Subject:
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Re: A hypothetical economics question... (long)
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Newsgroups:
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lugnet.off-topic.debate
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Date:
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Wed, 6 Mar 2002 16:03:25 GMT
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Viewed:
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285 times
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In lugnet.off-topic.debate, Lester Witter writes:
> ...Lending is a form of investment where the payoff is predetermined,
> stock purchase is a form of joint ownership...
> Suppose Joe is a very good chief and would be very sucessful at running a
> resturant. He needs $100,000 to start the resturant but works at a low paying
> job. If there was no way to borrow money there is no way Joe could start his
> resturant
Unless he shared ownership with 99 other folks each of whom could come up with
$1K. Joint ownership instead of borrowing, right?
> (this is the captialist idea of raising capital from private sources)
Actually, that's just getting a loan. Finding partners who want their share
value to increase seems more typical of the "capital from private sources"
model.
> In order for people to be willing to lend (invest) money there has to
> be an expectation of repayment. If there was ever a debt cancelation
> like you propose no one would ever lend money again.
I think that's patently untrue. Look at it on a smaller scale. When someone
declares bankruptcy they have some difficulty for a couple years getting loans.
If they've been good with those that they do get (at exorbitant rates) then
they get to jump right back into the rat race.
Now if you _know_ that you aren't going to be repaid, you won't lend (but
actually, that's not true either when you value the collatoral more than the
capital). But if the risk is greater -- as would be the case in an economy
where periodically at random (say once in every 30-100 years) all debt was
forgiven, then there would still be plenty of lending going on. It would just
be at higher rates and secured by more real goods. Actually, describing it
that way, it sounds like it might make for a stronger economy.
Of course, people with MBAs might make (or keep) less...
Chris
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Message has 1 Reply:
 | | Re: A hypothetical economics question... (long)
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| (...) loans. If the individual defaulting has trouble with credit, what happens when the entire system (everybody) defaults. Think of the people that were reluctant to put money in the bank after the Great Depression and all the bank defaults. The (...) (23 years ago, 6-Mar-02, to lugnet.off-topic.debate)
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Message is in Reply To:
| | Re: A hypothetical economics question... (long)
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| (...) I think that there is a misconception about the role debt plays in the economy and what interest actually is. Here is some basic financial theory (A good way to get this is to have you company pay for you to get an MBA (U of Michigan) :-)) (...) (23 years ago, 5-Mar-02, to lugnet.off-topic.debate)
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