macro economics - continued

[4] With further potential impacts of climate change, the moot question in the west must be, which reliable instrument do we use to turn our position around? For as the GFC potentially demonstrated, economics as a comprehensive science retains a few bugs at the least, and is why it is not yet generally accepted as confirmed.

The instrument most obvious to deliver resolution to this issue is the science of management, constant of observation of its applied principles, to deal with, and deliver on such issue. The reason it did not save us from the GFC, is simply because it was benched by the abject contempt demonstrated by those responsible for its application, political and market leaders inclusive.

Most people are ignorant of the science of management, and many who are not, myopically disregard its applied principles for reasons of the expedience and convenience of their vested interest, as the GFC again reminded us.

[5] that we require new paradigm and dynamics for developments such as renewable resources, and for balanced market regulation, we may readily observe management science comprehensively capable of delivering such outcomes when applied with propriety.

Summary
The Levitt paper, Marketing Myopia, produced from Harvard in the mid 1980’s, has not diminished of its credibility and relevance to the successive events that share in common their economic malaise observed of recent economic eras.

For it is myopia, of vested interest, greed and indifference, its aspiration and associated self adulation, that is observed to continually fail and beset us, that further, the principles of scientific management are also able to assist with remedy. We need to get with the program, for lesser consideration is observed incomprehensive.

We've been here before, Fickle Pickle.

>>We can solve the banking crisis and get rid of the business cycle by judicious creation of a small amount of interest free money through interest free loans.<<

It was thoroughly thrashed out last year in the posts following one of your articles.

http://forum.onlineopinion.com.au/thread.asp?article=9319

Back then we ended up talking about building an airline reservation system for $2m, which is still about as feasible as delivering the world from climate change through interest-free loans.

At no point did you fully address the issue of "where does this money come from", and ran a mile when asked "what happens if the project fails".

Has anything changed since then?

The point of disagreement to which we kept returning was that there is absolutely no justification for anyone, governments included, to allocate risk money (i.e. project funding) without an appropriate compensation for doing so.

Underneath which is the unassailable reality that money (currency, exchange medium, whatever you like to call it) has absolutely no measurable value unless and until it is being used. If you put it in a cupboard and lock the door, it has no value. Only when you unlock that door, take it out and use it for something - even if that is simply lending it to a Bank - does its value become apparent.

Applying this to the concept of interest-free project finance, we find that the use of these funds is actually costing you money - the opportunity cost of getting interest elsewhere.

So either you ban interest altogether, in which case any available funds will be directed towards no-risk ventures only, or you live with the fact that a hybrid system is essentially unworkable.

Pericles,

You did not understand my responses last time. Hopefully I can do a better job this time - but please try to understand what I am saying not what you think I am saying.

First the proposals do not change the existing system but add different loan types. The existing system continues as it is so why ask me anything about allocating risk money? That does NOT change and certainly what I propose does not affect the ability of people to risk their savings or assets and get adequately rewarded.

The unassailable reality as you say is that money has no measurable value. So why do you insist that it all has to earn interest? Why does it suddenly become something of value when it is used. It is NOT money that has value it is the loan or the investment that has value.

We have invented the idea of monetizing assets and charging interest on the money as a way to ensure that loans get repaid. We can charge interest on the loan but we do not have to do it via the money. However, it is convenient for the amalgamation of small lots of savings and small amounts of money created by monetising many small assets to pay interest on large loans via interest on money.

There are uses of money where this is not necessary and it is those uses of money that I am addressing. That is, we can have different loan types where we ensure loans are repaid by means other than seizing assets if the loan is not repaid.

This matters. If we use interest free money for normal trading it will drop the cost of short term credit to zero for people with good credit ratings.

If we get rid of the cost of money to build new community infrastructure we will eliminate much of the debt burden of governments. It is madness that a government pays interest on money to build community infrastructure because we can use interest free money since the loan repayments are guaranteed by the government.

Fickle
If we can get rid of the cost of money to build new community infrastructure, why not get rid of it for everything? That way we could access unlimited capital at no cost.

Pericles
You can have a license to print money substitutes without fractional reserve banking, but you can't have FRB without a license to print money substitutes.

If you run a shop, and someone comes in to buy something, how can you tell whether he's funding his purchase with money or with money substitutes?

Peter,

That is a good question. Yes I believe we should use interest free credit to finance new productive assets and I have a market based approach that will limit the amount interest free credit we need to create in each sector of the economy - and a way of allocating the credit across society.

We can be selective and as a society we will probably decide it is better to build new hospitals than it is build new cigarette factories or breweries so we will encourage the things we want as a society to encourage by only giving projects in those areas of the economy interest free credit.

The most pressing ones at the moment are investments to reduce ghg levels and investments to increase the utility of the water. We do not need to encourage the building of more fossil burning power plants.

The principle of interest free credit can be applied to other areas and it turns out it is good way of funding health care and turn it into a true market. It would solve Mr Rudds Health Funding problems.

It has great potential for making us all very wealthy because it uses market approaches to ensure the best allocation of our resources for productive purposes.

The interest bearing money approach to the creation of credit encourages asset inflation and non productive uses of finance and does a poor job of allocating resources for wealth generation.

We do seem to be talking at cross purposes much of the time, Fickle Pickle, I'm not sure why.

>>First the proposals do not change the existing system but add different loan types. The existing system continues as it is so why ask me anything about allocating risk money?<<

I was pointing out that they would have enormous difficulty operating simultaneously, given that one provides a return on investment that is tangible and calculable, while the interest-free loan provides neither a calculable return on investment nor an assurance that the principal will be repaid.

Given that sort of choice. money is unlikely to flow from the known to the unknown. Nor, I suspect, would governments be thanked for allocating taxpayer funds in that manner.

>>Why does [money] suddenly become something of value when it is used. It is NOT money that has value it is the loan or the investment that has value.<<

That's my point, exactly.

Money's value only becomes measurable when it is used.

And that measurement - as you point out - is the value of the investment. In this sense, money is simply a sophisticated form of information, which changes dynamically according to its use, and with time and volume also contributing parameters.

>>we can have different loan types where we ensure loans are repaid by means other than seizing assets if the loan is not repaid.<<

In this scenario, what substitutes for security?

>>If we use interest free money for normal trading it will drop the cost of short term credit to zero for people with good credit ratings<<

In an interest-free world, how would I achieve a "good credit rating"?

>>It is madness that a government pays interest on money to build community infrastructure because we can use interest free money since the loan repayments are guaranteed by the government.<<

What is the source of "interest-free money" in this scenario? Presumably, the taxpayer?

I still must be missing a step in your logic, and apologize if the questions seem rather basic.