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Discussion on Interest

JohnfrmClevelan said:
One man's debt is another man's income. Doesn't matter who took out the loan, as long as it was spent on something, somebody benefited. Seller benefited even more than if he had taken out a loan, because now he has nothing to repay.

Consumer debt is a future claim on your labor. Money in hand is a past claim; you hold money because you have earned it, but have not yet claimed your prize.
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Yet saved money is just a means of exchange. It isn't naturally fruitful. Why are we justified in charging someone for something that requires no work on our part and we weren't doing anything with anyway?
 
phattonez said:
Yet saved money is just a means of exchange. It isn't naturally fruitful. Why are we justified in charging someone for something that requires no work on our part and we weren't doing anything with anyway?
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Saved money is also a store of value. You worked, you earned that money (in some fashion); you are not required to spend or reinvest it right away. You can take the place of a bank and lend it out, with interest being your reward for taking on the risk of default.
 
JohnfrmClevelan said:
Saved money is also a store of value. You worked, you earned that money (in some fashion); you are not required to spend or reinvest it right away. You can take the place of a bank and lend it out, with interest being your reward for taking on the risk of default.
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With the current average interest rate on savings at reasonable levels of risk and the real percentage of price inflation, that store of value has a pretty obvious leak, dontchathink? Lending it out yourself can indeed get you a better return...but again the level of risk may not be reasonable. To get the rate of ACTUAL return you desire, your methods of collection and mitigation of risk might put you outside the bounds of legality.
 
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JohnfrmClevelan said:
Saved money is also a store of value. You worked, you earned that money (in some fashion); you are not required to spend or reinvest it right away. You can take the place of a bank and lend it out, with interest being your reward for taking on the risk of default.
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Exactly, I'm not doing anything with the money anyway. Why should I be able to live off of an investment that requires no labor? Doesn't that make the lender essentially a net consumer of society's wealth?
 
phattonez said:
Exactly, I'm not doing anything with the money anyway. Why should I be able to live off of an investment that requires no labor? Doesn't that make the lender essentially a net consumer of society's wealth?
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Your answer doesn't follow what I said, so I don't know why you said, "Exactly."

If you have $10,000 in savings, where did that come from? Your labor, probably. Possibly, the labor of your father, who did with his earnings what he wanted to do (give it to you). At any rate, you could have spent that money, but you instead chose to save it and consume later. Or invest it.

Credit is a useful thing. I wouldn't be living in a house without it. So I don't have any problem with lending or interest. The lender is taking a risk, whether it's the bank, a financial operation, or an individual, so they deserve some interest for their risk.

I think where you are probably breaking from that basic idea is where you see the very rich, with piles of money that, through time and sometimes sheer numbers, has become disconnected from productive work. Amazon is a fine company, but why does Jeff Bezos need to keep accumulating billions when he's not really doing much to earn it anymore?

To me, that's more a question of the labor market. Owners get rich largely because labor doesn't get paid anywhere close to their value to the company, and that's due to the weak labor market, not interest. The financial sector lives in that space as well, sponging off of the difference between the true cost of a product and what people actually pay for it.
 
phattonez said:
That's what we should be doing, but sadly those loans drive up the price of the goods. You can't escape lending altogether.
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Consumer loans in and of themselves do not drive up the price. They increase the consumer base. If there are 10 widgets, 10 buyers, and a loan makes it possible for 5 more to be buyers, then one of two things will happen. The price will rise due to increased demand, or more widgets will be produced, which may even drive the cost down due to economies of scale or increases in competition. Neither is a bad thing. Just market doing what it does best.
 
jimbo said:
Consumer loans in and of themselves do not drive up the price. They increase the consumer base. If there are 10 widgets, 10 buyers, and a loan makes it possible for 5 more to be buyers, then one of two things will happen. The price will rise due to increased demand, or more widgets will be produced, which may even drive the cost down due to economies of scale or increases in competition. Neither is a bad thing. Just market doing what it does best.
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And what does that do to the cost of the inputs?
 
JohnfrmClevelan said:
Your answer doesn't follow what I said, so I don't know why you said, "Exactly."

If you have $10,000 in savings, where did that come from? Your labor, probably. Possibly, the labor of your father, who did with his earnings what he wanted to do (give it to you). At any rate, you could have spent that money, but you instead chose to save it and consume later. Or invest it.
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That's correct, and I have no problem with you saving that money and not spending it right away.

Credit is a useful thing. I wouldn't be living in a house without it. So I don't have any problem with lending or interest. The lender is taking a risk, whether it's the bank, a financial operation, or an individual, so they deserve some interest for their risk.
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Is that true? If people couldn't borrow to buy homes, would we all suddenly be homeless? Or would the price of homes come down?

I think where you are probably breaking from that basic idea is where you see the very rich, with piles of money that, through time and sometimes sheer numbers, has become disconnected from productive work. Amazon is a fine company, but why does Jeff Bezos need to keep accumulating billions when he's not really doing much to earn it anymore?
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Which of course is an important question.

To me, that's more a question of the labor market. Owners get rich largely because labor doesn't get paid anywhere close to their value to the company, and that's due to the weak labor market, not interest. The financial sector lives in that space as well, sponging off of the difference between the true cost of a product and what people actually pay for it.
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I think that's right on. This is why I support closed borders to force wages to rise. I also see tariffs as a good way to combat outsourcing.
 
phattonez said:
What does it do to the cost of the materials to make that product?
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That depends. It may make the cost of raw goods increase as demand increases, or it may decrease due to higher demand resulting in higher production of raw goods, or it may result in a competing yet less costly substitute. The market works like that.

Do you think it matters?
 
jimbo said:
That depends. It may make the cost of raw goods increase as demand increases, or it may decrease due to higher demand resulting in higher production of raw goods, or it may result in a competing yet less costly substitute. The market works like that.

Do you think it matters?
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That's not always the case. When it comes to silver, for instance, we're not going to be able to massively increase supply in a short amount of time to meet extra demand. It would just result in an increase in price.

And when it comes to homes, this is absolutely the case. Why do you think that home price rose so high in the 2000s? Mortgage debt exploded.
 
phattonez said:
That's not always the case. When it comes to silver, for instance, we're not going to be able to massively increase supply in a short amount of time to meet extra demand. It would just result in an increase in price.

And when it comes to homes, this is absolutely the case. Why do you think that home price rose so high in the 2000s? Mortgage debt exploded.
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Then more silver products will be produced in pewter, stainless, or copper.

Home prices rose due to the government intervention in the market. Not mortgage debt, but mortgage availability. The prevailing thought was everybody deserved home ownership. That's a Bush quote, BTW. people who had no reasonable chance of paying the mortgage were given loans anyway. The bubble had to burst. Sadly, it did.
 
jimbo said:
Then more silver products will be produced in pewter, stainless, or copper.
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And their price will go up.

Home prices rose due to the government intervention in the market. Not mortgage debt, but mortgage availability. The prevailing thought was everybody deserved home ownership. That's a Bush quote, BTW. people who had no reasonable chance of paying the mortgage were given loans anyway. The bubble had to burst. Sadly, it did.
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What's the effective difference?
 
phattonez said:
And their price will go up.



What's the effective difference?
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And their price will go up.

Not necessarily. Consumer price is based on a variety of things. Demand and cost of goods sold are two. Substitution with another product that will do the job a third. Raise the price, demand might go down. Copper, pewter, et al, would be less expensive to produce, therefore the cost may go down. Or people may decide they don't really need a new teapot just yet.

Substitution? If the price of automobiles triples, walking, biking, taking the bus, or planes start to look better.

You don't know the difference between mortgage debt and mortgage availability?
 
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