Money and value

[love detective]

so you admit they don't create money out of thin air then - as if they could it wouldn't depend on other things, actors, activities happening to allow that circulation to happen - but as you yourself point out this process of circulation does depend on these things, ergo it's not created out of thin air - instead money circulates if the conditions for that circulation allow it and money creation is therefore not the independent variable in all this, but the dependent variable - it's not a conspiracy or magic, it's just money, circulating - not saying it's a good thing it does so in this way, but your conspiracy like take on things conceals a proper understanding of what actually happens

I take the time & effort to understand things like this properly Jazz - and therefore able to critique in properly - you just jump on hysterical bandwagons which never poke beyond the surface and contribute fuck all to a proper understanding of the thing you're meant to be against

 

[littlebabyjesus]

That is because they are continually lending out far more than they have the cash reserves for (precisely what "fractional reserve" banking means), .

Um, don't they lend out only a fraction of the reserves? The run is caused when depositors come for their money and some of it has been lent out. The money is recorded as existing in two places at the same time, certainly - in the depositor's statement and the borrower's pocket. You could characterise this as lending creating money while paying back the debts destroys it. But you could also characterise it as depositors lending the money to the borrowers - after all, what is 'saving', if not 'delaying your promise of a share of consumption in order that another can consume today'. If money is being lent out faster than it is being paid back, you have an increase in the money supply, and if the reverse is true, you have a decrease in the money supply.

Where ld and I disagree, I think, is the role of interest due in all this. Because of interest due, the total amount of money owed is more than the total amount of money in existence, which necessitates an ever-increasing spiral of debt to avoid default.

There's a reason why banks call deposits 'liabilities' and loans they've made 'assets'. When you deposit money at a bank, what you're really doing is lending that money to them.

 

[love detective]

not really time to get back into all this at the moment - but if you maintain that lending is creating money (which i don't disagree with) then logically you can never have more money owed than money in existence because interest is purely another temporary loan between two parties (owed by the borrower to the lender) so going on the premise that lending creates money, so does the interest on it - an asset that a lender has in the form of interest for example can be monetised and circulated as money, used for collateral etc..

Anyway, my main disagreement with you is not necessarily about interest itself - (although interest in this case is a symptom of the deeper criticism I have of your analysis) - my disagreement with you is that you start (and finish) your analysis purely with money in isolation - it's the tail wagging the dog - you need to incorporate it into a wider framework of value to get any sense out of all this - you can't derive conclusions purely looking at money alone, detached from the value relations of the system it is but a manifestation from

 

[littlebabyjesus]

Ok, bearing in mind that I have accepted a lot of what you've said and that you have corrected some errors on my part - I freely acknowledge that - to concentrate just on one narrow issue:

If all money comes into existence as the creation of a debt bearing interest, then the total amount of money owed equals the total amount of money loaned out plus the interest due, which is the total amount of money in existence plus the interest due on all loans. The interest due doesn't create money. Rather the reverse - taking the sum of the total system it creates a debt that is not represented anywhere in the system by any money. The lender may use this as an asset with which to do things, but surely the one thing a lender cannot do is change the asset into something other than 'money owed'. They can sell it, perhaps with the interest due included in the price, but that's just transferring the asset from creditor to another. It doesn't change the nature of the asset.

Basically, what I'm saying is that if you sum the whole system, accounting for all the money in it, you necessarily have more money owed than exists.

 

[deke t lefel]

you can't derive conclusions purely looking at money alone, detached from the value relations of the system it is but a manifestation from

that's a little like..... you can't derive conclusions purely looking at the mind alone, detached from the body relations of the system it is but a manifestation from

 

[love detective]

Basically, what I'm saying is that if you sum the whole system, accounting for all the money in it, you necessarily have more money owed than exists.

if you sum the whole system you get zero

 

[love detective]

taking the sum of the total system it creates a debt that is not represented anywhere in the system by any money

you could equally say the same about all the loans & deposits in the system - they are not actually represented in the system by money - they just represent the trace that money leaves when it circulates in this way - if the same tenner is lent and borrowed 10 times between different parties, there is a 100 pounds of loans and a 100 pounds of deposits in the system - all created by the fact that the tenner has circulated many times between different parties and left debtors/creditors in its path - likewise with the related interest

anyway - i apologise in advance but i can't get into this at the moment - lot on

 

[camouflage]

you could equally say the same about all the loans & deposits in the system - they are not actually represented in the system by money - they just represent the trace that money leaves when it circulates in this way - if the same tenner is lent and borrowed 10 times between different parties, there is a 100 pounds of loans and a 100 pounds of deposits in the system - all created by the fact that the tenner has circulated many times between different parties and left debtors/creditors in its path - likewise with the related interest

The velocity of money.

 

[Jazzz]

Um, don't they lend out only a fraction of the reserves?

No, the amount they hold in cash (bills, or central bank deposits) is only a fraction of the amount they lend out. In the UK it is an average of 3.1% source

The run is caused when depositors come for their money and some of it has been lent out.

Of course, you mean 'to exchange for cash', the money is the 'ledger entry' saying they have £1000 on deposit. People can and do trade these numbers on a screen without exchanging for cash. That is how the banks are able to get away with having only a fraction of cash for the amount they lend out.
At any one time the cash just isn't there - as above, if just 5% of people with an account in credit come to withdraw it all (not paying back their loan accounts), the banks go down.

You could characterise this as lending creating money while paying back the debts destroys it.

Certainly.

But you could also characterise it as depositors lending the money to the borrowers - after all, what is 'saving', if not 'delaying your promise of a share of consumption in order that another can consume today'.

I don't think so. If you wanted to save your family silver, and gave it to me to look after, I think you'd be pretty miffed if I lent it out to someone else! And if I lent it out to ten other people simultaneously and demanded they gave me back more silver than I lent them, you'd think I was up to something pretty devilish!

Where ld and I disagree, I think, is the role of interest due in all this. Because of interest due, the total amount of money owed is more than the total amount of money in existence, which necessitates an ever-increasing spiral of debt to avoid default.

Well yes, as things are, the only way the interest can be paid back is from new loans being taken out (fresh money supply), hence spiralling debt, and bankruptcies on whatever level whenever the banks choose to stifle new loans.

So the banks get earn fortunes simply because we are effectively renting our means of exchange from them, and if they choose to turn off the loan taps, they get to take all our stuff!

 

[littlebabyjesus]

No, the amount they hold in cash (bills, or central bank deposits) is only a fraction of the amount they lend out. In the UK it is an average of 3.1% source

Of course, you mean 'to exchange for cash', the money is the 'ledger entry' saying they have £1000 on deposit. People can and do trade these numbers on a screen without exchanging for cash. That is how the banks are able to get away with having only a fraction of cash for the amount they lend out.
At any one time the cash just isn't there - as above, if just 5% of people with an account in credit come to withdraw it all (not paying back their loan accounts), the banks go down.

The amount they lend out is a fraction of the amount deposited - less than 100 percent. Of course the money they lend out eventually finds its way back into the bank as the person paid for their work deposits it again, and the process is repeated, but that's the nature of money - as ld says, a tenner can be lent out and deposited loads of times leaving traces of its circulation.

That's where the comparison with the family silver breaks down - money is a means of exchange rather than a thing to be exchanged in itself. It facilitates exchanges. As ld says, it circulates. The circulation is the money effectively. When you deposit money at a bank, you are effectively lending the bank the money. They offer you a rate of interest in return for permission from you to use the money. And there is only one way to use money - that's to put it back into circulation.

Where the problem comes is the question of interest. I can't agree with ld that the sum of the total system is zero. If money is created through loans bearing interest, where does the interest come from? If the money lender expects to be paid for their services with money, we have a problem. That can only happen if we go from money lender to money lender borrowing ever increasing amounts. Individual transactions may sum to zero, but only if the extra money to pay the interest can enter the transaction from elsewhere.

 

[love detective]

so LBJ, I have to ask, with both Friedman and Jazz on your side - are you feeling comfortable!

the one thing you all have in common (Friedman, Jazz and yourself) is that you all look at money in isolation - as though it's an independent variable, rather than a dependent one - so to properly understand money & the credit system you have to look deeper into what it is a manifestation/crystalisation of - build a few foundations first and a proper framework to then analysis money & credit within that - anything else is rudderless, leads to a weak and unfounded analysis and lends itself perfectly to the hysteria that conspiracy types come out with

 

[Johnny Canuck3]

. If I borrow £100 from the bank, that money has no value until I try to spend it. .

Huh?

 

[Johnny Canuck3]

Does it have any value when someone steals it off you?

 

[dilute micro]

6 pages and this thread is still on topic

 

[Johnny Canuck3]

Where the problem comes is the question of interest. I can't agree with ld that the sum of the total system is zero. If money is created through loans bearing interest, where does the interest come from? If the money lender expects to be paid for their services with money, we have a problem. That can only happen if we go from money lender to money lender borrowing ever increasing amounts. Individual transactions may sum to zero, but only if the extra money to pay the interest can enter the transaction from elsewhere.

But all of the money doesn't exist solely inside the banking system. You pay the interest on your loan not by borrowing it from another bank - it usually comes from earnings the borrower makes elsewhere.

Interest makes some sense in the capitalist model, which is predicated on continuous growth.

 

[littlebabyjesus]

But all of the money doesn't exist solely inside the banking system. You pay the interest on your loan not by borrowing it from another bank - it usually comes from earnings the borrower makes elsewhere.

All money is issued as a debt with interest due, though. So you may not pay the interest on your loan by borrowing the money, but whoever you work for and pays you does. That's my point - summing the total system, there is nowhere for the extra money to come from other than bigger loans.

And all money originates in the banking system. That was my point earlier about the money lender and their role. Backatcha bandit posted this Gessel story on another thread. What Gessel says makes a lot of sense to me. Where is he mistaken?

 

[love detective]

So you may not pay the interest on your loan by borrowing the money, but whoever you work for and pays you does.

and as i previously demonstrated in an example on this thread (or on another one) - all this results in is a transfer of existing value (represented by money) from one place to another

if i get paid 105 a week and a few days before payday i borrow 100 from you and promise to pay you back 105 - instead of me spending my 105 on consumption like i would have done had i not borrowed from you, i only spend 100 on consumption (the original loan from you) and the remaining 5 gets transferred to you as payment of interest due - which you can then spend on consumption (or repay the interest that you have incurred getting the money in the first place).

so in summary if the loan had not taken place 105 would have circulated and spent on consumption

while if the loan does take place, once it's been repaid, 105 has circulated and been spent on consumption - just by different parties, at the total level the effect is still the same

And where the 105 to pay my wages comes from is fairly irrelevant for the purposes of this example as you are claiming if i borrowed from you the impact would be different at the total level to if i hadn't borrowed from you - but as we can see in both cases the impact is the same - so the question of where the 105 came from to pay my wages is relevant for both examples (me borrowing from you and me not borrowing from you) so can be discounted from both to then examine what impact borrowing with interest from you has and what impact not borrowing from you has

so all that is happening here is that existing things are being shifted around between parties - the total societal level of things have not changed, only their distribution - interest results in one party capturing a bigger share of existing value from another - it effects the distribution of what is generated in the underlying economy

And once again, a proper analysis of money and the impact of its circulation has to go back to what is going on underneath - in terms of value production itself - i continually point this out and you continually ignore it

 

[littlebabyjesus]

And where the 105 to pay my wages comes from is fairly irrelevant

This is the sticking point, I think. That 105 has in turn come from a loan with interest due. Your boss, or whoever down the line, has borrowed the money to pay you, reckoning on getting extra value from your labour with which to pay the interest and leave them with profit. Those paying for the services provided by the company you work for have again borrowed that money with interest due, or at least someone has. At each stage, where you introduce money into the system, that money has to be accounted for. And every sum of money can be traced back to the loan that created it and that has interest due on it.

Your example only sums to zero because you've introduced £105 into the system - the amount of the loan plus the interest. It sums to zero because you've designed it to do so, and the amount you need to introduce into the system to sum it to zero is necessarily greater than the amount loaned out. That money itself - the 105 you've introduced - has been created through a loan. That's the whole point when I mean that the total system requires an ever-increasing spiral of debt to service the interest.

 

[love detective]

your initial premise was that any time a loan is created it needs an increasing spiral of debt be created due to the interest - i've given an example above that has shown this as patently not true (and i could keep going back in the chain to show that it's not true in relation to any borrowing my boss did to pay me, and so on - each time showing it just affects distribution) - your argument has to hold true in any example of a loan situation between two parties for it to have relevance, yet it doesn't so it hasn't

Also with regards to this:-

Your example only sums to zero because you've introduced £105 into the system - the amount of the loan plus the interest. It sums to zero because you've designed it to do so

this is another example of your tail wagging the dog/back to front thinking - i haven't backwards engineered anything, i haven't designed the amount of money into the system to match the loan, what i've done is reflect what happens in real life, i.e. you can only borrow what is floating around and circulating anyway - so the driver is not the loan itself, but what is available to be loaned. I haven't introduced a specific amount into the system to make my sums work, i've taken an arbitrary amount that exists in the system and showed what happens if that amount is loaned out (albeit an isolated example that abstracts away velocity & circulation elsewhere, but that doesn't detract from the logic that is demonstrated by it)

the system always sums to zero because it has to - it's impossible for it no to - for every borrower there is a lender, for every party owing interest there is a party it is owed to - add it all up and you get zero - every transaction is always been two parties and is equal & opposite in value - you can't have a borrower without a lender or vice versa and you can't have someone owing interest without someone else on the other side who is due that interest - for the system not to sum to zero you would have to have a borrower without a lender (who did they borrow from then?), or someone owing interest to someone who doesn't exist (how does that work?)

i'm also a bit confused as to the end point of your assertion - what's the impact/point of it - initially way back you had used this to assert that the whole thing creates (and required) inflation to sustain itself - however at various times in the discussion you'e admitted your error in relation to this (and various other area) - is it still this that is your main point, i.e. is it, as you said earlier that

I still think my basic premise - that we have a system where money enters the system through the creation of debts with interest owing, and that this system demands inflation in order to function - has legs

If you still think this is the case (and it's something based on either logical or empirical grounds) can you have a go at responding to my post in response to this that you didn't address previously when this was being discussed a few months ago

This was:-

I disagree on both logical and empirical grounds

1. Logical: Your whole argument seems to be based on the tail wagging the dog. Despite naming this thread money & value - your whole focus has been on money alone, with value being either non-existent or a mere afterthought in the analysis. Value creation (or non-creation/destruction) is a better starting point for looking at things like this.

In your assertion you state that the simple act of a loan with interest being created, in and off itself, is the fundamental reason for inflation in the ecomomy. You don’t put any analysis on what happens in the wider economy following the creation of that loan - and because of that your analysis is incomplete & flawed. If someone takes out a loan and (in value terms) the loan & interest is paid back out of created value (either from wages for workers or surplus value for capital) along with a bit of profit left over for the borrower - then how can this result in inflation. The marginal amount of value production here is higher than the amount of interest due on the loan. And when the loan is repaid (which effectively decreases the money supply in your terms as there is less loans/deposits) we have a situation where there is less 'money' in the system but more value (as the profit is higher than the interest paid) - so if anything this points to deflation not inflation.

Clearly not everything runs as smoothly as this all the time, but you don't even look at what happens in relation to value creation - you base everything on the fact that a loan has been created and your theory is blind to the real substance of what then happens next. In your theory whether the money from the loan is wasted, eaten, transplanted to mars, used to produce real value or whatever, is not even considered - you simply assert that more loans = more inflation

You also have failed to account for how inflation that is caused by the things I raised in this post would magically disappear if loans with interest didn't exist.

2. Empirical: Your theory essentially says the more loans & deposits (or money, or things circulating like money) in the system, the higher inflation will be. But if we look at the period from say mid 1990's to 2007 (in say the US and UK). This was a time where a huge amount of money/loans/deposits/ficticious capital were circulating around at incredible speeds (save for the blip of the dotcom crash). This was a result of loose monetary policy, huge (ficticious) banking profits, massive confidence, huge amounts of loan capital flowing in from surpluses in China etc.Now according to your theory we should have been seeing pretty high inflation then, but in fact the reverse was true and inflation was pretty low over that period (the fact that interest rates were fairly low during this period shouldn't detrat from your theory, as the theory is based on volumes of interest bearing loans/depoists circulating - so while perhaps the interest rates were relatively low on them, the fact that the circulation/velocity/mulitplication of them was very high is what's important for your theory)

From 2007 onwards however all that activity ground to a halt, loads of the stuff that was circualting was destroyed because it was ficticious, loans were paid down or defaulted on, so the whole build up through previous circulation came crashing down - now according to your theory we should be seeing a lot less inflation than before, however we are in fact seeing much more.

So when your theory says there should be high inflation we see low inflation and when it says we should see low inflation we see high inflation. It doesn't appear to be a particular useful theory for explaining real world phenomena

So, so far, I can't see any support for your theory, either on logical/rational or empirical grounds

 

[littlebabyjesus]

Alright, setting this to one side, because I'm sure you agree that we're going in circles now, what do you think of Gessel's idea of free money?

While capitalism sees people 'saving' and accruing interest through others taking out loans, Gessel's idea of money is one that is more directly attached to the value it represents. In his system - which would need updating, but I see no reason why it can't be updated to be electronic - people are paid with notes that are worth a certain amount. However, every month, to keep the money valid, they must pay for a stamp to be put on it. They cannot save the money or give it to banks. All they can do is use it to buy something - circulate it. And the longer they hang onto it, the less it is worth, so there is incentive enough to use it - to get someone else doing something.

In many ways, this turns capitalism on its head. It would have to be combined with other measures to work - a socially funded pension, free education, etc. And he also proposed the taking of all land into public ownership so that it could only be rented, not owned.

This might all sound utopian, but Gessel viewed capitalism as a system that served to make people act against their own self-interests. And I have to agree with this. The whole idea of 'saving' money is wrongheaded. Surely this is treating money as if it were a commodity itself, abstracting the value of capital - alienating it if you like - in such a way that banks can operate just on money. A money lender can demand interest because there are no adverse consequences to them personally to their holding onto the money they are lending out, despite the fact that the value of the last transaction facilitated by the money will surely go down over time.

Effectively, Gessel built inflation into his model - depreciating money over time - but in a different way, so that it is only inactive money that depreciates. In our current model, all money depreciates together. And this is where I do have to insist again on the role of interest. Banks charge interest for the relatively simple task of providing us with our means of exchange. In the process, they hoover up most of the proceeds of growth, while most people get further and further into debt to them.

 

[deke t lefel]

free money, relative debt......

 

[love detective]

Alright, setting this to one side, because I'm sure you agree that we're going in circles now

Hold on, just because i ask you to back up your assertions by challenging it with some carefully though through empirical & logical criticism - the whole discussion now has to be conveniently 'set aside'?

i've asked you these points a number of times on this thread and others, you've failed to address them, yet you still assert your original claim without any attempts to address the calm & reasoned criticism i've made of them (despite starting a thread specifically calling for people to point out where you may be going wrong in your thought process on this)

and to characterise the discussion as going round in circles is absurd - it hasn't rotated once, it's never got to a stage where you've addressed my valid criticism of your assertions

At times it feels like trying to use empirical & rational arguments to convince a religious person that god doesn't exist - i.e. it's pointless because their belief in the deity is based on faith alone, not reason or empiricism so no amount of arguments using them can make them budge - this is what this discussion feels like

You've continually asserted something, i've asked you to address numerous criticism from me as to why I think you are wrong, but you've continually refused to even attempt to address these points while at the same time re-asserting that you're right - you may not see the arrogance in that but I do

I've spent an inordinate amount of time putting time & effort into detailed responses to some of the bizarre & poorly thought through things you come out with in relation to money, finance, credit and value yet time after time this is ignored as you fall back on your faith in some poorly thought through idea that lacks any kind of foundational structure or framework to give it half a chance of having any legs.

This is the last time i will say it - you will never get anywhere in understanding all this by taking your starting point of analysis as money itself - it might seem like a convenient short cut to understand it, but it's not. Anyway, i've got better things to do than waster my time on this - if you ever want a serious discussion about these things then fair enough - until that point comes i'll leave you to subtley inhabit a ground the likes of Friedman and Jazz inhabit somewhat more explicitly

As for Gessel, a poor man's adam smith for the monetarist/neo-classical generation

 

[littlebabyjesus]

I feel kind of the same way, though. This bit:

the system always sums to zero because it has to - it's impossible for it no to - for every borrower there is a lender, for every party owing interest there is a party it is owed to - add it all up and you get zero - every transaction is always been two parties and is equal & opposite in value - you can't have a borrower without a lender or vice versa and you can't have someone owing interest without someone else on the other side who is due that interest - for the system not to sum to zero you would have to have a borrower without a lender (who did they borrow from then?), or someone owing interest to someone who doesn't exist (how does that work?)

misses my point. If you're owed interest, that does not mean that the money to pay that interest exists. You don't put money into the system just by writing down how much interest you're owed. The lender has no money until the borrower pays it back. For every borrower there is a lender, and in every case, the borrower owes more to the lender than the lender lent out to the borrower.

Ok, I might see what you're saying. Are you saying that in effect, if I owe the bank 2k, then bank has 2k? But to be owed 2k by me is not the same thing as to be owed 2k by the Bank of England. And that debt can't be used in the same way. Exchanging a debt owed by someone like me for banknotes showing a debt owed by the Bank of England would involve a huge markdown.

 

[love detective]

you haven't even attempted to address any of the fundamental points i've made in the last couple of pages (or on all the other threads when these topics have come up) - had you done so some of the points that you think you have you may see in a different light - that's the reason for raising most of them, but you can't/won't address them - i mean you couldn't even clarify what your overriding point was when asked above - you're just drifting about clutching onto disparate things

but until you do constructively engage with my criticisms of your 'theory', as i said, i can't be arsed going round the houses with your anchor-less surface level analysis anymore - it provides zero interest for me to do so (and it's actually boring as shit as well) - so sorry, but that's it from me, good luck learning about this stuff with the approach you take to it

 

[littlebabyjesus]

Have you seen my point, though?

I borrow 100, am paid 105, pay back 105... sum zero, but 105 has come in.

Boss borrowed 105 to pay me, is paid 120 by customer, pays back 110, consumes 10.

Customer was paid 120

Boss of customer borrowed 120 to pay customer, is paid by client 140, pays back 130, consumes 10

Etc.

The figure goes up and up, and everything is accounted for, summing to zero, except the last term introduced to pay the last person in the list's loan. It isn't a trivial matter that this last term is never accounted for.

 

[love detective]

take it up with Jazz - perhaps his approach will suit you better

no need to even think about value, i mean it's not like money is its representative or anything

 

[littlebabyjesus]

Trying that with no external consumption, just transferring the money, once with interest, once without:

Without interest:

I borrow 100, am paid 100, pay back 100

Boss borrowed 100 to pay me, is paid 100 by customer, pays back 100

Customer was paid 100

Boss of customer borrowed 100, is paid by client 100, pays back 100

Client is me! that's what I borrowed the 100 for.

Sum: zero

With interest:

I borrow 100, am paid 105, pay back 105

boss borrowed 105, is paid 110, pays back 110

client borrowed 110, is paid 115, pays back 115

Money to pay client: 100 + 5 + 5 + 5

Sum: zero also

So, yes sum zero once all the transactions have been completed. But transactions don't come all at once. There is a time order. Why did the boss borrow money to pay me? Because he knew his client wouldn't be paying in time. And so on, so the boss borrows after me, the client borrows after the boss. But the money to give to the client to sum the zero is coming mostly from me. Why would I borrow to pay the client then not pay them? There is a logical absurdity to the whole scenario whereby I am borrowing money to pay a client who doesn't need paying until after I'm paid. So with that initial 100 I must have had to pay the client for last month's debt. I pay them another 100, and the three money lenders each pay them 5 each. Except that the three money lenders haven't got their 5 each yet. So where does the client get the extra 15 if I'm still just paying 100? By charging me more than 100, for starters, putting prices up, but also by borrowing the 15. Let us say they borrow the 15. So then the second round is:

Client gets 100 from me, borrows 15, pays back 115,

I borrow 100, am paid 105, pay back 105

Boss borrows 105, is paid 110, pays back 110,

Client borrows 110, is paid 115, pays 115, but still owes that 15, which is now 16.

So this process goes on, and the client slips into owing more and more to the lenders and in the end puts prices up to compensate - inflation.

Somebody has to be a month behind in this scenario.

Of course in reality those who are a month behind and bear the brunt of this are the workers. They are paid at the end of the month, but most things have to be paid for at the beginning of the month. No wonder so many people live on their overdraft, paying it back up to zero each month. Ideal scenario for a bank, in fact. They don't have to find anyone else to lend to to make their money - they make it out of the current account holder. They extend the overdraft to allow for the expanding debt until one day, they arrange a loan to pay it all off with, reckoning that the loan will make the worker economise so that they pay down the debt for a bit (they might even have a friendly adviser who can help you to budget), and then whole process starts again. And all of that interest you pay is effectively theft. It all stems from the fact that you are paid in arrears but must pay for things upfront. You are the sucker in the system, basically.

As a side note to this, one of the effects of the credit crunch has been a doubling of interest on overdrafts. This is effectively a significant pay cut to many people. I asked my bank why they had done it, and even the woman at the branch thought it was rough. The justification is simply this: good luck getting the money from elsewhere - we've got you by the curlies. While rich people with big deposits are paying 3 percent or less on their mortgages, others with no capital are paying ever more extortionate rates on overdrafts, credit cards, etc. A direct, naked transfer of wealth from the poor to the rich.

 

[Johnny Canuck3]

All money is issued as a debt with interest due, though. So you may not pay the interest on your loan by borrowing the money, but whoever you work for and pays you does. That's my point - summing the total system, there is nowhere for the extra money to come from other than bigger loans.

As I mentioned, capitalism is predicated on growth. The population grows, the economy grows. Income is larger than the interest paid on loans.

 

[littlebabyjesus]

As I mentioned, capitalism is predicated on growth. The population grows, the economy grows. Income is larger than the interest paid on loans.

Normally interest rates are higher than growth rates. So the interest charged swallows up the growth, basically. Hence nearly all the proceeds of growth over the last few decades have gone to the richest few percent. The rest of us see virtually none of it.

Balls to growth, basically. It does most of us no good at all.

 

[Johnny Canuck3]

Normally interest rates are higher than growth rates. .

Which measurement of the growth rate: GNP; GDP; average family income, etc etc?

Which interest rate: prime lending rate?