-
Features
How to avoid economic collapse and break down of civilization?
- Thread starter jdf5
- Start date
Harry Bosch
Contributor
You have a belief. Then you search for sources that support your belief?
laughing dog
Contributor
This is illogical. It is not possible to repay a monetary debt or interest with non-existent money.
That is why a new loan must be made somewhere.
The problem again is that debt must always increase because there is always a shortage of money due to the interest.
But debt can´t continue up forever of course. Is that so difficult to understand? Will see if i find some source to explain it better.
Interest is paid to somebody. They use that money to buy something. The person who borrowed has to produce more than value they borrowed in order to repay the debt but there is no reason they can't. Basic double entry bookkeeping: All transactions are both debits and credits.
You can´t produce the interest. You can produce something that is competitive in the economy. Then you may get a loan from a bank.
The problem again is that debt must always increase because there is always a shortage of money due to the interest.
But debt can´t continue up forever of course. Is that so difficult to understand? Will see if i find some source to explain it better.
Interest is paid to somebody. They use that money to buy something. The person who borrowed has to produce more than value they borrowed in order to repay the debt but there is no reason they can't. Basic double entry bookkeeping: All transactions are both debits and credits.
laughing dog
Contributor
Suppose I borrow $100 to buy a lawnmower, start a lawn maintenance business and repay the principal and interest from my earnings. The idea some of my earnings had to be borrowed by my customers is nonsense.
RVonse
Veteran Member
- Joined
- Jul 1, 2005
- Messages
- 3,057
- Location
- USA
- Basic Beliefs
- that people in the US are living in the matrx
What some are saying (Charlie Munger/Warren Buffet) is that the 2008 housing collapse would have been a lot different excepting for the extraordinary measures. Munger (who lived through the first depression) felt the crises would have been that bad. Other experts (Peter Schiff/Micheal Burry) are claiming the 2008 can of worms was only kicked down the road and that our reckoning is yet to come. Nothing of the sort has yet happened so far, but that does not mean the huge asset bubble built up could not yet break down in the next decade.
In the meantime, the fed measures were not without cost. At a minimum extremely low and long lasting cost of borrowing has created many zombie companies who should not be in business today. There is a huge amount of malinvestment of capital and pricing that does not follow supply and demand as it should.
The depression in the 1930's was not a complete breakdown of civilization but it was not a good time for most people either. There are some historians who directly blame that depression on the beginnings of nazi Germany.
So where will the money you pay that interest come from? Since money is created from loans.
If you can't explain it you don't understand it and shouldn't be arguing it.
And I note the standard created out of thin air bit that's the hallmark of such misunderstandings. Banks can only loan what is on deposit. And a loan does not create money, it moves money.
Picture a wheel. There's a dollar bill fastened to it. You can look at the wheel, see the dollar. Now, the wheel turns (economic activity happens.) In time the dollar you saw comes around again and you see a dollar. You are making the mistake of thinking it's a new dollar, when it's really the same dollar you already saw. The faster the wheel spins (the more money moves around) the more often you see the dollar but it's still the same dollar.
Note that for purposes of inflation/deflation each time the dollar comes past counts. This is why the Fed uses interest rates to control the economy--lowering the interest rate makes loans more attractive, the wheel spins faster. Raising them makes the wheel spin slower. The spinning "produces" far more dollars than the actual dollars that are on the wheel, but money is not actually being created. Only the Fed can actually put dollars on the wheel, everybody else just spins it.
The Fed aims to grow the supply of dollars at the rate the economy grows, this means debt will increase. It's only essential to the extent that it's the lubricant that keeps the economy moving--with no debt the economy would be a trickle compared to what it is now.
Buffet has a very good track record, I would be highly inclined to listen to what he says.
And I'm certainly not saying that there isn't a problem with debt--there most certainly is. We didn't learn our lesson in 2008, we still have investment vehicles that can go bankrupt with a big enough market shock. However, while there will certainly be those destroyed by such an event it won't take out the economy. 2008 was actually worse because it was houses--both investments and habitation. The damage won't be as bad if it's just investments.
laughing dog
Contributor
Voluntarily from already created loans.
On the local level yes but on the global level there is a shortage of money.
laughing dog
Contributor
Assuming there is a global shortage if money, why would that mean that my earnings would necessarily require new loans?
If you are going to pay the interest, the money that do not yet exist on the global level then somewhere in the global economy a loan must be made.
Why make it so complicated? You don´t agree that only a new loan can pay for the interest on the global level?
laughing dog
Contributor
You assert without a shred of that my repayment of the interest from my loan necessarily required that somewhere in the world a new loan was made.
Sounds like economic ignorance to me.
But where is the money for the interest going to come from if not from a new loan?
laughing dog
Contributor
Savings.
That money comes from a loan as well no? We don´t create money. You may get some interest when saving but it´s lower than for a loan.