Posted by: graemebird | November 24, 2011

Avoiding Theoclassical Economics And The Case For A 4% Cap On Interest For Most Loans

Imagine there is a stable monetary system  in place.  Under this scenario, we have already dealt with all the debt deflation problems, and the collapse in asset prices, that you would expect in going from our monetary system to this stable one proposed. Naturally this monetary system would be growth-deflation, with 100% backing. At first with all fiat, but slowly a lot of that fiat is being phased over to money based on various commodities.  This is happening naturally thanks to a tax advantage for the commodity money, being as the government is running its fiat operations at a notional profit.

Now. So the adjustment problems have already been taken care of. No distress loans, as you often get during recessions. How much consumer finance would there be? Fundamentally almost no-one would be borrowing for consumption.  Money balances would be high. People would save a great deal before buying major assets.  So what if, in the prior adjustment process, an interest rate maximum, had been placed for most loans? For what I would call “non-wealth creating loans.”  Well clearly this 4% cap would now be obsolete or nearly so!!!  So every year prices for almost all things are falling. Perhaps land prices alone have bottomed, and now some areas, land prices rise very slowly. But otherwise almost all prices are falling.  With prices falling, although real interest rates would be quite high by our standards, nominal interest rates would be very low, so if there was an interest rate cap at 4%, for non-wealth creating loans, then it would be all-but obsolete.

Why is this important?  Well the reason is that transition problems to sound money are a big deal, and hard to sort out without a lot of pain.  Also with the knowledge that we are in a war against international bankers, we have to find ways to defeat them, bring them into line, and force them into a position where they want things that are good for the rest of us.

Now let us look at the effects of the 4% interest cap on all existing loans (owed to money creation entities), with the exception of new loans that conform to wealth-creation principles. Well the first thing is that the banks profitability would be hammered. But this is alright morally, on the grounds that all banks ought to make reparations for their decades-long daily interest rate subsidy, and for their hogging a large share of the new money creation benefit. So a one-off reparation of this sort is entirely appropriate. Or else will someone claim that you ought to be able to fool the public, be unjustly enriched, and not have to make any reparations for this? Why would that be?

So here we have something of an alternative to jubilee or partial jubilee.  And there may be advantages with this sort of jubilee as opposed to the other sort, where debts are suddenly reduced by two thirds. You see you might reduce debts by two thirds, then the rest of your policy may not get off the ground. Ideally a reduction in debt by two-thirds would come in at the same time as monetary policy to keep business revenues flat, growing only slowly. People would find out that they were stuck with too much debt for that scenario, and there would be a painful adjustment process. So the jubilee would be timed for that monetary tightening. But there are problems with this since suppose you got the jubilee through, then you lost leadership of your party, the criminal stupidity came back,  your party lost the election, and the situation returned to the normal inflationary disaster. Well all it would be is a bit of a windfall for people who borrowed big, betting that the program would fail.

However look at the effect of an interest-cap for all current loans, and to be continued for those sorts of loans that don’t meet wealth-creation criteria? I would say that this will be a good thing under all circumstances. And under optimal monetary conditions it would simply make itself obsolete. So no harm done there.  Adam Smith’s invisible hand doesn’t work in the financial sector, except under conditions close to 100% backing growth-deflation. Hence it is simply wrong for someone to suggest that this cap on the interest rate, excepting only wealth-creating loans, to be bad for the economy. The person who would claim this is committing the sin of theoclassical economics.  That is they are applying the free enterprise conclusions to a situation where free enterprise does not exist.

How would people react to this prospect? Well take that fat overpaid slob who runs the ANZ. Predictably he would complain that this would reduce the available capital the banks could raise. Great. What this translates to is the banks being unable or unwilling to pyramid up ponzi money, on the available cash, and therefore extorting less resources away from business spending in the first place. On the other hand the bankers would be able to loan as much as they liked, but only for loans that fell under the wealth-creation category.   In practice this means that they would not pyramid quite as much. That they would try to arm-twist everyone to bring their credit card balances down. To pay off their home loans, and so forth. But if they could find people to lend to under the wealth-creation category, then they would be allowed to charge more than 4%.

Well if the banks weren’t pyramiding up as much ponzi money as before, would this not risk monetary implosion and recession? This is what you have your currency-board for. The currency-board, merely prints up cash and adjusts the reserve asset ratio upwards, in the face of such problems.  They retire debt with the cash. So a great swag of cash gets out there, without either a monetary implosion, or explosion.

This really seems a better way of going about things, unless there is some sort of emergency. Partial jubilee in an emergency sure. But because you cannot get everything you want in politics, you want to be able to advocate a single change in isolation, or with a suite of policies. And not to be advocating things that could cause a lot of problems if NOT followed up by a suite of other policies.  So I can quite confidently advocate these interest rate caps, excluding wealth-creating loans, for all monetary circumstances, knowing that they will become obsolete, if we finally have adjusted to proper monetary policy.

Vote for me then, next time I run, and at the top of my agenda will be this interest rate cut to any outstanding debt you have. Bearing in mind that the daily interest rate subsidy to the banks will be immediately ended. And when you do that, if an interest rate cap isn’t in place they will seek a fearful retribution on their existing debtors.

MORE LATER

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Responses

  1. “You though Dot. to some the degree this time the banks are partially victims in all this or at least their shareholders are.

    the banks are forced by law to hold to hold government debt, which we were all taught at uni was risk free.. the risk free rate of return.. They end end up getting clobbered through no fault of their own.”

    Good one Cambria. Who was it that kicked the stimulus off. That’s right. A banker named Paulson. Bankers have been running this exercise in ignorance and unreason all the way down the line. The government paper they are supposed to hold is what these shitheads arranged in Basel. If they subjected themselves to LOCAL LAWS instead of making up their own they may have not been shown up as incompetents for another couple of years.

  2. How long will it take Cambria to learn, that you cannot have banks, extorting resources, that could be used for business spending, and they instead spend it on rubbish …. and this not lead to disaster.

    What drives the economy, and keeps it healthy? Business spending and nothing else. Not silly numbers games, margin loans, not takeovers, not IPO’s, not credit default swaps, currency speculation, not financing deficits, not getting together in Basel to lay down crony deals to do with owning government paper, and capital ratios. Not getting your people in treasury to demand stimulus packages.

    Loaning money for business spending is the only way banks can run their fractional reserve racket in any halfway sustainable fashion.

    But Cambria cannot learn this, since Cambria understands neither banking nor economics.

  3. Proving that Clegg and Cameron are either bankers puppets, or as stupid as Cambria. Like Cambria, their answer to a situation of TOO MUCH DEBT is ….. you guessed it ….. MORE DEBT.

    http://www.independent.co.uk/news/uk/politics/taxpayer-to-carry-the-risk-for-private-mortgages-6265384.html

    This new Soviet Union of bankers, can only end on default day. That is the day when all governments, decide to default all at once. Then try and recover money for depositors (only after existing banks are being wound up) by going after bankers for their assets.

  4. Jon Corzine still at large despite massive thieving. Joseph Cambria supports his thieving, and the fact that he is still at large, and hasn’t been arrested.

  5. Bird

    Aren’t you getting a little obsessive with bankers? You’re starting to remind me of George Costanza’s obsession with architects. But his was opposite to yours as he admired architects.

    • You agree that he ought to be at large right? You don’t think he ought to be arrested and his assets taken to compensate the people he has stolen off right?

      How can limited liability possibly be justified if this is the case. If he had won the bet that he made, he would have gotten a cut of those profits, brought about by embezzlement. But he lost. So if he doesn’t have to pay it back, it would show that limited liability was untenable.

      The reason why bankers are important is that they are taking us to a dark ages, by virtue of their refusal to be rendered bankrupt, have their assets sold off, and have people who can do the job replace them. So instead of funds going towards wealth creation, they are devoting them all to rubbish.

  6. Jon Corzine
    Joe Cambria

    Both JC as initials
    Both wops
    Both bankers

    Have we ever seen them in the same room?

  7. These dicks keep people anaesthetised by their choice of words. “Technocrats” running things in Europe. Technocrats? These are unelected bankers, usurping power, and they are expected to run things, even though it was bankers that caused the problem in the first place. The bankers extorted resources, that were meant for business spending to improve cash flow. They took this money and devoted it to wealth-destroying crap. Like triple pay for Greek public servants. Or credit card limits. Or housing bubbles. Or derivatives. Or margin loans. All for shit. Very little of it for wealth creation. They have to go broke and have better bankers replace them. Or else they will destroy everything. Unemployment in the US is now higher than 20%. Europe will be the same. And it must get worse and worse, since the bankers are continuing their reverse-alchemy.

  8. Well I was right. Joseph Cambria agrees that Jon Corzine, ought still be at large. Hell I was just guessing. But he shows up and suggests that we ought to look the other way. Hey lets not pay any attention to the bankers ruining everything. Taking all wealth and dissolving it into shit.

  9. “Rabz – my current intention is buy precious metals, but JC says gold’s a non-starter. If that is correct, silver wouldn’t be any different…”

    1. Why would someone listen to JC? He makes his money by jumping off before the other chump. That’s an all-day deal. That is not something for the non-professional, and he’s not in any position to give advice to non-traders. Him being a moron.

    2. If Gold was overpriced, why would that imply that silver was a non-starter?Gold may well be currently overpriced. I don’t know one way or another. But the only way that Gold and Silver won’t hold value, over the longer haul, is if a Paul Volcker character were to show up and bankrupt everyone and there is actual deflation. Not the 10% inflation that Cambria is CALLING Deflation. But the bankers who run things are planning hyper-inflation, as the only thing that can “justify” their incompetence.

  10. Good grief look at this idiot:

  11. Stupid Jew

  12. Right. Now what can you make of this;

    “JC; yes, I’ve been predicting the collapse of China since the early 2000s. I never thought they’d still be hammering along in 2011, although I still think was right back then – just got a bit overexcited with my timelines. I’m sure a bunch of people I’ve talked to about this over the years now think I’m some kind of crank, as what I was saying was so counter to the zeitgeist. By the time it finally happens, they’ll probably have probably forgotten my prophesies, but will still think I’m a crank!”

    Why was he predicting a crash of China in 2000? Why now for that matter? I picked a book up at the airport, in about 2004 “The coming crash of China” then I went to see the author speaking on the internet. But the logic didn’t hang together. As long as Chinese people save a lot, and their savings are devoted to reasonable undertakings, and not sent to Goldman Sachs or some other wealth-destroying loons, then they ought to muddle along just fine. Now of course if they are over-inflated, they can come to a hard landing, but what does he know about banking practices? Is it just some sort of real estate bubble that all the money is going towards, like Japan in the 80’s? Where is this coming from?

  13. Isn’t Krugman just so ignorant? I mean if you read the General Theory, and if you are not impressed by the ignorance of the book, you really don’t have a good background in economics. Its really just a religious text. Its embarrassing in its lack of scholarship, and general knowledge.

  14. The Left and Dodgy Right are killing us.

    Modern macro is crap, a fraud and going to bring on another bust.

  15. Modern thief-economics Macro for sure. Over at Catallaxy they think that the answer to TOO MUCH debt …………………. is more debt.

  16. Are bankers really the incompetent morons that I make them out to be? Certainly theoclassical economists are having trouble accepting this reality. They look at the salaries and bonuses, and ludicrously imagine that these dropkicks are superhuman, “rocket scientists” and so forth.

    No actually they are incompetent morons. And they have only been able to grift all this loot because they are part of a cabal that controls the economics profession, the media, the legislators, and the regulators.

    Exhibt A:

    “There is no shortage of creative ideas of financing government debts. Bankers suggested the US issue perpetual debt, that is, the government would not be obligated to pay back the amount borrowed at all.

    Peter Orzag, former director of the US Office of Management and Budget under President Obama and now a vice-chairman at Citigroup, suggested another creative way to correct the problem – lotteries. To encourage savings, banks should offer lottery-linked accounts offering a lower rate of interest, but also a one-in-a-million chance of winning $1million for each $100 deposited……”

    Morons I sez. Its Joseph Cambria all over again.

  17. “The ECB needs to signal it’s totally focused on raising NGDP thereby helping to restore growth prospects and suppoort joint bonds issuance.”

    These solutions are only special pleading for the people who caused the problem in the first place. They cannot work, and so ought not be tried.

    Nominal Gross Domestic Product can be increased by asking consumers to spend more and save less. Thus adding debt, to a debt problem which is irrational. Monetary policy in this context would mean low interest rate policy. A further bank subsidy. These are unacceptable interferences to the free market, and special pleading for banker executives. Low interest rates by the central bank involves increasing the daily subsidy to banks. But the daily subsidy is what has lead to the wealth-destroying loans. And to the reality of too much debt for the amount of revenues and money available.

    There is too much debt for the amount of money. So therefore obviously the only thing to do is reduce debt, and increase non-debt based money. Anything else is irrational. Anyone saying otherwise is a liar or an idiot.

    So no more borrowing by governments. Everyone must run surpluses Retire debt through cash creation, at the same time increasing the reserve asset ratio. There is no use reducing debt with more cash, if the banks are to turn around and increase debt again, using that new cash to build on.

    All this is obvious. All this was obvious BEFORE the GFC. Only lying, special pleading and ignorance, going around the clock 24 hours has prevented the public from understanding the truth.

    “it’s the collapse of the welfare states that’s the problem”

    bankers can take any situation, no matter how benign, and quickly destroy it. The welfare state is but one manifestation of the way they will drag the situation down if they are let loose. For example Japan, didn’t have an excessive welfare state when the bankers destroyed their national health back in the 80′s.

    “The problem is monetary dislocation …. ”

    “monetary dislocation.”?

    Don’t be expecting an explanation as to what the gentleman could possibly mean by such a phrase.

  18. While silver is still in the low 30’s its got to be a good buy. Its not too late you know. I got on with perfect timing just be sheer luck. They hammered the price back down but they cannot seem to force it lower than what I bought it at. I was about 10k ahead at one stage. Now I’m still ahead. And a fund manager called Sprott has just announced he wants to buy $1.5 billion dollars worth of silver.

    Any fund manager worth his salt could overwhelm the silver market if he chose to. Thats 25% of silver investment demand for 2010. Or 15% for 2011. Anyway I’ll just wind up repeating everything this fellow is saying. I’m not claiming you’ll get rich on physical silver in the Perth Mint. But you could have a great deal taken from you almost everywhere else.

  19. Think about that! The market is so corrupt that fund managers have to go through a great deal of hassle before the sharks who control Wall Street and the Chicago Mafia exchange will let them just go ahead and buy silver. This fellow reckoned that the US has gotten into another 450 billion more debt since their credit downgrade. This is what happens when you let bankers get into control of matters. Its slavery 2.0. But they cannot do jack to your silver that is physically in a room in Perth.

    Once this news gets out, and if Sprott starts buying, I would expect the silver price to have a tendency to climb about 50c per ounce, every few days. The paper market is really huge. But when a bunch of people start taking physical delivery the price has to start coming up because there just isn’t that much of the stuff around. I’d want almost daily reporting of what he’s getting delivered. And then maybe I’d lose my nerve and sell a few months after he stopped taking delivery. Because the physical market is so tiny, even though the paper market is comparatively large.

  20. One of the best Keiser reports ever.


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