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There is a place for debt in society. And that is: emergencies. But why the hell does debt have to be the only way of creating money is totally beyond me.

by NTDF9 7y ago

faissaloo 7y ago
One person borrows to afford something, which drives the price of that thing up creating further incentive for the person who wants to compete with that person to go into more debt to obtain said thing repeat ad infinitum.
rubyskills 7y ago
How does one acquire the necessary funds for larger projects when one does not personally have the funds to do so? Debt always needs to be measured against the value of brings. Does the interest make up for the value you were able to generate today and throughout the lifetime of the debt repayment? IMO, there is good debt and bad debt (and a gray area in between). My personal rule of thumb is, does that debt render me revenue above the monthly repayment and will it do so through the lifetime I hold it? That is good debt. The rest is bad. Now, you can argue that other debts provide more than monetary benefit. That is where the gray area is. That is a personal decision.
- NTDF9 7y ago
  > How does one acquire the necessary funds for larger projects when one does not personally have the funds to do so? Good point. As a thought experiment, can you answer why the larger project costs more that what an average person can already afford?
  - rubyskills 7y ago
    Great question! As it applies to new real estate specifically, you have a lot of materials, labor taxes etc to deal with. These are the most common sorts of business debts that I've been exposed to. For existing real estate, I see value of things going up in value largely due to population increase in a certain area combined with the fed printing money (which it claims to do so constantly because the population will always be increasing?). I also see values wildly inflated due to foreign investment. A big issue in general is also due to the banking sector. I think the US government allows banks to go a little crazy with lending to everyone on anything without recourse. That being said, I personally benefit from the system allowing me to borrow money so cheaply. Sorry if this post was a bit disorganized. I have a lot of thoughts on it and it is a great thought experiment. :)
    - NTDF9 7y ago
      Good answer! Now imagine if there was a society where money supply did not increase because of more loans, but by something more of a function of labor. What do you think would happen to the prices of materials, labor etc? Do you think tying money supply as a function of labor would make cost of necessities close to the median?
      - rubyskills 7y ago
        I think you may be referring to the Labor Theory of Value (LTV)? Certainly, early versions of currencies were created to streamline the bartering process between different kinds of labor and store that value for future purposes. I'm not sure what attempting to remove debt from a market would look like in the modem world as I only have the current context to compare to (for better or worse). What do you propose as an alternative?
        NTDF9 7y ago
        I don't have any alternatives without rough edges. THat's for overpaid economists to figure out ;) However, I'm thinking more along the lines of production. So if an individual/company produces more units of something, the FED could print that much money and put it into their accounts directly. With expanding society, more money will be brought into circulation. With lesser production, lesser money will be matched and produced by the FED. The consequence of this would be that there is incentive to produce more with less. There will be more value for physical labor and that the rich would suffer as much as the poor. Hoarding money at the top will just result in lesser and lesser money being produced for the rich to earn. Now you could go and take a loan if you wanted to. But not from a bank. Take it from any other party. It's between the two of you and you both go bust if the loan fails. There are caveats here but what it removes is the creation of money by debt. Thus, to be richer as a civilization, we don't need more debt as a society. We need to produce more goods and services that are actually desired by others.
        rubyskills 7y ago
  - thrower123 7y ago
    Capital costs blow out everything when you are in tangible industries. Try buying a piece of heavy equipment that costs a quarter to half a million dollars. Every logging contractor or construction outfit I know is mortgaged to the hilt, one or two steps ahead of their payments
  - harryh 7y ago
    Because the amount of goods and labor required to build a house (that can be lived in for decades) is typically a lot more than what an individual can save up for in any reasonable amount of time. You're missing the forrest for the trees with all your handwaving about the money supply. Houses are big and expensive and sit on land that is in finite supply (especially in high demand areas). People are generally a lot better off if they can pay this purchase off over time while living in it rather than saving up to pay for the whole thing all at once while also paying to live somewhere else.
    - tonyedgecombe 7y ago
      >Because the amount of goods and labor required to build a house (that can be lived in for decades) is typically a lot more than what an individual can save up for in any reasonable amount of time That works both ways though, the reason housing is so expensive is because borrowing is so cheap and easy. The cost of land, materials and regulation has expanded to match the available funds.
      - harryh 7y ago
        The available funds is irrelevant to my point because costs increase in proportion everywhere. If we 2x the amount of money in the system a house will cost twice as much...but so will the cost of a person's labor. But the ratio of the cost of a house to a person's labor will stay constant.
        tonyedgecombe 7y ago
        Not if the supply of housing is constrained but Labor isn’t.
- njarboe 7y ago
  >How does one acquire the necessary funds for larger projects when one does not personally have the funds to do so? You give an equity stake in your project to the person/entity that gives you the funds.
  - rubyskills 7y ago
    You are essentially doing the same thing with a bank, but with less risky. There are no debtor's prisons. If you default, you can claim bankruptcy and walk away. There are other risks inherit to have a business partner. The biggest one being the risk that your business partner engages in illegal activity under your shared entity. Suddenly you are liable as well. The tamer issues revolve around not wanting to do business with someone anymore... And it can end as bad or worse than a divorce.
rubyskills 7y ago
Also, I'm not sure debt should be reserved for emergencies. Sebt is much better for growth related activities. What can I do now with money that I know will increase in value over the interest? You're essentially buying the future. Insurance or collective money pools are much better for emergency issues if they are not incentivized to profit off of its members.
pessimizer 7y ago
> There is a place for debt in society. And that is: emergencies. Emergencies (if defined as unexpected events that have a high enough cost that a person requires debt) are things that people with fewer resources have exponentially more often than people with more resources. Emergencies, especially incompletely serviced, also tend to lead to further emergencies, and very quickly servicing the debt becomes the emergency.

There is a place for debt in society. And that is: emergencies. But why the hell does debt have to be the only way of creating money is totally beyond me.

by NTDF9 7y ago

There is a place for debt in society. And that is: emergencies. But why the hell does debt have to be the only way of creating money is totally beyond me.

faissaloo 7y ago

One person borrows to afford something, which drives the price of that thing up creating further incentive for the person who wants to compete with that person to go into more debt to obtain said thing repeat ad infinitum.

rubyskills 7y ago

How does one acquire the necessary funds for larger projects when one does not personally have the funds to do so? Debt always needs to be measured against the value of brings. Does the interest make up for the value you were able to generate today and throughout the lifetime of the debt repayment? IMO, there is good debt and bad debt (and a gray area in between). My personal rule of thumb is, does that debt render me revenue above the monthly repayment and will it do so through the lifetime I hold it? That is good debt. The rest is bad. Now, you can argue that other debts provide more than monetary benefit. That is where the gray area is. That is a personal decision.

NTDF9 7y ago
> How does one acquire the necessary funds for larger projects when one does not personally have the funds to do so? Good point. As a thought experiment, can you answer why the larger project costs more that what an average person can already afford?
- rubyskills 7y ago
  Great question! As it applies to new real estate specifically, you have a lot of materials, labor taxes etc to deal with. These are the most common sorts of business debts that I've been exposed to. For existing real estate, I see value of things going up in value largely due to population increase in a certain area combined with the fed printing money (which it claims to do so constantly because the population will always be increasing?). I also see values wildly inflated due to foreign investment. A big issue in general is also due to the banking sector. I think the US government allows banks to go a little crazy with lending to everyone on anything without recourse. That being said, I personally benefit from the system allowing me to borrow money so cheaply. Sorry if this post was a bit disorganized. I have a lot of thoughts on it and it is a great thought experiment. :)
  - NTDF9 7y ago
    Good answer! Now imagine if there was a society where money supply did not increase because of more loans, but by something more of a function of labor. What do you think would happen to the prices of materials, labor etc? Do you think tying money supply as a function of labor would make cost of necessities close to the median?
    - rubyskills 7y ago
      I think you may be referring to the Labor Theory of Value (LTV)? Certainly, early versions of currencies were created to streamline the bartering process between different kinds of labor and store that value for future purposes. I'm not sure what attempting to remove debt from a market would look like in the modem world as I only have the current context to compare to (for better or worse). What do you propose as an alternative?
      - NTDF9 7y ago
        I don't have any alternatives without rough edges. THat's for overpaid economists to figure out ;) However, I'm thinking more along the lines of production. So if an individual/company produces more units of something, the FED could print that much money and put it into their accounts directly. With expanding society, more money will be brought into circulation. With lesser production, lesser money will be matched and produced by the FED. The consequence of this would be that there is incentive to produce more with less. There will be more value for physical labor and that the rich would suffer as much as the poor. Hoarding money at the top will just result in lesser and lesser money being produced for the rich to earn. Now you could go and take a loan if you wanted to. But not from a bank. Take it from any other party. It's between the two of you and you both go bust if the loan fails. There are caveats here but what it removes is the creation of money by debt. Thus, to be richer as a civilization, we don't need more debt as a society. We need to produce more goods and services that are actually desired by others.
        rubyskills 7y ago
- thrower123 7y ago
  Capital costs blow out everything when you are in tangible industries. Try buying a piece of heavy equipment that costs a quarter to half a million dollars. Every logging contractor or construction outfit I know is mortgaged to the hilt, one or two steps ahead of their payments
- harryh 7y ago
  Because the amount of goods and labor required to build a house (that can be lived in for decades) is typically a lot more than what an individual can save up for in any reasonable amount of time. You're missing the forrest for the trees with all your handwaving about the money supply. Houses are big and expensive and sit on land that is in finite supply (especially in high demand areas). People are generally a lot better off if they can pay this purchase off over time while living in it rather than saving up to pay for the whole thing all at once while also paying to live somewhere else.
  - tonyedgecombe 7y ago
    >Because the amount of goods and labor required to build a house (that can be lived in for decades) is typically a lot more than what an individual can save up for in any reasonable amount of time That works both ways though, the reason housing is so expensive is because borrowing is so cheap and easy. The cost of land, materials and regulation has expanded to match the available funds.
    - harryh 7y ago
      The available funds is irrelevant to my point because costs increase in proportion everywhere. If we 2x the amount of money in the system a house will cost twice as much...but so will the cost of a person's labor. But the ratio of the cost of a house to a person's labor will stay constant.
      - tonyedgecombe 7y ago
        Not if the supply of housing is constrained but Labor isn’t.
njarboe 7y ago
>How does one acquire the necessary funds for larger projects when one does not personally have the funds to do so? You give an equity stake in your project to the person/entity that gives you the funds.
- rubyskills 7y ago
  You are essentially doing the same thing with a bank, but with less risky. There are no debtor's prisons. If you default, you can claim bankruptcy and walk away. There are other risks inherit to have a business partner. The biggest one being the risk that your business partner engages in illegal activity under your shared entity. Suddenly you are liable as well. The tamer issues revolve around not wanting to do business with someone anymore... And it can end as bad or worse than a divorce.

rubyskills 7y ago

Also, I'm not sure debt should be reserved for emergencies. Sebt is much better for growth related activities. What can I do now with money that I know will increase in value over the interest? You're essentially buying the future. Insurance or collective money pools are much better for emergency issues if they are not incentivized to profit off of its members.

pessimizer 7y ago

> There is a place for debt in society. And that is: emergencies. Emergencies (if defined as unexpected events that have a high enough cost that a person requires debt) are things that people with fewer resources have exponentially more often than people with more resources. Emergencies, especially incompletely serviced, also tend to lead to further emergencies, and very quickly servicing the debt becomes the emergency.