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ideally, the loan is directed towards productive activity- the sowing of seeds purchased today for a harvest tomorrow, the construction of a factory today for g

ideally, the loan is directed towards productive activity- the sowing of seeds purchased today for a harvest tomorrow, the construction of a factory today for gadgets tomorrow, the stocking of a store today for sales tomorrow, a home loan today for a person getting a job at a new city tomorrow - that will generate utility in the future. then the wealth generated from the interest is also wealth generated from new economic activity that never existed until the loan enabled it. credit is only problematic when the expected activity fails to come to fruition, which is why the credit shrinkage acutely accompanied the economic shrinkage in the last crisis.

pjkundert 7y ago
All those observations are true, and there isn’t anything wrong with borrowing money and paying interest. It’s the creation of money and paying interest that’s problematic. This interest demands new money to be brought into being to pay it — to someone doing nothing but seeking rents due a monopoly position bestowed by the government; the banks. This stream of interest payments is going out of the economy to whomever owns the commercial bank, but must be paid by people within the economy, who must borrow more money into existence to pay it — from the very people to whom it is “owed” (for no reason at all; they bear no risk, and provided no capital of their own).
- princeb 7y ago
  > they bear no risk how does the existence of loan defaults jive with the idea that loans have no risk?
  - pjkundert 7y ago
    Banks leverage themselves 50-to-1, and then take huge volumes loans to unqualified clients, in the (historically accurate) assumption that the tax payer will be obliged to bail them out. If the money creation aspect of banking was separated from the capital accumulation and loan-making/risk-taking aspect, things should unfold much differently. Particularly since there would be "fractional reserve" concept underpinning the money supply.

pjkundert 7y ago

All those observations are true, and there isn’t anything wrong with borrowing money and paying interest. It’s the creation of money and paying interest that’s problematic. This interest demands new money to be brought into being to pay it — to someone doing nothing but seeking rents due a monopoly position bestowed by the government; the banks. This stream of interest payments is going out of the economy to whomever owns the commercial bank, but must be paid by people within the economy, who must borrow more money into existence to pay it — from the very people to whom it is “owed” (for no reason at all; they bear no risk, and provided no capital of their own).

princeb 7y ago
> they bear no risk how does the existence of loan defaults jive with the idea that loans have no risk?
- pjkundert 7y ago
  Banks leverage themselves 50-to-1, and then take huge volumes loans to unqualified clients, in the (historically accurate) assumption that the tax payer will be obliged to bail them out. If the money creation aspect of banking was separated from the capital accumulation and loan-making/risk-taking aspect, things should unfold much differently. Particularly since there would be "fractional reserve" concept underpinning the money supply.