Join Today
Results 1 to 5 of 5
  1. #1
    Humminbirdbqt
    Guest

    Zero interest versus default on sovereign debt

    Recently, somebody and I have been at loggerheads.

    I admire and respect this person but he believes the only way out of the present crisis is to create more debt to stimulate more demand and give economies the 'kick start' to prevent another recession.

    This person INSISTS that personal debt has no relation at all to government debt.

    We disagree.

    Let's look at the problem with Greece for a moment.

    Imagine I am a 'private investor' and hold Greek sovereign bonds.

    As a 'private investor' I face being forced into accepting a 'voluntary' haircut of at least 50% on what's owed to me.

    I'd suggest that I might prefer the debt to be paid in full instead and not be forced into giving up 50% of what is owed to me!

    Impossible?

  2. #2
    What if all the sovereign debts of all countries had the interest on their debt cut to zero percent?

    What if, in future, all countries merely printed their own money and controlled inflation by increasing or reducing the physical amount in circulation?

    What if banks and other financial institutions were not allowed BY LAW to create financial instruments not based on physical assets?

    What if we nolonger needed exponential growth to try and service even just the interest on sovereign debt because it nolonger existed except for paying off what already exists at ZERO percent interest?

    What if taxes were reduced because a huge percentage of taxes were nolonger needed to pay for just the interest on huge sovereign debt?

    What would be the impact on China if the debt they held in USD etc nolonger paid interest but was paid back gradually over years?

    What would be the outcome to the world economy if there was zero interest on sovereign debt?

    Would we live in a saner world if we nolonger had to seek exponential growth just to stand still with our existing debt?

    I'd prefer the capital to be returned to me rather than a 50% haircut and a huge uncertainty on the 50% balance.

  3. #3
    What if all the sovereign debts of all countries had the interest on their debt cut to zero percent?

    What if, in future, all countries merely printed their own money and controlled inflation by increasing or reducing the physical amount in circulation?

    What if banks and other financial institutions were not allowed BY LAW to create financial instruments not based on physical assets?

    What if we nolonger needed exponential growth to try and service even just the interest on sovereign debt because it nolonger existed except for paying off what already exists at ZERO percent interest?

    What if taxes were reduced because a huge percentage of taxes were nolonger needed to pay for just the interest on huge sovereign debt?

    What would be the impact on China if the debt they held in USD etc nolonger paid interest but was paid back gradually over years?

    What would be the outcome to the world economy if there was zero interest on sovereign debt?

    Would we live in a saner world if we nolonger had to seek exponential growth just to stand still with our existing debt?

    I'd prefer the capital to be returned to me rather than a 50% haircut and a huge uncertainty on the 50% balance.

  4. #4
    I am a very ignorant person and the wonderful Art or Science of Economics has always totally baffled me in that I believe it's all based on assumptions that may or may not be right.

    I consider it to be very dangerous to base a whole subject on assumptions; especially as these key economic assumptions certainly seem to make an ass out of me if not also you!

    The economic assumptions relate to very important things such as the behaviour and definition of 'economic man' and may or may not have any real veracity and it is my contention that Economics could all be based on false premises, but then I can't prove that either!

    The concept that 'economic man' has 'unlimited wants' and that there are 'finite resources' I find extremely negative.

    There is an almost infinite capacity to create wealth yet I believe our wants are not infinite so I really in my heart believe that the above basic economic assumption is a load of codswallop and should be changed to reflect reality as our perception of our REAL wants and the almost unlimited energy we have at our command impinges on our present and future lives.

  5. #5
    The key to these questions is who holds the power? The simple answer is banking interests. The more complex answer is found in the ownership and control of the Federal Reserve Board (and other central banks) and fractional reserve banking. The twelve Federal Reserve banks which make up the Fed are owned by the member banks. In addition, fractional reserve lending allows banks to lend many multiples of their reserves. Theoretically an original bank reserve can be leveraged out through the banking system up to 90 times. So if we take the Bank of England's QE program, 275bn could, if the money moved around the system as far as is possible, inflate the money supply by nearly 25 trillion. Clearly this is a theoretical maximum and improbable. Nonetheless, you can see the problem, banks control the money supply via their control over central banks and fractional reserve lending.

    Banking is in effect legalised fraud. Originally conceived it was two businesses, deposit taking and lending. Wealthy merchants, goldsmiths, built vaults to house their gold and offered to hold other people's gold for safe keeping for which they would charge a fee. Depositors would receive an promissory note as a receipt. As these notes became common currency in themselves the banks (goldsmiths) realised seldom did people come to inspect or retrieve their gold. The second business, lending, originated with the goldsmiths lending their own money and as promissory notes were accepted as common currency, these loans were also in note form. However, banks also started lending other people's money and a case in law legalised the practice in the 17th century, whereby storing of money was no longer regarded as bailment (holding goods safe for another) but became a fungible deposit. Failing to return a depositor's money moved from being a criminal to a civil offence. The banks went further and lent more than they stored in their vaults and the practice of fractional reserve lending was established.

    In short, governments are paying interest to banks and debt holders for value that never existed before the loans were created.

    The solution to Greece and Italy's problem is to issue their own interest free money, independent of banking control. In one bound they would be free. Over time, their currencies would appreciate because unlike the rest, they will be non-inflationary. It would mean that holders of Greek and Italian debt would be left high and dry but when the debt monetary system collapses, as it inevitably will, they'll lose their money anyway. The country which moves first to create an honest currency, independent of the banks will emerge from their crisis and create a beacon for all the others.


 

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •