The Forum > Article Comments > Government is no Santa: the costs of stimulus > Comments
Government is no Santa: the costs of stimulus : Comments
By John Humphreys, published 23/7/2009The long term consequence of the financial stimulus will be upward pressure on interest rates, fewer jobs and higher taxes.
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Here is a way to achieve these results without involving the government.
Create a special banking product that fits alongside other banking products. It has the following characteristics.
Depositors get zero interest on their deposits.
A depositor is allowed to get a loan for up to say 5 to 10 times the deposit at zero interest - this will keep the bank within its fractional reserve obligations.
The bank must not use the deposit for any loan other than to the depositor.
The loan MUST be invested from a range of approved investments where the money is spent building a productive asset that has a guaranteed income stream. e.g. a new solar thermal power station.
The loan is repaid from the money generated by the asset. The loan terms might be 50% of income generated to the borrower and 50% to lender. The bank may require that 120% of the loan is returned.
Until the loan is repaid the zero interest deposit is not redeemable.
The bank keeps track of exactly how the money is spent and is able to ensure it gets its return when the investment starts to generate income.
If the investment is a dud and does not give a return then the deposit is forfeit if the loan is not repaid and the bank writes off the loan.
If there is a banker reading this that wants to fix the financial system and at the same time reduce greenhouse gas concentration in the atmosphere then contact me. I will build them this banking product and I will show it works by financing it with deposits of $500K at zero interest.