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Debt is a lever, in itself it's neither good nor bad. If I have a $10m net worth, I might want to lend someone $1m for a year on which they will pay me 5% inte
by charlesdm 11y ago
Debt is a lever, in itself it's neither good nor bad.
If I have a $10m net worth, I might want to lend someone $1m for a year on which they will pay me 5% interest per year. If that person can turn that million into one and a half million, what's the problem?
- branchless 11y agoThe problem is when people are seeing all their labour disappear as rent / mortgage to people who are adding no value. This is happening way too much.
- Kinnard 11y agoNot when it's only issued by a monopoly.
- tome 11y agoWho says only banks can make loans?
- branchless 11y agoOnly banks can create money. Bank of England official blog: http://bankunderground.co.uk/2015/06/30/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters/ http://bankunderground.co.uk/2015/06/30/banks-are-not-interm... Debt is not a lever it's a stick to beat the landless with in order to extract labour as tribute to the elite.
- Kinnard 11y agoThat's the thing, they don't loan the money, they create it, banks haven't functioned the way they're popularly imagined to function for centuries. And it's so sad that this false image is the moral basis for banks going after borrowers assets. The bank doesn't lend you someone else's money, it creates the money(no effort) and you have to work and put up real collateral to pay it back. By G-d we should all be working to expose and undo this madness.
- tome 11y ago> it creates the money(no effort) Err, there most certainly is an effort assessing credit risk and dealing with the fallout when someone defaults.
- Kinnard 11y agoWhat exactly is the risk to the Bank in lending out money they just created?
- tome 11y agoThey didn't magic it out of thin air. It's a liability to them. If the loan is paid into another bank they then have to transfer central bank deposits to that other bank. If the loan is never paid back then they've lost money. Is it genuinely not obvious to you than bank deposits aren't something that banks can create and destroy on a whim?
- Kinnard 11y agoThat's actually not quite correct. The loan itself is an asset to the bank. When you sign the promissory note, they then give you a balance at the bank in the amount of the principal of the note, THAT is the liability. The loan is the asset because that is money coming into the bank. Your deposits are liabilities because that is money you could withdraw from the bank. So it is both a liability and an asset. They don't create it out of thin air, they create it out of ink and paper. It's a hack of the double-entry bookkeeping system. I recommend Paul Grignon's Money As Debt: https://www.youtube.com/watch?v=jqvKjsIxT_8 https://www.youtube.com/watch?v=jqvKjsIxT_8
- tome 11y agoThe balance in the bank, which is colloquially called a "loan", is a liability to the bank, yes. And do you agree there is a "risk to the Bank in lending out money they just created" or is that still up for discussion?
- charlesdm 11y agoAnyone can make loans. However, banks borrow newly created money from the ECB or FED at an extremely low rate. If you borrow money at 2% from a bank then they are getting it at 0.1%. The spread - that 1.9% - is their profit.
- branchless 11y agoI'm with you on this brother. Keep telling people. Think back to 2006, you hardly saw anyone criticise the system in this way, now I see it all the time. It's coming.
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- branchless 11y agoAlso see social credit theory for the idea that the value of goods produced by workers is always less than their wages: http://www.socred.org/ http://www.socred.org/ Plus banks have a monopoly on money creation and can create it with zero cost, ramping up land prices and soaking up all productivity gains into land. All the rentier need do is kick back and wait for the state to add value so they can charge more rent. Henry George knew it but it seems today nobody has the faintest idea how money works: http://www.henrygeorge.org/pcontents.htm http://www.henrygeorge.org/pcontents.htm
- laotzu 11y agoI am familiar with the credit-theory of money as opposed to the debt-theory which we currently use. David Graeber explains it in Debt: The First 5,000 Years[1], for anyone interested in further reading. [1] https://libcom.org/files/__Debt__The_First_5_000_Years.pdf https://libcom.org/files/__Debt__The_First_5_000_Years.pdf
- branchless 11y agoYeah I've not read that yet, learning french to pass an exam to get Quebec residency so I can escape the hellish UK rentier paradise. Once I've passed I'm hitting those economics books!
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- charlesdm 11y agoDoesn't this all depend on how you use that specific debt? If you use the above example, if I can generate $500k each year using $1m in debt, how is perpetually serving the interest expense on that debt bad then? Use it well, you can create additional profits. Use it poorly, you'll end up with nothing (or even lose capital). Maybe you mean that the lever effect shouldn't exist, so that it's a zero sum game?
- meapix 11y agoThe problem is ethics, you just made somebody slave for a year. Now if you're happy with that, that's ok.