up. Not to mention that if you can borrow Yen at zero, 4% looks pretty good.

People here have been buying single family rentals with a NEGATIVE return (near as I can tell) betting on the come. They are getting stuffed at the moment.

I've no problem with your scheme, I just think there is limited appeal and it will not overtake the existing system because of some superior feature. The only superior feature I can detect is interest below market for "social" reasons. Perhaps you are right though; don't let me stop you from trying.

by HiD on Sat Mar 31st, 2007 at 05:45:17 PM EST
[ Parent ]

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