Repossessions to rise when interest rates go up

[littlebabyjesus]

Nope. Croatia Govt for example issued bonds in the early 2000's in the 5-10 year bucket which financed the Istrian Highway. The loans were repaid from taxes derived from the economic benefits of the motorway.

Ah, yes. Growth can account for interest. but historically, the interest charged on loans has always been higher than growth - a major reason (I would argue, the fundamental reason) for inflation.

 

[love detective]

Right, let's sort this out, then. I've confused terms because the original post I was responding to confused terms. What, in 20 words or fewer, is future? Am I wrong to say that it is a contract concerning goods that have not yet been produced?

more incorrect than correct i'd say, and for two reasons

i) for example an interst rate future concerns something that is not even a good, let alone one that has not eyt been produced

ii) even for futures that are related to physical things like say oil - the contract is merely something to buy or sell a given quantity of the thing on a specified date in the future - it's irrelevant as to whether that thing that is to be delivered has been produced or not - i.e. oil that is held in reserves can be used to settle a future contract that expires today that was transacted say a year ago. but as i said earlier, most futures do not involve the physical exchange of goods for money, they are cash settled meaning a payment is made from one party to another based on the difference between the current price and the contract price

 

[A Dashing Blade]

What, in 20 words or fewer, is future?

The owner of a futures contract is obliged to buy something on a certain date at a certain price.

 

[littlebabyjesus]

The owner of a futures contract is obliged to buy something on a certain date at a certain price.

Right, thank you. That is what I thought, believe it or not. So whatever else I've said that may or may not be right, it is not 'borrowing from the future', which was all I was trying to say.

I really am ducking out now.

 

[Barking_Mad]

Oh, I think urban already knows of the murky capitalist waters in which I swim. I just about get away with it for now by loudly decrying everything about it but I don't think it's going to save me come the revolution.

this one will have his uses, we should keep him

 

[love detective]

Ah, yes. Growth can account for interest. but historically, the interest charged on loans has always been higher than growth - a major reason (I would argue, the fundamental reason) for inflation.

i noticed you ignored the response I gave on this to you (a response that only existed because you asked a direct question on it which you then ignore)

your statement above implies if there was no lending or borrowing of money (and therefore no interest flows) then there would be no inflation - as you see interst flows stemming from this activity as being 'the fundamental reason for inflation' i.e. this implies then that if we abstract away lending & borrowing from the economy (or even just abstract away lending & borrowing at interest) the following things would somehow majically happen:-

1) removal of the limits on natural resource production/exploitation and provide a limitless source of supply of things like food/energy/minerals - thus stopping inflation caused by this

2) somehow impose a fixed currency exchange rate regime on the world - removing the inflationary or deflationary impact of a weakening or strengtheing currency - thus stopping inflation caused by this

3) remove things like wage/price inflation - thus stopping inflation caused by this

4) somehow stop the existing money supply circulating at increased velocities thus increasing inflation - thus stopping inflation caused by this

5) stop the devaluation of labour power that arises out of increased inflation

6) remove the ability and will of governments to increase consumption taxes like VAT - thus stopping inflation caused by this

7) remove future inflation expactations as a result of the above things - thus stopping inflation casued by expectations

8) remove the population explosions in countries like India & China therefore dampening the inflation caused by hugely increasing demand by these societies for producer & consumer goods

9) and probably a whole host of other things that I haven't considered


I can't see how anything of these things - all of which are implied by your assertion about interest flows - would happen. All of the things listed above are major contributory factors to current inflation - and all of which exist largely independent of interest flows. So that's two different ways/perspectives now where I've tried to show you that your assertion about interest flows (in and off themselves) alone contributing to inflation is incorrect - but I suspect you'll just ignore this and continue to go with what you think is correct (without actually demonstrating why it is correct)

 

[littlebabyjesus]

Did I ignore your points on the Can capitalism exist without growth thread, which is where I put this point?

I don't think I did. But you didn't convince me that you were right. As far as I'm concerned, you did not show me where the interest on loans comes from. It comes down to how money enters the system in the first place in my opinion, which is not just lending from one capitalist to another - it involves a third agency creating the debt.

When I have time, I'm going to try to look at one or two things that ought to be able to demonstrate what I'm saying because if I am right, there ought to be a correlation between interest rates and inflation - put crudely: (ignoring all the other factors which are there, but I am saying are not fundamental) the rate of inflation = interest charged on loans minus growth.

I will do this when I have time and if I can work out how to do it. Difficult to calculate as you have to take into account all the different kinds of loans taken out at different rates over different time spans, but it should be possible to see the pattern over a long enough period. If I'm wrong, it should be possible to very definitely show that I'm wrong in this way.

 

[A Dashing Blade]

. . . there ought to be a correlation between interest rates and inflation . . .

Would be surprised if there wasn't as interest rates are a major method of squeezing inflation out of an economy?

 

[littlebabyjesus]

Would be surprised if there wasn't as interest rates are a major method of squeezing inflation out of an economy?

Interest rates are a double-edged sword in that sense. Raising rates can serve in the short term to reduce borrowing by making it more expensive. But in the long term, I am arguing that by making borrowing more expensive, you force prices up as that is the only way to pay the extra interest.

I still haven't received a satisfactory answer (to my satisfaction at least - maybe I'm just being thick) to the question 'where does the interest on loans come from'. Where does that extra money come from - how does it enter the system? Does it enter the system through another loan? Does this not mean that the totality of loans made at interest can never be repaid - rather, you have a spiral of ever-increasing debt, ie inflation.


As an aside, this may also provide a partial explanation for how Japanese-stye 'stagflation' may be a self-perpetuatlng system. You reduce interest rates in order to stimulate demand and avoid deflation, but you are now stuck with low inflation because the main driver of inflation long-term has been largely removed.

 

[A Dashing Blade]

. . . Difficult to calculate as you have to take into account all the different kinds of loans taken out at different rates over different time spans . . .

For each Govvie bond, you know the coupon, find out the issue date and price enabling you to back out the yield to maturity at issue. That'll be the rate at which Governments were able to borrow at for a period equivilent to the lifetime of the bond.

Eg UK Gov "Treasury 8.75% Aug 2017"'s were issued in April 1992 at a price of 97.13 which equates to a yield of 8.75%

Tho, tbh, you'd prolly have to think about the assumptions in the "yield to maturity" concept (ie all cash flows are reinvested at the original price etc)

 

[love detective]

Did I ignore your points on the Can capitalism exist without growth thread, which is where I put this point? I don't think I did.

Yes, as usual with things like this, you did ingore them - from about post 107 to post 151 the end of the thread - you did not engage with any of the substance of what I posted about - you dipped in and out to make some one liners in relation to other side issues , but there was no engagement, just silence on the main issues, which as i've said seems to be a fairly familiar pattern in discusions with you.

This makes any kind of discussion with you completely tedious as you start off with an baseless assertion, which spans a usually fairly lengthy series of posts from me on the matter, which you rarely engage with, either by completely ignoring it or saying you don’t' have time (if you're that sure you're right you shouldn't need much time to demonstrate it) - but then pop up later on spouting the same old thing and it all starts again - it's boring really - so will probably make this my last post on the matter - I don't really think you are interested in actually finding out the truth if it means you having to admit you are wrong.

As far as I'm concerned, you did not show me where the interest on loans comes from. It comes down to how money enters the system in the first place in my opinion, which is not just lending from one capitalist to another - it involves a third agency creating the debt.

I've commented on this very thread about your starting point of analysis for this which going by the above comment you've also ignored (or refused to digest for some reason) - asking things like 'where does the interst on loans come from' approaches the problem from the wrong end as I said in the post earlier on this thread - you need to start from a more substantive point and follow things through from there.

Re the point about money coming into the system and intra capitalist lending - again in the large post I done earlier today I covered all this in huge detail - you have ignored it all however and still hold on to this confusion that you have about how (you think) it works. You dont' even see that simply by the velocity of money circulation increasing this is effecitvely the same as new money coming into the system - but you insist this can only happen through a third agency creating debt etc.. - but by thinking about how the money supply can increase purely through it circulating faster, shows it can (and does) happen purely within the system alone, not with some third party agency that you keep on going on about. In any case i've addressed this third party thing in my post previously and showed how small this factor is when compared to the gross positions that arise through the simple fact of money circulating - but again you ignore all this, so there is very little point in continuing to engage with you, because there is no actual engagement.

When I have time, I'm going to try to look at one or two things that ought to…….

Sems to be a common theme/trick with you this (whether it's in relation to something like this or philsophy , i.e. the logical positivism thread etc..) - you make a baseless claim, ignore the engagement with it from others, assert that you're correct regardless, then say you don't have time to show why, but when you do you will pull some, as yet unidentified, rabbit out the hat which proves you are right (because of course you have to be right, there's no other possibility)

there ought to be a correlation between interest rates and inflation - put crudely: (ignoring all the other factors which are there, but I am saying are not fundamental) the rate of inflation = interest charged on loans minus growth.

You’ve no basis to assert this (and anway correlation doesn't imply cause) - you've already admitted yourself that these flows are a zero sum game - so the interest rate on them between two parties are irrelevant - it's merely a shifting of value from one party to another - the total/societal level remains unchanged.

this is what I was saying earlier, you approach these things from an almost metpahysical/cartesian perspective instead of just dealing with the ample empirical material which can make or break your case - you think up something and then because you've thought it up it must be right, regardless of the fact that you can't produce a shred of evidence (empirical or logical) to support them, your conclusions are simply asserted instead of argued. why not just engage with the actual points I've made on this thread and if you are correct you should be able to prove that what I've said is incorrect - you don't need to go away and come back again when you have time with something else - if you are correct, prove that the things I have said in relation to this are incorrect - then you will have proved that you are right -

I will do this when I have time and if I can work out how to do it. Difficult to calculate as you have to take into account all the different kinds of loans taken out at different rates over different time spans, but it should be possible to see the pattern over a long enough period. If I'm wrong, it should be possible to very definitely show that I'm wrong in this way.

Yep - go ahead and ignore everyhting that's been said to you

 

[kabbes]

Money, eh? Pfft.

 

[littlebabyjesus]

Sems to be a common theme/trick with you this (whether it's in relation to something like this or philsophy , i.e. the logical positivism thread etc..) - you make a baseless claim, ignore the engagement with it from others, assert that you're correct regardless, then say you don't have time to show why, but when you do you will pull some, as yet unidentified, rabbit out the hat which proves you are right (because of course you have to be right, there's no other possibility)

Show me where I did that on the logical positivism thread. A specific quote, please. On that thread, I attempted to address every point everyone made to the best of my ability, even points made by phildwyer.

 

[ItWillNeverWork]

I still haven't received a satisfactory answer (to my satisfaction at least - maybe I'm just being thick) to the question 'where does the interest on loans come from'. Where does that extra money come from - how does it enter the system? Does it enter the system through another loan? Does this not mean that the totality of loans made at interest can never be repaid - rather, you have a spiral of ever-increasing debt, ie inflation.

I would have thought that the interest is paid via the production of real value in the physical economy - as a few people have already spoken about. The interest can paid when that newly produced value is monetised and the funds for repaying a debt becomes available. If your wondering about where the money representation of value is generated, then I think it would be best for someone else to give an answer, because I don't know.

 

[love detective]

Show me where I did that on the logical positivism thread. A specific quote, please. On that thread, I attempted to address every point everyone made to the best of my ability, even points made by phildwyer.

can you stick to avoiding enaging with the issues of this thread on this thread please

don't use the other stuff as means to muddy the waters on this one

 

[love detective]

I also meant to say in the post above, that you also have a knack for slipping away from an issue that's been demonstrated that you were wrong about and onto to something else with no aknowledgment of the fact. your point about central bank lending and how central banks were lending at loss making levels allowing commercial banks to make profits for example - i dissected this completely in the large post earlier and even pointed to the record billions of profit being made by central banks lately - but no engagement or aknowledgement from you on it

so, i'm calling it a day on this - you have the floor to yourself again to keep showing how clever you are

 

[littlebabyjesus]

OK, if I implied that I admitted that the flows from loans made at interest were zero-sum, that is a mistake on my part. I do not think that. It comes back to the question of how money enters the system, and not just from the central bank - the fractional reserve lending system involves a system whereby lots of banks and institutions effectively create money by loaning to people on the strength of deposits made by others and other such mechanisms designed to inspire confidence in the loan.

I haven't got the energy for any more at this point. Sorry.

But you brought up the other thread. You're backing away from that. You made an accusation about my general behaviour based in part on what happened on another thread. How about you acknowledge that you are wrong or back it up.

To your point above, I may well have got that point about central bank lending wrong. I did read your post but wanted more time to properly absorb it. I notice that you haven't rebutted my point about government-owned bonds and how they represent debt. Do you agree with my characterisation of QE or not? I'm not being shirty about your not responding - both you and I have made a lot of points.



ETA:

In the spirit of a less antagonistic form of engagement, I do have one point of clarification to ask. By 'increasing the rate of circulation' do you mean increasing the rate at which money is deposited and money is then loaned out on the back of that deposit? If you do mean that, from my point of view that is saying that you are increasing the amount of interest that is expected to be paid back - the more times money is loaned, the more sets of interest there are to be paid back. So if that is what you mean by that, then it doesn't contradict what I said.

I can see how, if you simplify it to just cash, increasing the number of times that cash changes hands increases the number of transactions it represents. However, does money work like that? If I am paid £1000 per month and have no access to credit, I can only spend money at a rate of £1000 per month. Without credit, the rate of circulation is fixed, is it not? We can only give a fixed amount of money to people over any fixed period - the amount we are paid.

This may - and this is only a provisional thought - come back to thinking about what money is. Money as a dynamic thing - as a measure of 'value per minute', if you like, in which case 'money supply' and 'money circulation' are the same thing. How rich you are is not measured by the amount of money you have, but rather by the amount of money that passes through you, which is a measure of the amount of goods and services you have consumed. If I have 100 quid in my pocket, the only way you can tell if that makes me rich or poor is by finding out how long that 100 quid has to last me before I get another 100 quid.

And in a sense, inflation can be seen as morally good. To take an example, a house may need painting once every ten years to keep it in shape. If I am paid £100 to paint the house, the value of what I've done equals ten years' worth of paint. After a year, there is only 9 years' worth of paint value left. So if I haven't passed that money on to anyone else in that period, the value of my painting the house, the job I did a year ago, has gone down.

 

[Wolveryeti]

It's like watching a monkey play with its own faeces

 

[rorymac]

It's hugely impressive and great posting without a doubt but I learned absolutely nothing from love detective's conclusion on his epic post .. would be great if he could go one step beyond with all that knowledge and offer summink to yer average Joey Public imo