Should There Be Interest On Debt

Every once in a while you sit down and think about what would make a better economy, or just promote a better society overall.

I figured that one good thing would be eliminating interest. To clarify, if you loan money, you should have to pay it back, but there should be an overall cap as to the amount you should have to pay back after the total amount you actually borrow. I was thinking a 10% cap on all loans and 25% cap on all debts.

Ex. If I took out a $300,000 loan for a business, the most the bank could demand from me in return for that is $330,000. If figured the common complaint would be "how would business grow then" and my answer is simple. The loaner is not there to grow your business, per se. The business is there to provide a service to the loaner. The loanee should not have to finance your ambitions of expansion.

In terms of debt, I think we all know how inconveniencing it can be if you loan someone a sizeable debt and they fail to return. However, the concept of interest, at some point, ceases to be an adequate deterrent to bailers, and crosses into the line of extortion. If a person fails to pay a debt, he should be obligated to now return up to 25% on the original loan. (for $300,000 that would be $450,000) I could even see them raising it to 35%, but beyond that, it is extortion. In terms of getting your money back, if the person can't pay $450,000 back, how will they pay more. Having perpetual interest accrue after this mark is dumb if not intentional extortion.

I believe this would help the economy because people no longer have the stress of knowing that if they do fall into debt, they aren't trying to fight a flood in the ocean. I feel it's very reasonable and fair to both sides, and enables the person to work on their debt with confidence. And it prevents the abuse of the system by people who try to work the credit process.

So, now that you heard my idea

1. Do you think there should be a limit to the amount of interest one has to pay on debts and loans, and...

2. If you disagree with the above, what are your ideas on how to fix it?

 

I'm not sure exactly what problem you're trying to fix. Interest rates have been at historic lows for the past couple of years and the economy is crap.

 

Perpetual debt. The fact that your interest can stack and stack and stack forever.

I don't know. In retrospect, I think my 10% was way too high either way, and I've seen examples of wild credit card interest rates, mortgage interest rates, etc...

 

There shouldnt be interest on our currency, thats the main problem along with how its created and distributed imo

Ive no problem with banks current interest rate charges, the problem is they largely expand and contract the money supply. There should be tighter restriction on that which would reduce the amount of speculative investment in property and shares since they are largely what the banks would prefer to lend towards.

Also if/ when govts create extra money supply they go into debt, more supply naturally devalues our dollars so we already pay that way, then they pay ongoing interest which requires further taxation - there is no reason for all this money (97% of it) to have debt attached on creation. Govts can legally create debt free money! only problem with that however is countries that have tried in the past end up in war. I wonder why

Look at the Wests current situation, choking in debt but also in need of stimulus. More stimulus is more debt which handicaps it when debt is a huge part of the original problem. Austerity attempts to tackle the problem head on, but can be very painful med term. Debt free money spent into the economy would be win/win, stimulus while reducing overall debt.

Anyway theres a UK group called Positive Money who have done extensive work on this, theres many great lectures and videos on their site. Im sure you'll see as i do if their plan were implemented it would have massive positive flow on effects for the working class and the economy. IMO if theres one area left and right should be able to agree on its this. While im one that strongly believes free markets are the best way in most situations, renting our currency when it should be our right to own it outright is idiotic.

Their latest video shows how our current system creates huge wealth inequality. As they say in it, many people think its trickle down thats the problem but its actually siphoning up

[video=youtube;ZzCegQVljdY]http://www.youtube.com/watch?v=ZzCegQVljdY[/video]

 

Should there be interest on debt? I will answer with a question: "Why have debt money?"

When you are talking about projects that would help commerce and productivity. For example Roads, public buildings, water treatment facilities etc. I do not see why the money cannot only be loaned interest free, but literately spent into the economy with no debt attached to it through the project it is paying for.

A good example to look at is The Bank of North Dakota that pays it profits back to the ND treasury. BND turns checking deposits into productive loans to businesses and consumers like many banks but it goes even further and provides loans at below-market interest rates to businesses. North Dakota is the only state to be in continuous budget surplus since the banking crisis of 2008. Its balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million, and is debating further cuts. ND is the only state that can deposits its tax revenues in it's own bank, all other States deposit in Wall Street. Socialism is alive and well in the great RED State of North Dakota.

Ask yourself, why there is only one State Owned Bank in all of the United States?

The last president to put debt free money into the economy was JFK after signing Executive Order No. 11110. Kennedy brought nearly $4.3 billion in U.S. notes into circulation with one stroke of a pen. After his death, five months later, no more certificates were issued.

This is a great concept. Two problems I see.
One: Investment Banks are the most powerful lobby. They own Washington
Two: People are fricken dumb.

How can U.S. citizens think the American dollar is their currency if they don't own a bank? Makes no sense, it is fictitious.

 

There is a proposal to allow corporations to bring offshore profits back to the US tax free if the funds are used as tax free loans (bonds) to the Federal government. Eventually the companies get their money back tax free and the government gets interest free loans.

 

The moment that you put a cap on interest, you are in effect going to reduce loans. Now if you are ok with fewer people getting loans, then I'm all for it. But you just have to grasp the fact that a ton of people are going to screwed over, because they live with debt as part of their lives. If you prevent lenders from charging enough interest to cover the higher risk loans.... those loans are not going to happen.

People are going to have their credit cards cut them off, lower their limits. Payday lenders and CheckSmart companies are going to disappear.

Again, I'm all for it. But understand, there's a ton of people that next time their car breaks down, and they need some quick cash, PayDay is going to be gone, and their going to be SOL with a broken car.

Just understand that's what is going to happen. The only reason many of these lenders lend money to high risk borrowers, is because they can charge enough interest to off set the risk. The moment you prevent that, those people are going to disappear.

The only other option is actually worse. This is what happened with Credit Cards. After the government passed the CARD act, the result was that credit card companies jacked up their interest rates on everyone. Since they couldn't charge higher rates to specifically the people who were high risk, they charged EVERYONE a higher rate, to offset the risk of the few.

So you understand, that these two outcomes are what will happen if you do this. If you are ok with this, I am too. I'd be in favor of your proposal, but I doubt many others would.

 

I don't understand this comment. The American dollar, is the US currency, whether we own a bank or not. Second, the government owns the largest bank in the country, the Federal Reserve. And don't give me this crap that we don't, when no other bank has the Chairman appointed by the Federal Government, and no other bank has to give routine reports to the government about it's operation, and no other bank has a Federal Budget entry. Spare us the lame claims.

I've read up on other government run banks, and they are filled with corruption, political pay-backs, and worst, they are absolutely horrible to regular citizens. Especially in India, tellers at Indian banks have talked about the manager openly saying, when Mr (X) shows up, give him whatever loan he wants. He's a friend of (Y) Government official, and at the same time, we have routine reports of poor service, much like you get going to the BMV here in the US.

Further, if you look at Spain, the socialized banks were at the very center of all the white elephant projects across spain, that all went broke, after the banks poured millions into them, at the direction of government officials.

As for North Dakota, one good example, in a sea of bad examples, is not all that compelling. Nevertheless, I will look into it. You get me curious.

 

1) if there was an artificial limit to interest, then there would be much less lending. To some degree, interest is a function of risk. That is why a person with a poor history of credit has to pay more interest than one with a good history of credit. Your equation doesn't take that into account.

2) I don't think anything is broken. To resolve the problem you note about spiraling of debt, we have the concept known as bankruptcy.

 

If a State owns it's own bank it does not have to go to the federal government for check clearing, monetary policy, deposit insurance, etc.

I don't know much about the banks around the world. It is cool that we have 100 year old model here to actually look at. The belief's of the Populists that started the bank in the early 1900's still hold true today for conservatives: a state-owned bank is that it preserves state sovereignty, allowing the state to be independent of Wall Street and the Feds.

The State of Washington and California did studies that can be found online to the advantages of owning state banks.

 

Well of course. Every government, and pro-government supporter suggests there are huge advantages, especially to government, and government supporters, for which the banks would undeniably end up being used to benefit. I'm sure that India has similar studies which unsurprisingly suggest that the banks owned by the government, and benefit government and gov-supporters, are a huge benefit as well. Of course the average citizen who gets lousy service, waits in hour long ques, and is denied loans because they don't have connections to the government.... likely don't see those benefit quite as well as those studies suggest.

Now back to the state thing. Are you suggesting that states could make their own currency? That would seem like a very bad idea to me.... Because otherwise, whether the state owns a bank or not, they would still be under the control of the Federal Reserve.

And as far as Wall St, nothing would change there. Even if each state had their own currency, that doesn't change who buys and sells debt. China has their own currency, and they buy US debt. As do many other nations with their own currency. People do business with big banks, because big banks have the money. Whether your specific state owns their own bank or not, wouldn't change the fact that if you want a loan, you got to go to the people with the money.

This is one of the things that bugs me about people. If you really don't want to deal with banks on Wall St, if you really don't want to deal with debt, the solution is to ...... (GASP) ! NOT BORROW !

Cut government spending so that the number of dollars being spent is (I know this is crazy) LOWER than the number of dollars coming in. And then you can completely ignore all banks everywhere.

Because here's the deal... if ND, spends more money than it collects in taxes, whether they own a bank or not, they have to sell bonds. If they sell bonds, there's a good chance that a bank on Wall St is going to buy those bonds, whether they own their own bank or not. And guess what... you still have to deal with Wall St.

The solution is simply to cut spending. It's just that simple.

 

Obviously I am not "know it all" on any of this stuff or trying to be. Just your average working shlum that has been reading about public banking for about 5 years.

Am I suggesting a state could create there own currency? Hell ya! Only if they had there own bank. For example, I think a few states past recent laws making gold and silver legal tender. Utah being the most recent I remember. Who cares, if they don't own a bank. "good luck with that"

Recently; many states were talking about succession from the union. "Ya good luck with that, you have no bank".

I am not for any of this, just pointing out it is not possible without a bank. North Dakota would be the only state actually able to accomplish these things because they own their own bank. That is just a taste of banking power.

And as far as Wall St Why should Wall street have so much power? Why not own each others mortgages instead of Wall street packaging them into directives and selling them to foreign investors? Same with student loans. You could do this with State Banks and pay the profits back into the state. Would you like to have the choice of owning a bank with one shareholder (the State) competing with investment banks that have many shareholders all over the world? Being able to view "online" your banks balance sheet vs a hidden balance sheet of an investment bank which is leveraged 300-1.

if ND, spends more money than it collects in taxes Two things I love about my state (Colorado). We have to balance out the budget every year and the State cannot raise taxes without a State ballot vote. We always vote "NO!"
In the Colorado state constitution, Article XI, Section 1 prohibits the state from pledging its “credit or faith thereof” in favor of “any person, company, or corporation, public or private.” Article XI, Section 3, prohibits the state from contracting “any debt by loan in any form.”
The Constitution of North Dakota has similar provision.

The primary advantages of a State Bank is that profits go to State Treasurers, not the federal government. The concept keeps taxpayers money working within the State in which it is generated. Property taxes, state income taxes, sales taxes and all fees for services go to the State Bank. It is like a mini-Federal Reserve for the State.

This is one of the things that bugs me about people Same here. Americans are horrible savers.


The concept is to get away from debt money. By definition money contains wealth. If all money derives from a loan and has interest chipping away at it then it cannot contain wealth. Therefor, what we currently call money is really credit and if someone collects a lots of this credit somewhere else in the system there has to be a foreclosure or a bankruptcy or something to make up for the collected credit (or you need continual growth). State Banks are not a complete solution but a step in the right direction to creating money that actually would contain wealth.

 

The issue is that everything works great, when it works great. What happens when it fails? In a free-market capitalist system, the way it is supposed to work, is that a private bank screws up, and they crash. They go into bankruptcy, and that process weeds out banks that screw up, while at the same time it serves as a warning to other banks to make wiser choices.

Now that's how it supposed to work. We've elected idiotic politicians who mindlessly proclaim that if we don't bailout banks, the the worlds coming to an end. But that doesn't have to happen. We can elect smarter politicians who don't bail out banks.

But if the bank is owned by the state, what happens when they make bad loans? What happens when the economy fails, and people default? What happens when a bad politicians uses the bank for his own personal use? What happens when a massive drought wipes out farms, and they default?

Now maybe that won't happen. But you don't know that. In the private free-market system, the banks fail. Do you think that's going to happen with a government run bank? Of course not. The fall out is going to be horrendous. Now if the bank fails, the state is going to be directly on the hook for the billions of dollars in loans the state run bank made.

This is exactly what happened in Spain, with the white elephant projects.
http://www.independent.co.uk/news/w...he-discerning-buyer-at-just-100m-8751641.html

This airport was built with money from Spainish government run banks. The modern world class airport is completely deserted, even though it was opened in 2009. Billions of dollars flushed down the drain.

The problem, this will wreak havoc on the economy. For example.... I'm in Ohio. And let us say that I make high end products, and I want to sell my goods. Two people contact me to buy my product. One in Kansas and you in N Dakota. You have a different currency. Who am I going to sell to? The guy in Kansas, not you. Why? Because I don't need your ND Money. I can't use it here. I need US dollars to pay my employees. I can't use your Dakota dollars for jack in Ohio. The result is, I'm simply not going to sell my products there.

Similarly, I'm not going to buy products from Dakota either. Why? Because in order to buy your products, I would have to exchange my US dollars for Dakota dollars. Or you would have to exchange the US dollars, for Dakota dollars. Either way, it would end up costing more money to buy from you, because exchanging currency costs money. Banks do not provide that service for free. So I could buy the same product from any other state for less money.

This right here, is the reason why most countries are trying to unify currency, not diversify. The Euro for example, was an effort to boost the economies of Europe by making it cheaper to conduct business under a unified currency. And if you ignore the countries that moronically borrowed themselves into bankruptcy, it worked. Germany, and several others have done extremely well, in part because they are more easily able to conduct business with a unified currency.

Unless *ALL* states had individual currencies, any state that adopted their own currency would effectively isolate themselves from the rest of the country economically.

There is no reason why a state could not secede from the union, just because they don't have a bank. Remember, all states, including the union, were all formed, when no one had a national bank. All banks were private for the first 120 years. If they could do it then, they can certainly do it now.

What they can *NOT* do, is replace the massive amounts of money the Federal Government gives to states. That's the real kicker. Looking at the Ohio State budget for year 2011, nearly 1/4 of the Ohio State revenue comes from the Federal Government. That's huge. And if Ohio secedes from the Union, that money can't be replaced. That is what is preventing states from leaving the Union far more than not having a state bank.

And by the way, at least for North Dakota, I looked it up. The amount of money generated by the state owned bank, really isn't that much. From what I read, they collected about $25 Million a year from the state owned bank. North Dakota has a state budget of $4.4 Billion. The state owned bank, really isn't bringing in any massive amount of money. It certainly isn't a game changer. And by the way, of that $4.4 Billion, the Federal Government was covering 40% of it, about $1.75 Billion of the state budget.

You really think they can leave the union now, when $1.75 Billion of the state budget is controlled by the Federal Government, simply because they have a state owned bank providing $25 Million? Sorry.... not going to happen. It will take years of the state cutting the budget over and over and over, to cut out all Federal Support... and then.... they could secede.

First off, they were not leveraged 300 to 1. I know that some idiots out there say they were. Here's what happened. You have an asset, say your house. Say your house today is worth $200 Thousand. Now say you borrow $1,000,000 against it. That would be a 5 to 1 leverage. Right? Now say something horrible happens, maybe a flood and a massive mold infestation. Now your home is worth $50 thousand. Your loan didn't change. So now your leverage ratio is 20 to 1! How horrible! You awful horrible person! You leveraged 20 to 1 on a $50,000 house!

Well... no... you didn't. When you made the loan, your house was worth more, and the ratio was only 5 to 1. Banks did the same thing. No bank made a 300 to 1 leverage. Not one did that. What happened was, the asset, specifically the mortgage backed securities they were leveraging against, declined in value. After the housing prices crashed, and the assets were not worth nearly as much, then the leverage ratios were crazy.

Second, Wall Street doesn't have *ANY* power, that we the people, or the government officials do not specifically choose to give them.

Again, I owe no one anywhere anything. I have *ZERO* debt. There is no bank that has any power over me at all. The only reason Wall Street has any power, is because citizens of this country demand government programs and services that our government does not have the money to pay for. Because they don't have the money to pay for these things, they borrow money from banks. Because they CHOOSE to borrow money from banks, the banks have power.

If we stop demanding government borrow money it doesn't have, for government programs and services we don't need, Wall Street will instantly lose any and all power you think it has. The only power any bank has, is the power *YOU GIVE THEM* by borrowing money from them.

Right. And that's the solution. Having a state owned bank, isn't going to fix that. What's going to fix that is the people of this country demanding that politicians stop spending money they don't have. Period.

Again, we're talking about $25 million, in a state budget of over $4 Billion. Not exactly a big deal. Worse, once the state gets dependent on that revenue, what happens when the bank doesn't make a profit? What happens when those loans go bad?

I think you are making too big of a deal over a very isolated situation. North Dakota didn't have a down turn in the recent crash, because ND isn't a real-estate market. It's a bunch of farm land, which is typically stable. If North Dakota had a massive housing market, like California, and their State owned bank was invested in it, just like Fannie and Freddie were, it would have crashed just like they did, and it would have lost billions of dollars to the state to keep them bailed out, just like Freddie and Fannie cost the Federal government hundreds of billions to keep open.

It's a nice thought. I am not quite as convinced by the evidence given, as you seem to be.

 

This would hurt the broke. "High risk loans" were how I started my business. Now that I can qualify for better capital access I can get a lower rate. Interest rate has to do with risk. If the rate allowed is lower then the risk no one will make the loan. Also not allowing capitalized interest is another issue, inflation may make that loan impossible to make.

 

Most businesses are started with less than $1,000 dollars. Many businesses are started with investor money.

I am completely against any notion that *only* high risk loans from banks, can be the start up for business.

It worked for you, I'm glad. But let's not ever adopt a line of thinking that makes banks out to be absolutely necessary to a growing economy. It's not true, although government and the bankers would both love you to think so.

Just out of curiosity, what type of business did you start? And how much was your initial loan?

 

so i should loan you money for 15 years and get just 10 percent ..please dont start a business..you will fail within the first year..guaranteed.

 

Interest is a very important part of the economy. It is setting the interest rate below the true rate of interest that causes so many economic problems. When the interest rate is low, it suggests that people are saving more and thus it would be profitable to take out a loan and expand capital resources. But when the price of money (interest) like any other price is set artificially low, you will have a shortage. Money is more complicated, because more can simply be created to meet this shortage. But the result will be a lower purchasing power, meaning savings of money will have a lower purchasing power. So although in nominal terms there is no shortage, in real terms there is--a shortage of real savings. The savings do not exist to support the expansion of production of capital, and the result is an economic crash.

This is precisely what was seen with housing. Virtually anyone could get a home loan at a low rate, resulting in massive investment in housing. But the real savings never existed to sustain the boom, resulting in a crash back to reality.

So yes, interest is incredibly important. It represents the ratio in the valuation of present goods (spending now) against future goods (saving to spend later). Whether or not people are planning to spend now or later is vital to the structure of capital.

 

Credit cards, I took out about 45k altogether, but over time. It helps some who may need it. If you have other resources great. I am a fisherman

I am not sure about that Most qualifier, maybe many, but not most. That wouldn't cover incorporation plus inspections or the security deposit on a commercial property.

 

Most businesses are not incorporated in the beginning, or have a deposit on a commercial property. And it's the vast majority by far. Apple computer was started in Steve Jobs bed room, and later operated out of a garage.

Similarly, Bill Hewlett and Dave Packard started HP in 1939 in Bill's garage. The company wasn't incorporated until '47.

1-800-GOT-JUNK? was started by Brian Scudamore when he saw a junk removal truck at a McDonald's drive through. He used $700 to buy a used pickup truck, and started hauling trash. The company has a fleet of over 1,000 trucks, and pulls in multiple millions a year.

Sara Blakely started Spanx out of her apartment. She saved up $5,000 from a job selling fax machines (imagine that, saving up instead of borrowing), and then started Spanx. Blakely is worth over a billion dollars today.

Bert and John Jacobs started selling T-shirts out on the street. Literally on the sidewalk selling T-shirts. Now they make $100 Million in sales.

Burt's Bees was started by Burt Shavitz who was a hobby bee keeper, selling honey out of his pickup truck. He met Roxanne Quimby who used beeswax to make candles, they made $150 at a local fair. Their first company head quarters was a one room school house, they rented for $150 a year. Burt's Bees, now makes $250 Million in sales of various products a year.

And these are just the stories you can verify yourself. There are thousands more like that, even from my own neighborhood. I could tell you about Vanner Power Systems in Hilliard Ohio, or WayneTech, or ADL Inc, or PDSi, or Sarcom, or Tracewell. All successful companies, that started with one or two dudes, making products in their garage or home.

Very few are started with a glass window store front on the main drag through town, and a massive loan of for tens of thousands, or with large incorporated company. I know a lady that liked to cut hair, and bought a cheap used chair, put matting down in her spare bedroom, and started clipping. It was several years later, where the line of people waiting, caused her to lease a small commercial spot, and setup shop.

I'm glad that your plan worked out for you, but honestly if there ever was a blood sucking leach of the middle-class, it's credit cards and payday lenders. Most people would be a million dollars richer, if they simply saved up money in the bank, instead of borrowing.

And please, don't tell me that you can't possibly save up money. If you can pay a credit card payment, then you can save money in the bank. You can't rationally say that you *CAN NOT* save $150 a month in the bank, but yet you *CAN* pay a $200 credit card monthly bill. That's not logical.

 

That isnt even close to most businesses. Most businesses start up with far more cash. Go to the yellow pages, go line by line, let me know how many get started your way.

 

who in their right mind would loan someone money for free? think about it..maybe we should live within our means..credit cards are the third worse invention of mankind for me..number one is facebook, number two is the stupid iphone, and the credit cards..if you dont have the money to buy something then dont buy it..the one credit card i have i never use..havent used it in over 20 years..and i do have a credit score in the top 5% even though i dont use credit cards

 

Like I said, most small businesses start this way, and yes I can go through the Yellow Pages and find that. The problem with doing that, is that many businesses are franchises. Those obviously take more money, and the franchisee is likely to help in that. (depending on the company).

However, there is outside evidence. There was a survey of small business start ups in Canada, and the survey showed that 58% of small businesses were started with less than $1,000 in capital.

The Small Business Administration survey showed that the median capital start up cost was $6,000, which shows I'm not too far off.

The problem with the SBA numbers is that it obviously doesn't include small businesses that do not get loans through the SBA. And all those millions of businesses that never get SBA loans, are likely started with less cash.

Suggesting that again, it's likely the majority that are started very very cheaply.

If I had the resources, and time, to go line by line through the phone book, I would in fact do it, just for my own information. But obviously I can't call every single business to ask how much they opened the business with, nor is there an easy way to check that information otherwise. People generally don't post their home dog-walking service, with their investment start up costs, online.

 

The SBA also shows that most businesses fail because of inadequate capitalization. Check out the failure rate at your median. I had that much capital to start with though, less really, but I had loans. Loans don't count in capitalization.

 

By definition, a business fails because of lack of capitalization. Think about it.

 

No, that is government that gets more and capitalization for unproven models. Some things just don't work in business and you got to cut your loss.