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.
But why the hell does debt have to be the only way of creating money is totally beyond me.
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.
Good point. As a thought experiment, can you answer why the larger project costs more that what an average person can already afford?
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. :)
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?
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.
How does the FED determine the value to give each corporation relative to other services provided to the market?
It's an interesting idea if that's what you're thinking, though I foresee a lot more government overhead.
Correct me if I'm misinterpeting. I think I might be.
As company gets more and more efficient, they wouldn't need employees. But this would cause lesser money to be brought into circulation, thus eating up the companies earnings itself.
If the company wants more debt, they can go borrow from others (rich institutions, individuals etc) but this activity will not create new money. Thus, total money in circulation remains the same.
If an individual wants to buy a house, the house price will effectively be closer to the median affordable income of population. Thus, it will incentivize individual to produce more goods and services to reach median income at least. The only way to become richer is to produce more.The rich can try to buy more houses but it wouldn't be possible as much since leverage and speculation is much harder.
We have empirical data on what happens in such worlds: economies tumble into recession and there is mass unemployment.
An economy where new business formation is radically more difficult so the economy is far slower to adapt so there is mass unemployment and human misery.
Go talk to someone who actually runs a real business. Especially a business with capital costs. Ask them if they could run it without access to credit. The answer is no.
Why would capital requirements for capital intensive businesses be so high when the equipment they are trying to buy will be cheap?
If they need to buy lots and lots of equipment right now, they could issue a bond, investors looking to make a dime will lend. Since inflation is low because of no speculation, interest rates would be low as well.
The one big caveat I see is slow growth but that's exactly what I'm looking for. Slow sustainable growth directly proportional to labor.
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
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.
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.
But the ratio of the cost of a house to a person's labor will stay constant.
You give an equity stake in your project to the person/entity that gives you the funds.
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.
Insurance or collective money pools are much better for emergency issues if they are not incentivized to profit off of its members.