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The End Of Usury

Naturalmoney.org
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9/23/2017 3:33:55 PM
Posted: 1 month ago
ABSTRACT

Interest rates have gone down in recent decades and reached zero in recent years. Most economists think that they will go up again. But what if the opposite happens? What if negative real interest rates become the new normal? That seems unthinkable. Yet, negative interest rates are inevitable unless something bad happens. And that something bad can be an error from the part of our political and economic leaders.

Several factors contribute to the dynamic that drives down interest rates. These factors do not go away when interest rates reach zero. The most significant factor is the room for capital to grow. For most of history interest rates on capital were higher than the economic growth rate and most interest income was reinvested. This is unsustainable in the long run.

It would be wise to allow interest rates to go lower if that is where market forces push them. Lower interest rates make more projects economical so that there can be more capital and wealth. In this way lower interest rates can help to end poverty and make the economy sustainable. Lower interest rates are beneficial to most people as they pay more interest than they receive. Interest is hidden in rents, taxes, and the price of everything we buy. Hence, lower interest rates should be welcomed.

So why do we have interest? Interest was needed for the economy to operate. Lending and borrowing wouldn"t be possible without interest. If you lend money, you can't use it yourself. People want a compensation for this inconvenience. And if you lend out money, the borrower may not repay. People want a compensation for this risk. Finally, if you can make a profit by investing, then why lend money without interest?

In the meantime a few things have changed. You can lend money to a bank but still use it any time. This is convenient. Banks check the financial condition of borrowers and lend to many different people. This reduces risk. Central banks and governments can help out banks if needed. And so bank deposits are now considered safer than cash.

But what about the returns on investments? Throughout history these returns were mostly higher than the rate of economic growth. Most of these returns have been reinvested so a growing share of total income was for investors. This cannot go on forever because who is going to buy the stuff corporations make? A simple example can illustrate that.

Assume an economic growth rate of 2% and an interest rate of 5% when interest income starts out as 10% of total income and all interest income is reinvested. After 25 years the economic pie has grown faster than interest income and wages have risen. At some point interest income starts to rise faster than total income, and wages go down. After 80 years there's nothing left for wages. Despite its simplicity, this calculation explains a lot about what is going on in reality.

This can be called usury for good reason. It also explains why interest rates went down in recent years. In the short run it was possible to prop up business profits and interest rates by letting people go further into debt to buy more stuff. In the long run the growth rate of capital income cannot exceed the rate of economic growth. So why does it happen now and why didn't it happen in the past? The answer is that it already did happen several times. In the past economic crises and wars destroyed a lot of capital and this created new room for growth.

Most of us agree that economic crises and wars are not agreeable methods for solving problems. There is an alternative. It is allowing interest rates to go negative. Indeed, that would be a wise choice. This is why the era of low and negative interest rates may be upon us. The end of usury could be near, and that will be a good thing. People should become aware of this. There is also a lot of research that needs to be done. Negative interest rates will be the next big thing in economics.

FULL STORY:

http://www.naturalmoney.org...
GrimlyF
Posts: 1,295
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9/26/2017 1:33:49 AM
Posted: 1 month ago
At 9/23/2017 3:33:55 PM, Naturalmoney.org wrote:
ABSTRACT

Interest rates have gone down in recent decades and reached zero in recent years. Most economists think that they will go up again. But what if the opposite happens? What if negative real interest rates become the new normal? That seems unthinkable. Yet, negative interest rates are inevitable unless something bad happens. And that something bad can be an error from the part of our political and economic leaders.

Several factors contribute to the dynamic that drives down interest rates. These factors do not go away when interest rates reach zero. The most significant factor is the room for capital to grow. For most of history interest rates on capital were higher than the economic growth rate and most interest income was reinvested. This is unsustainable in the long run.

It would be wise to allow interest rates to go lower if that is where market forces push them. Lower interest rates make more projects economical so that there can be more capital and wealth. In this way lower interest rates can help to end poverty and make the economy sustainable. Lower interest rates are beneficial to most people as they pay more interest than they receive. Interest is hidden in rents, taxes, and the price of everything we buy. Hence, lower interest rates should be welcomed.

So why do we have interest? Interest was needed for the economy to operate. Lending and borrowing wouldn"t be possible without interest. If you lend money, you can't use it yourself. People want a compensation for this inconvenience. And if you lend out money, the borrower may not repay. People want a compensation for this risk. Finally, if you can make a profit by investing, then why lend money without interest?

In the meantime a few things have changed. You can lend money to a bank but still use it any time. This is convenient. Banks check the financial condition of borrowers and lend to many different people. This reduces risk. Central banks and governments can help out banks if needed. And so bank deposits are now considered safer than cash.

But what about the returns on investments? Throughout history these returns were mostly higher than the rate of economic growth. Most of these returns have been reinvested so a growing share of total income was for investors. This cannot go on forever because who is going to buy the stuff corporations make? A simple example can illustrate that.

Assume an economic growth rate of 2% and an interest rate of 5% when interest income starts out as 10% of total income and all interest income is reinvested. After 25 years the economic pie has grown faster than interest income and wages have risen. At some point interest income starts to rise faster than total income, and wages go down. After 80 years there's nothing left for wages. Despite its simplicity, this calculation explains a lot about what is going on in reality.

This can be called usury for good reason. It also explains why interest rates went down in recent years. In the short run it was possible to prop up business profits and interest rates by letting people go further into debt to buy more stuff. In the long run the growth rate of capital income cannot exceed the rate of economic growth. So why does it happen now and why didn't it happen in the past? The answer is that it already did happen several times. In the past economic crises and wars destroyed a lot of capital and this created new room for growth.

Most of us agree that economic crises and wars are not agreeable methods for solving problems. There is an alternative. It is allowing interest rates to go negative. Indeed, that would be a wise choice. This is why the era of low and negative interest rates may be upon us. The end of usury could be near, and that will be a good thing. People should become aware of this. There is also a lot of research that needs to be done. Negative interest rates will be the next big thing in economics.


FULL STORY:

http://www.naturalmoney.org...

I haven't noticed interest rates dropping in the "pay day" loan companies. Rates in excess of 1000% A.P.R. are common place in England. That is because there are no anti-usury laws.
Naturalmoney.org
Posts: 28
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10/5/2017 4:30:17 PM
Posted: 1 month ago
At 9/26/2017 1:33:49 AM, GrimlyF wrote:
I haven't noticed interest rates dropping in the "pay day" loan companies. Rates in excess of 1000% A.P.R. are common place in England. That is because there are no anti-usury laws.

This is a research about the future direction of interest rates. It would be a good idea to forbid positive interest rates once most interest rates are negative. People will be better off by not borrowing at all instead of borrowing at usurious interest rates.
GrimlyF
Posts: 1,295
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10/9/2017 6:00:54 PM
Posted: 1 month ago
At 10/5/2017 4:30:17 PM, Naturalmoney.org wrote:
At 9/26/2017 1:33:49 AM, GrimlyF wrote:
I haven't noticed interest rates dropping in the "pay day" loan companies. Rates in excess of 1000% A.P.R. are common place in England. That is because there are no anti-usury laws.

This is a research about the future direction of interest rates. It would be a good idea to forbid positive interest rates once most interest rates are negative. People will be better off by not borrowing at all instead of borrowing at usurious interest rates.

Negative interest rates are a 2 edged sword that cuts both ways. People are ALWAYS better off not spending money on things they can't afford.
HairlessApe
Posts: 230
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10/9/2017 11:31:03 PM
Posted: 1 month ago
At 10/9/2017 6:00:54 PM, GrimlyF wrote:
At 10/5/2017 4:30:17 PM, Naturalmoney.org wrote:
At 9/26/2017 1:33:49 AM, GrimlyF wrote:
I haven't noticed interest rates dropping in the "pay day" loan companies. Rates in excess of 1000% A.P.R. are common place in England. That is because there are no anti-usury laws.

This is a research about the future direction of interest rates. It would be a good idea to forbid positive interest rates once most interest rates are negative. People will be better off by not borrowing at all instead of borrowing at usurious interest rates.

Negative interest rates are a 2 edged sword that cuts both ways. People are ALWAYS better off not spending money on things they can't afford.

Hey is that an example of a tautology? "2 edged sword that cuts both ways" just checking.
One could surely argue that the Buddhist tradition, taken as a whole, represents the richest source of contemplative wisdom that any civilization has produced. -Sam Harris
GrimlyF
Posts: 1,295
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10/10/2017 5:47:17 PM
Posted: 1 month ago
At 10/9/2017 11:31:03 PM, HairlessApe wrote:
At 10/9/2017 6:00:54 PM, GrimlyF wrote:
At 10/5/2017 4:30:17 PM, Naturalmoney.org wrote:
At 9/26/2017 1:33:49 AM, GrimlyF wrote:
I haven't noticed interest rates dropping in the "pay day" loan companies. Rates in excess of 1000% A.P.R. are common place in England. That is because there are no anti-usury laws.

This is a research about the future direction of interest rates. It would be a good idea to forbid positive interest rates once most interest rates are negative. People will be better off by not borrowing at all instead of borrowing at usurious interest rates.

Negative interest rates are a 2 edged sword that cuts both ways. People are ALWAYS better off not spending money on things they can't afford.

Hey is that an example of a tautology? "2 edged sword that cuts both ways" just checking.

No.