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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Thu, 7 Mar 2002 11:05:55 GMT
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Viewed:
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369 times
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In lugnet.off-topic.debate, Lester Witter writes:
> > 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 the individual defaulting has trouble with credit, what happens when the
> entire system (everybody) defaults.
Then lenders will be reluctant to loan. But that doesn't mean that they won't
do it ever again under any circumstances. They'll just make the loan's terms
more favorable to account for the risk.
> Think of the people that were reluctant to put money in the bank
> after the Great Depression and all the bank defaults. The only
> way to restore confidence in the system was to create the FDIC (bank
> default insurnce).
I understand that this is what the FDIC was for, but who's to say that it was
actually needed? Surely you don't really believe that it was _needed_. I bet
that iff things had been allowed to simmer for a while without government
intervention that another standard would have evolved.
> > 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).
>
> Repossesing collateral is a form of repayment, not getting repaid
> means getting nothing
Well, I suppose that's true, but my aside was just that. I don't think it
affects my greater point.
> > 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.
> If you are talking about canceling debts, the collateral is irrelevant (if you
> can reposses after cancelation then there was no cancelation)
But I'm not talking about collection after cancellation. I'm talking about
making the loans that do go out more secure so that profit is made right up
against the point where debt is forgiven. Since debt negation would be a part
of societal finance, the financiers would just account for the risk.
> How would bank accounts work. If debts were canceled then your bank account
> would be canceled (its is a debt obligation owed by the bank to you)
Not if it's a share draft account, which all checking accounts ought to be
anyway. Further, savings instruments provided by the bank are so lousy that
I'm not particularly bummed to see them destroyed. Even if you're investing in
CDs, you're losing spending power due to inflation and passbook acounts are
substantially worse.
Don't get me wrong, I do think that it would alter the economy greatly. I just
don't think that we would suffer a major collapse. And I'm considering it
possible that after the initial upheaval, our state of being would be better
for the nation at large.
Chris
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Message is in Reply To:
 | | 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 (...) (22 years ago, 6-Mar-02, to lugnet.off-topic.debate)
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