[Dr House]

A car is essential to many people today, particularly for getting to work but also for some entrapaneurs to do their job or even for projects on the weekend, and the cost of buying one would be too high for many people if they had to buy it outright.

First, a company car is a business expense, so buying one on credit wouldn't qualify as consumer debt. Second, anyone can lease a car rather than buy it outright. What's more, real interest rates will be rather high with negative price inflation, which will most likely occur with a non-inflationary money supply.

[Figlio di Moros]

First, a company car is a business expense, so buying one on credit wouldn't qualify as consumer debt. Second, anyone can lease a car rather than buy it outright.

Ok, a business car wouldn't necessarily be consumer, but leasing a car? That's more expensive than getting a loan for one.

What's more, real interest rates will be rather high with negative price inflation, which will most likely occur with a non-inflationary money supply.

How exactly would interest rates rise under a non-inflationary dollar? Yes, the value of the dollar would rise, but it'd be at a much lower rate than inflation occurs today which would mean wages would likely not drop to keep up with it, i.e. more expendable income. For a bank, that means that 1) The cost of doing business will remain fairly stable overtime, 2) they don't need to pay as high an interest rate into savings accounts because they don't have to try to beat inflation, just entice people to save there, 3) they can issue loans at lower interest rates since the expenditures(paying into saving accounts, employement, etc.) don't have to account for inflation.

[Dr House]

How exactly would interest rates rise under a non-inflationary dollar?

Real interest rates, not nominal.

leasing a car? That's more expensive than getting a loan for one.

Actually, that would no longer hold true under a non-inflationary currency. Leasing is more expensive than buying on credit because loan payments stay fixed over time, so COLA salary increases make them progressively cheaper. If inflation is negative, that won't be the case any longer as car lease prices will probably drop with the CPI.

[Figlio di Moros]

Actually, that would no longer hold true under a non-inflationary currency. Leasing is more expensive than buying on credit because loan payments stay fixed over time, so COLA salary increases make them progressively cheaper. If inflation is negative, that won't be the case any longer as car lease prices will probably drop with the CPI.

You're speculating on what will happen. You'll need to explain in more detail how exactly leasing costs will drop and interest rates will rise.

[tornadouk]

1)Legislate so that loans and deposits are two distinct legal contracts.

2)Mandate that banks maintain a 100% reserve requirement on deposits and only loan out "real money".

3)Print enough money so that banks need not contract, and to make sure that banks can meet all their obligations.

4)Abolish the central bank

5)Let the economy go into recession and don't interfere in liquidation process, i.e. don't prop up the housing/stock market bubble

6)Cut government spending so as to balance the budget

[mark black]

A collectivist solution of some kind is necessary to secure the future. For various reasons I have concluded that global government constitutionally bound to a scientific conception of reality is the only realistic means of addressing the threats of extinction posed by the energy crisis, climate change, over-population and environmental degradation. It infers a powerful, if impartial global state, a command economy – rationally distributing resources to balance human welfare and environmental sustainability, and material equality and equality of opportunity – necessary to secure global cooperation.

But it is more desirable psychologically and sociologically that people have at least the illusion of freedom, and so take personal responsibility. If the only way to achieve this is the chance of personal enrichment against the threat of poverty, there can be no rational distribution of resources, no material equality, no intergenerational equality of opportunity – and therefore no end to racial and religious tribalism. Ultimately, therefore there can be no global state acting to secure the continued existence of humankind. Rather, for the illusion of freedom and self interested motivation – our fate is wrested from our hands, and becomes the accidental accumulation of self interested actions.

As we have seen, self-interested action is at the core of the current crisis of capitalism in three significant respects. First, self-interest encouraged banks in America to extend credit to people who, as it turned out, couldn't afford it - thus creating assets they sold on to other banks. Second, after creating and passing on these bad assets, the banks stopped lending to each-other. And now, third, in anticipation of a recession, people are refusing to spend, thus causing a recession.

Because the cart of self-interest is placed before the horse of common good, the cart has a tendency to run away with the horse, dragging the horse along behind it at an ever increasing pace until the horse collapses, but nonetheless is dragged along still chained to the cart. And it's not like this is a rare occurrence. Capitalism has been in recession or depression for approximately 80 out of the past 200 years, which is to say that capitalism is not working to promote the common good 40% of the time. For almost half the time the self-interested motive turns against the common good - the cart runs away with the horse, and capitalism acts against the common interest.

It’s for this reason that threats of extinction have mounted, like huge dark clouds on the horizon – externalities impossible to address when acting in the course of a capitalist rationale. It is not that the knowledge or technology are lacking – but the political will to act against the tide of self interest, and command of resources to renew the energy, transport and manufacturing infrastructure.

One possible solution is to form global government as an autonomous institution, with sovereign, tax-raising and legislative power over nation states – a government for governments, as opposed to the UN model, which is at present a government of governments. Global government would remain constitutionally bound to a scientific conception of reality – and committed to the continued existence of humankind, so that while the market would decide the overall distribution of resources, and national citizens could thus remain relatively free to pursue their self interest, externalities that threaten the continued existence of humankind could be addressed.

mb.

[Dr House]

self-interest encouraged banks in America to extend credit to people who, as it turned out, couldn't afford it

Self-interest made banks dole out loans they were never gonna see back?

The rest of your post is just retarded. A global government would be completely unaccountable, unresponsive to the interests of local peoples, and central planning has been time and again proven a failure. Not only does it lack the necessary feedback to adjust to people's needs and wants, but it irrevocably suffers from diseconomies of scale. No institution that large can be in charge of an entire economy. That's why the USSR stagnated and fell behind the West in its post-industrial stage.

[Frank_Carbonni]

I would probably do something similar to Dave. I like his plan the best. Not too big one some of his taxation suggestions, his take on consumer credit, and I would cap punitive damages rather than abolish them, but his is probably one of the most thought out plans I have seen.

[Dave]

What a great post by Dave. It's inspired me to put a more detailed plan out.

I think Dave makes a good point about infrastructure.

[...]

I think Dave is brilliant judging from the amount of knowledge that went into creating his proposal, and if America was going to have a central planner, I would vote for Dave for that position, but I think a distributed collaborative approach is always better than one where a single individual decides on matters.

Thanks for the compliment, RPA. I for one have no interest in centrally planning the economy, even if I had ideas (not detailed in this thread) in how that might be accomplished. I see the state as a facilitator of the capitalist system by establishing the rule of law, institutions (and using its coercive apparatus to create demand for said institutions), creating a national market by setting uniform standards and building infrastructure, and occasionally in guiding the national economy through industrial policy. I see the American economy has having been fundamentally mismanaged by the US government and in need of effective industrial policy to return to a leading industrial position, after which the role of the state should again recede.

I also compliment you on your well thought out post regarding the federal infrastructure board. You have clearly put a great deal of thought into integrating the demands of a modern industrial economy with the limited Constitutional government as envisioned by the Framers. When I was a libertarian I put a great deal of thought into similar schemes and never come up with something so elegant. I submit that perhaps your plan could be improved by assessing a land-value tax instead of a simple land tax.

Also, would you propose paying for them outright and be government run, or investing it in private companies to utilyze and eliminate the overall cost burden of such projects?

My personal preference would be for the state to directly invest in the form of new state-owned utilities, for these to later be privatized--at a profit--to private investors with the new national electrical system established. I am however flexible and pragmatic and would be open to pursuing this through other means.

I am also concerned about outlawing consumer credit; while you're correct about not needing credit for expensive shoes, new TV's, upgraded computers(which don't necessarily work better than the one's they replaced), etc., you seemed to be saying automobiles were in that company. That I would disagree with. A car is essential to many people today, particularly for getting to work but also for some entrapaneurs to do their job or even for projects on the weekend, and the cost of buying one would be too high for many people if they had to buy it outright.

For entrepreneurs a car would be a capital expense and it could be financed. Ordinary citizens can purchase a cheap used car. They can also save money. I imagine that automotive firms would replace their captive financing arms with scheduled savings programs, wherein a consumer could deposit money at a fixed schedule into an account with the auto company, and when the schedule completed the consumer could take delivery of a brand new car.

As far as the federal reserve is concerned, why simply halt the increase of our monetary supply when returning to the gold standard would practically garantee it?

My primary reason for this is that gold has valuable industrial uses. I should also note that gold in and of itself is not sufficient, as the 1920s proved. The control of money must be removed from the bankers.

Could you also explain more in depth how your third act, injecting new capital into the banks, would actually cause less money in circulation?

The liquidity injections would be smaller in sum that the outstanding debts repudiated by the government, in which case the total stock of money would decrease.

[Dr House]

For entrepreneurs a car would be a capital expense and it could be financed. Ordinary citizens can purchase a cheap used car. They can also save money. I imagine that automotive firms would replace their captive financing arms with scheduled savings programs, wherein a consumer could deposit money at a fixed schedule into an account with the auto company, and when the schedule completed the consumer could take delivery of a brand new car.

Will they have to take the bus in the meantime?

I would say that leasing a car would be more cost-effective than buying one anyway if CPI inflation is negative, which it probably would be if money supply growth is lower than GDP growth. There could also be a kind of a lease-to-own scheme where you pay a monthly lease for the car of maybe 150% of its value and then the car is yours.

That should probably be left up to carmakers and their customers. Maybe they can come up with better ideas than that.

[Dave]

Take the bus, ride the bike, or buy a shit car for a grand. Lease-to-own is another form of consumer finance which in turn lowers our savings rate and gets ordinary morons indebted instead of building wealth.

[hannigaholic]

2)Mandate that banks maintain a 100% reserve requirement on deposits and only loan out "real money".

The problem with that is that lending will dry up overnight. Fractional reserve banking in some form is pretty much a necessity to provide adequate funding for modern business.

I can't remember who said it but the thing about bringing fear back into banking I think has hit the nail on the head. The current banking system has next to no natural limit on the number of loans it can make and the amount of money it can create. I don't know what would work best, but there needs to be some reason why a bank would choose not to offer a loan. Most businesses have manufacturing or labour costs involved when setting the price of something, but to create a loan of a few hundred grand just costs a few clicks of a mouse. Costs are minimal and the bank doesn't lose anything when it creates the loan.

Short of the opportunity cost that maybe somebody else would have accepted the loan at a higher rate of interest, there's absolutely no downside from the bank's point of view when it decides to give people a mortgage or other secured loan. The worst thing that the bank can see happening is that it gets a house or a car to sell if the customer defaults. Something needs to be done to make banks not want to make reckless loans.

I did like the ideas presented in this thread of significantly raising the reserve ratio (which has the added benefit of limiting money supply inflation) or removing the interest rate-setting powers of the central bank (assuming the banks only keep their interest rates low due to downward pressure from the central bank that is).

[Dr House]

Lease-to-own is another form of consumer finance

Is it? No money is being borrowed.

[guzzipat]

Dr House Posted: Wed Oct 22, 2008 9:59 am

--------------------------------------------------------------------------------

Quote:
self-interest encouraged banks in America to extend credit to people who, as it turned out, couldn't afford it


Self-interest made banks dole out loans they were never gonna see back?

In many ways that is correct. The banks that made the loans sold them on in bundles. They retained no connection with the loan and had zero concern about each individual loans vaibility.
That was the base cause of the problems, the removal of restrictions preventing the normal banking activities mixing with the risky investment side.
Add to that a bonus culture that rewarded short termism and depised caution and stability.
All the ingredients were in place for banks "dole out" loans that couldn't be repaid. They weren't made from the banks deposits they were made from funds acrued by selling off previous bundles of mortgages.
They got into trouble because each bank was both a seller and buyer of toxic bundles, which were basically impossible to value properly. They relied on each others word and they were all lying, the result was a collapse in interbank lending.

[Negotiator]

I dont think its much use to discuss how to fix global economies ... what you can do is fix local economies. The world as a whole, there will always be some parts that are in bad condition. One really cant fix that, except if you somehow attain world dominion. And if you are able to keep a healthy economy locally, it should be able to defend itself against bad economies elsewhere anyway - or it isnt a good economy in the first place.

For example, take the current crisis. So far I dont think the economic crisis is handled any well by Europe.

While the USA, China, Japan and other countries actively work on keeping their economies up and taking control of their banks, including partial or full nationalization of banks, Europe:

(a) got the full load of the crisis by lack of any control of their banks before the crisis

(b) didnt stepped forward in any way to control their banks NOW either

(c) didnt started any *serious* programs to revitalize the economy as well.

For example, here in germany, guess who decides what to do next in the crisis - the bank directors themselves. Naturally, they dont change anything at all - they just try (and succeed) to charge society with their losses.

I believe there is a huge disaster coming in the near future, but I doubt people will wake up because of it.



About fixing local economies, I already stated my opinions about that elsewhere:

- Tax the rich. Yes thats often not done. Average people get like 50% tax and more, but rich people pay much less. It should be the other way around. Rich people should pay more percent of their income, as it hurts them less. The USA in the 1960ies asked up to 90% of income tax. And the US was NOT in an economically bad shape, at that time.

- Tax and control big companies much more than small companies. Big companies have too much economic power and therefore need a lot more mistrust and supervision than small companies where the good old mechanism of capitalism - concurrence - still works as described by the original inventor of capitalism, Adam Smith.

- In general, avoid the pitfall of people getting economic power. Businesseses like Microsoft (de facto monopoly for operating systems) or Intel (only needs to negotiate with AMD now when it comes to prices for computer chips, which is almost as good as the Microsoft monopoly) should have been nationalized long ago. Why should private people own the power of having the one general operating system, or to produce any of the advanced computer chips in the world ?

It comes to little surprise that people like Bill Gates, who own such monopolies, are extremely rich. Thats the effect of a monopoly. It has no positive effect on the rest of the people. Windows could have been much cheaper (it costs more than 1000$ right now ! for the "full" version) and I dont think it would be a worse product (very likely much better, as it would adhere to standards, instead of always creating their "own"), it it would have been nationalized.

- Have a good and strong welfare state which allows people to feel safe and secure. If they get ill, the hospital will be paid. If they get old, they will get a good pension. If they loose their job, their income will be cut, but they will still have enough to live. If they are students, the university will be free and they will get enough to live, too. And so on.

- As a general rule, try to keep export and import of the nation in balance.