Effects of a World Without Loans: Corporate & Street Level

[pitot-tube]

If people were not able to borrow money anywhere in the world at at any time what would be the effects we would notice on a corporate scale and at street level in people's everyday lives? Will people still need to borrow money in 100 years time - whether in terms of notes or in terms of electronic pledges?

 

[falc39]

I actually think it would be a lot better. The bible got it right on this one. A world without usury is a world worth saving.

 

[Ronnin]

Depends on how these downs are resolved. If somehow you had to power to just declare all loans null and void you would reduce the worlds money supply to all "cash" assets. This would be a HUGE reduction in the world's money supply. In the US, banks only have to have 10% "cash" assets in reserve for all of their extended notes. So if all banks were lended up to their maximum you would essentially remove 90% of the liquidity from the market. The shortage of available money to the market would cause contraction of business like never before seen.
Now, if instead we accelerated all notes and made them payable in full you would destroy the entire world's economy overnight. Very, very few people, companies, or countries for that matter carry enough cash on hand (even if they could collect all of their recievables) to pay 100 percent of their notes in such short period of time.
No winners here. Even if you had huge sums of tangible resources (oil, gold, or something similar) almost no one would have the ability to purchase it from you. We would all be bartering for a while until the new value of your money could be established.

 

[DrClapeyron]

Loaning money is the equivalent of loaning work. If you cannot loan the work to someone for their project, this world would be void of work. Hence no bridges, no pipes, no pumps, no homes, no roads; essentially there is no society. If people cannot interact with one another then they certainly cannot get along with one another, therefore the world descends into chaos. The end result is anarchy.

 

[arildno]

I actually think it would be a lot better. The bible got it right on this one. A world without usury is a world worth saving.

How naive.
You should see how the situation is in Islamic countries, for example:

The ban on loans with interest has very detrimental effects. For the one loaning the money.

If, for example, a person wants to buy a house, what essentially happens is that the BANK buys that house, and then sell it to the individual to a much higher price, to be paid off in segments.

Essentially, this is loaning necessarily coupled to mortgaging, so that the one loaning is effectively bound to live in that house for a considerable time (it isn't his to sell before he has paid down his loan!)


In pre-monetary societies, loans bred non-monetary interest forms like political obligations to be held, work duty etc.


In short, a simple monetary interest is the type of interest least damaging to the one loaning the money.


Furthermore, interest as such is perfectly justifiable in moral terms:

Since the one giving the loan yields control expenditure of his own money for a considerable time, it stands to reason and morality that he is entitled to be compensated for the loss of that control.

That compensation is effectively what interest represents.

 

[falc39]

How naive.
You should see how the situation is in Islamic countries, for example:

The ban on loans with interest has very detrimental effects. For the one loaning the money.

If, for example, a person wants to buy a house, what essentially happens is that the BANK buys that house, and then sell it to the individual to a much higher price, to be paid off in segments.

Essentially, this is loaning necessarily coupled to mortgaging, so that the one loaning is effectively bound to live in that house for a considerable time (it isn't his to sell before he has paid down his loan!)


In pre-monetary societies, loans bred non-monetary interest forms like political obligations to be held, work duty etc.


In short, a simple monetary interest is the type of interest least damaging to the one loaning the money.


Furthermore, interest as such is perfectly justifiable in moral terms:

Since the one giving the loan yields control expenditure of his own money for a considerable time, it stands to reason and morality that he is entitled to be compensated for the loss of that control.

That compensation is effectively what interest represents.

I agree. But in this world, there are people who exploit this system. What are your thoughts on this story? [temporarily deleted pending moderation]

 

[russ_watters]

I'm also surprised at the naivete about this issue (even though I've seen it before). Loans are a critical part of a functioning economy. It wouldn't be possible for anyone to own anything expensive like a house or car without them. And corporations wouldn't be able to b uy expensive equipment, new buildings, etc.

You cannot have a functional economy without loans. Even Muslims don't work this way. There are Muslim loan companies that get around Islamic law by doing things like charging extra fees instead of interest. It's just a self-delusion - the end result is the same.

 

[russ_watters]

I agree. But in this world, there are people who exploit this system. What are your thoughts on this story?

And a naive story too!

C'mon. This is a real economic issue, not a propaganda cartoon issue.

 

[falc39]

And a naive story too!

C'mon. This is a real economic issue, not a propaganda cartoon issue.

I'm guessing you didn't read it? Was it not academic enough for you?

It has always been people against the banks (lenders) since the days of the bible.

In recent history, look at Jefferson and Jackson.

How ironic that I'm the one being called naive. You really believe that there is no exploitation in the system?

 

[russ_watters]

I'm guessing you didn't read it?

I've read it before, falc39. It's a very old and somewhat famous propaganda piece (and surely you didn't just now happen upon it either...).

It has always been people against the banks (lenders) since the days of the bible.

So what? That doesn't actually mean anything.

How ironic that I'm the one being called naive. You really believe that there is no exploitation in the system?

Don't put words in my mouth. I didn't say that there was no exploitation of the system. There is exploitation in every system. You said the world would be a better place without loans and that most certainly is naive.

And btw, you did not agree with arildno, you disagreed with him. You seem to be trying to play both sides of this issue. At the very least, your argument style leaves something to be desired. It is disingenuous.

 

[falc39]

I've read it before, falc39. It's a very old and somewhat famous propaganda piece. So what? That doesn't actually mean anything.
Don't put words in my mouth. I didn't say that there was no exploitation of the system. There is exploitation in every system. You said the world would be a better place without loans and that most certainly is naive.

And btw, you did not agree with arildno, you disagreed with him. You seem to be trying to play both sides of this issue.

Well to me, the consequences of the exploitation will soon outweigh the positives arildno spoke of. Not that I'm completely against loans in general. Maybe I'm just focusing on a larger scale of what the OP asked.

edit: In a nutshell, to me, there is a moral issue with this. Loaning, used in a certain way, can result in a form of slavery.

 

[russ_watters]

How soon is soon? The story you linked starts several thousand years ago. So will we be ok for a few more milenia?

These vague dissatisfactions people have with the current system ignore the fact that it works. The development (evolution, really) of a viable economic system was one of the necessary enablers to raising mankind out of the caveman stage of development, for starters, and contributed to every step of human development.

Btw, does your dissatisfaction with loans include the interest you earn on your bank account? How about CDs? Bonds?

 

[russ_watters]

Just an fyi, I've temporarily deleted the link pending input from other moderators. I don't like the thinly-veiled anti-semetic, religious, and conspiracy theory overtones to it and we don't allow such things here.

 

[Yonoz]

I probably should keep out of this one, eh?

 

[Evo]

The link is ridiculous, not to mention absurd. It will remain deleted.

I also think the OP's questions have been sufficiently answered.