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We can see what happens to a system with a banking elite, it eventually fails. However, many argue that credit is necessary for survival. My view is that credit is beneficial only when the capital is used to manufacture value added items. If all banks failed today, would people continue to produce goods and trade, or would the whole system end? When people secure a loan, it is with strings attatched. They agree to pay it back, along with interest to pay for renting the money. Would it not be more reasonable to simply save the money used to pay for a loan for a period of time then spend it? Would a new business be able to be financed by many people simply investing directly in an enterprise?
IMO, on a small scale, the idea of using one's savings to pay for the business venture does work. I've put up a business with a sound business plan, used my own savings, and recouped everything, made a profit, and got out. So it can be done.
However, on a larger scale, unless you're Bill Gates or some such, no single entity or group is liquid enough to come up with the capital necessary to start a big business or to move the business into a new venture. So, I think, the loss of credit is going to stiffle new investments or new ventures.
Having said that, I don't think the established businesses will be hard hit. They may have to disappoint their share holders with lower dividends (since dividends are more often based on growth and less on actual yearly profit). [This reminds me of the discussion on the newspaper industry - that they are profitable enough, but that was never enough for investors who wanted larger and larger gains and that forced the newspapers to try to find ways to grow or cut cost . . . which eventually killed some of them.]
We did fine for a long time without it. People just need to think outside the box they're accustomed to a bit. We're better off with it being more difficult to start a business, than with occasional Great Depressions caused by banks.
Credit is a form of theft...because it's spending money you have yet to earn.
If you take out a $50,000 mortgage to buy a house, and die tomorrow, you have an unpaid debt of $50,000, that you're never going to be able to pay back, since all the days in your life have been used up.
If all banks failed today, would people continue to produce goods and trade, or would the whole system end?
The whole system would end.
Consumers are not the only ones who use credit. Businesses, manufacturer's and farmers do too.
A farmer buys his seeds, live-stock feed and fuel on credit. He then plants his seeds and feeds his live-stock. He sells the crops he harvests and the live-stock that has reached maturity, then pays off his debts. Whatever money he has left over is what he lives on.
It is possible, over a very long period of time, perhaps several decades assuming no disasters occur, that he may reach a point where he can earn enough money to be able to purchase his seed, live-stock feed and fuel with cash up front.
A business does the same thing. It buys parts on credit, assembles the parts into a finished good, sells the finished good then uses the revenues to pay for the labor, costs and parts.
Many businesses will become self-supporting over time and no longer need to borrow money to purchase parts, but then if they want to expand their operation, they'll need more capital, which means they'll have to borrow, seek investors if they want to do it in a timely manner.
Quote:
Originally Posted by tallrick
When people secure a loan, it is with strings attatched. They agree to pay it back, along with interest to pay for renting the money.
There's absolutely nothing wrong with that.
I have $500,000. I can start a business. I can build a house. I can keep the money to pay my children's college education. I can build and equip a small medical clinic in an African country. I can put it in a bank that will pay me 2% to use my money as they see fit. I can invest it in a business who will pay me 8% interest to use my money to grow their business, I can loan it to someone else at 11% for their use.
So tell me one reason why I should give it to you with no strings attached?
Quote:
Originally Posted by tallrick
Would it not be more reasonable to simply save the money used to pay for a loan for a period of time then spend it?
That depends on the situation.
For a $3,000 plasma TV, sure, save your money for 6 months. You'll be without a plasma TV for that six months, and that would impoverish most Americans and be a total hardship for them, but they would save $2,000 in interest and the price might even drop to $2,700 and they'd save another $300.
For a house, many people would have to save for 20 or 30 years. By then, they would have no need for a house.
It makes better sense to save money for 3-7 years and put a 30% to 60% down payment on the house. The benefits are the lower averaged costs (eg my parents' mortgage was $79 in 1965 and by 1980 the cost to rent a 3-bedroom apartment was $250/month -- thus they were directly saving $171 per month in housing costs).
In theory you should be able to sell the house for more than what you paid which will offset the total cost of the house ie the price of the house plus the interest you paid on the mortgage, and perhaps even property taxes, and costs to maintain and upgrade the house.
Before liberals took over the schools, comparative/applied math, which included cost-benefit analysis, was a requirement.
Quote:
Originally Posted by tallrick
Would a new business be able to be financed by many people simply investing directly in an enterprise?
Sure, and people still do that. I mean, you know, only publicly traded corporations can raise capital via the stock market. How do you think private corporations, LLCs, LLPs, Limited Partnerships, and General Partnerships raise money?
They issue a variety of bonds, a variety of bills, and promissory notes.
I see that people generally still believe that 'the system' equals the world.
The end of the dinosaurs only meant the end of the dinosaurs and not the end of the world, so a breakdown of the current economical system might spell the end of the majority of the people but it is not the end of the world.
Credit is most important from a business point of view. Without credit many businesses simply wouldn't exist at all or not in their current form. Personally, I've never really understood why well established businesses use debt to finance merchandise purchases etc.
Without mortgages few would be able to own a house.
Cash only? Cash is merely a generalized form of credit. It is a claim not on any individual, but on the economy as a whole. It is evidence that you or someone acting on your behalf has loaned goods or services to the economy that must either immediately or eventually be repaid. You press for repayment of that loan by presenting the evidence of your claim and receiving in exchange goods or services of your choosing. Planets may exist in the absence of credit, but there is no such thing as an economy that exists without credit.
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I see that people generally still believe that 'the system' equals the world.
