Wealth Distribution

[ASH]

Re: Wealth Distribution

Thanks, JT. That makes sense -- it's what I thought you meant. I like the ideas you proposed.

The thing that occurs to me is that exponential growth results from concatenating linear steps, so as long as the rent for ladders is linearly proportional to the number of ladders, then the assets of a ladder-lender will still compound over time, even if the debt of any individual ladder-borrower doesn't compound. The lender isn't charging "interest on interest" to the individual borrower, but the lender's investment does compound across subsequent loans when he lends not only the principal from the first loan, but also the 'linear' interest. In that respect, it seems like there might still be potential for lenders to end up owning all the chips on the table.

[radon]

Re: Wealth Distribution

But that's my point, this doesn't define default. In fact there are more than a few loan products structured so that "interest only" and even worse "negative amortization"
are contractually specified as the minimum monthly payment. Meeting you minimum monthly payment does not constitute a contractual definition of default last time I checked.

The point is:

Simple interest
Monthly compounding
Daily compounding
Continuous compounding

All of these amortizations produce a compounding debt load. I don't see where you can disagree with that. In all cases paying the minimum payment contractually due yields total payments that are at least 2 (if not 3 or four times) the original amount borrowed.

And again this is precisely my point.

Most of the debt in this country is UNPAYABLE because it is ONLY serviceable with the ZIRP facilitated by the FED AND because min payments are so low.

ANYTHING in that equation changes, and it becomes readily obvious that we are in the final stages of a Ponzi Finance system. (You can't even afford to roll over the debt).

Sure, if you weren't allowed to get a NIJA Neg Am interest only loan (and then have the banks securitize these products with a triple-A rating and sell them to investors and then short them after they were sold) then we wouldn't be here.

But the point is these things ALREADY happened, we are already at the ponzi state of finance. And once you have crossed that threshold, you don't go back to sound finance, you collapse. Just like every ponzi scheme is destined to do.

In the AFTERMATH, when the system is redesigned, I don't think we should allow it to BE POSSIBLE that we end up in exactly the same place we are now. And the exponential financial and monetary system is exactly how we got here (with a hearty dose of fraud, corruption, and willful ignorance thrown in to boot).

If you allow something to be possible, there is a chance it will happen. We should not be willing to allow to possibly occur in the future. The only way to do this is to make such an outcome IMPOSSIBLE, by design.

This is only a problem when new debt doesn't produce economic expansion. Without the expansion, and hence dilution, of the money supply charging interest in any form is impossible.

This system worked well until resources and energy constraints forced the end of growth; but fear not, the new system is on its way. Start saving your carbon credits.

[jtabeb]

Re: Wealth Distribution

Thanks, JT. That makes sense -- it's what I thought you meant. I like the ideas you proposed.

The lender isn't charging "interest on interest" to the individual borrower, but the lender's investment does compound across subsequent loans when he lends not only the principal from the first loan, but also the 'linear' interest. In that respect, it seems like there might still be potential for lenders to end up owning all the chips on the table.

If you mean that they acquire a profit with which to expand their capital base, OF COURSE! That is the way it should be, right?

If you are a successful business and you have a growing market, should you not be able to expand using the profits of the previously generated revenue. You you should, it's called self-financing.

A bank in the "ladder" world above makes a profit that adds to it's capital base which can then be used to seek further profit. The difference is capital is something you HAVE, credit is something you CREATE!

My whole point is (using the ladder analogy) is:
If I make enough off of renting ladders and there is still unmet demand, it seems it would be wise to use some of the profits to get more ladders, so that I can in turn rent these out as well.

The DIFFERENCE (and this is key) is that a ladder vendor can't rent what he doesn't HAVE. Banks CAN (in our current system). I'm saying the banks need to be like the ladder vendor. You can't rent what you don't have. Phantom ladders should be as unacceptable as phantom money (credit). Let's replace phantom ladders (credit) with real ladders (capital, NOT CREDIT).

Make sense?

[jtabeb]

Re: Wealth Distribution

This is only a problem when new debt doesn't produce economic expansion. Without the expansion, and hence dilution, of the money supply charging interest in any form is impossible.

This system worked well until resources and energy constraints forced the end of growth; but fear not, the new system is on its way. Start saving your carbon credits.

You may be correct, FIAT Capitalism is designed for GROWTH (inflation). The Carbon Credit system is designed for SCARCITY (deflation, de-industrialization, physical resource constraints).

I guess it's really a question about if the proles will tolerate having the same players who made all the money on the way up (while obtaining all the power in the process), now dictate how the proles have to live their lives on the way down. The players won't have to change THEIR lifestyles, only the proles will. I wonder out loud if people are going to voluntarily accept that arrangement.

"Sorry, we screwed all of you over, but now YOU all need to sacrifice because we have no other choice."
"We of course, must maintain our life styles so that we can adequately manage the crisis, err.. I mean recovery"
"I know it's unfair, but it just has to be this way. We are the only ones capable of making these decisions for you. After all, look at all those idiot homeowners who took huge loans on over priced houses and the investors that purchased these worthless securities. Do you really WANT THEM making the choices on how to run things?"

"Don't worry, we will fix everything and you will be taken care of, as long as you do what we tell you and do not question anything that we say."

"As a reward for saving all of you from this disaster, we are going to pay ourselves 35% of world GDP, okay?"

"I know it seems unfair that .0001% of the world's population be paid 35% of the world's annual production, but carbon management is dirty business, you have to have know how, you have to be ruthless, you have to have no morals, err... You have to have know how! And who has better know how than WE THE PEOPLE who got you into this situation in the first place? "

"That's not okay? Well, I suspect that you have just threatened that National Security of the United States of America with that remark!"

"You will be remanded to GITMO or the most suitable domestic re-education center (which ever produces the lowest carbon footprint) and we are hence forth PERMANENTLY revoking all carbon credits issued to You, Your Family, anyone that you have ever had any contact with what so ever. Let this be a lesson to all you other proles out there that DARE to question the wisdom or legitimacy of the glorious carbon credit economic revival!"


As for myself, what can I say...

"I, for one, welcome our new squid overlords"



I think I will go throw up now, get drunk, and then throw up some more. (All while eating as much SALT as I can stand).


OR....

I could just go and convince everyone to buy physical gold and silver and put these MF's out of business for good.

Hmm, what is the moral choice? Which one leads to a positive outcome? Which one drills these people where it hurts the most, their wallets?

Oh, okay then.

I'm back to rant and raving about getting everyone and their dog to go buy physical gold and silver.

Pheeeww, I feel much better now knowing that there are active steps that we can all take to prevent this from happening, WHAT a RELIEF!

(Hope you all get the message)

V/R

JT

[Rajiv]

Re: Wealth Distribution

JT,

Did you read the Kennedy articles. They are good easy reads.

[ThePythonicCow]

Re: Wealth Distribution

Oh dear. I'm afraid we're having a failure to communicate that is larger than is likely to be resolved here. Being resolute a stubborn cow, I'll give it another go even still.

But that's my point, this [principle is not repaid] doesn't define default.

Ah - when you said "principle is not repaid" you meant "principle is not paid down during the course of periodic payments." But you didn't say that condition. You just said "not repaid." I took that to mean unconditionally, never ever, in a million years, repaid. Your neighbor takes that ladder you lent him and smelts it down for the scrap aluminum. You are never getting that ladder back. That is a default.

My bad. I read what you wrote, not what you meant ;).

All of these amortizations produce a compounding debt load. I don't see where you can disagree with that.

Well, perhaps you don't see how I can disagree, but (in my immodest view) I have disagreed repeatedly and quite persuasively. Something is amiss in our communication here.

In all cases paying the minimum payment contractually due yields total payments that are at least 2 (if not 3 or four times) the original amount borrowed.

And again this is precisely my point.

That, sir, is not necessarily compounding. I once rented a simple hand truck from a local shop for $15 per day. I kept it a week, so owed $105 rental on return. The next week I found that very model available for purchase at the local Home Depot for $70. What I paid in rent was more than the value of what I borrowed, but not due to any compounding, just due to a price structure that was not particularly favorable to my interests.

I have repeatedly stated what "compounding" means. Compounding is paying interest not just on the principle, but on (still due) interest itself. From the very first sentence of Compound interest (Wikipedia):

Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest.

Apparently you take the word "compounding" to mean "getting bigger, perhaps even bigger than the original principle."

That, sir, is not the definition of "compounding" in my book.

This is not to deny that we have a problem...

Most of the debt in this country is UNPAYABLE because it is ONLY serviceable with the ZIRP facilitated by the FED AND because min payments are so low.

ANYTHING in that equation changes, and it becomes readily obvious that we are in the final stages of a Ponzi Finance system. (You can't even afford to roll over the debt).
...
But the point is these things ALREADY happened, we are already at the ponzi state of finance. And once you have crossed that threshold, you don't go back to sound finance, you collapse. Just like every ponzi scheme is destined to do.

I agree.

If you allow something to be possible, there is a chance it will happen. We should not be willing to allow to possibly occur in the future. The only way to do this is to make such an outcome IMPOSSIBLE, by design.

I'll say, you do have a penchant for strong solutions.

I trust you don't allow your family to fly or travel on the public highways ... one never knows what might happen out there :rolleyes:.

In my view, the iron (golden) confines of solid gold backed money, allowing no usury, just trades one set of problems for another. But I need not argue that point too strenuously, as I see no particular risk of such a solution being tried anytime soon.

Gerald Ford once said to Congress:

A government big enough to give you everything you want is a government big enough to take from you everything you have

I would suggest that a monetary system rigid enough to allow no financial failure is one rigid enough to deny much financial success.

P.S. -- On further rereading, it occurs to me that you are using the word "compounding" in its more generic sense to mean "increasing" whereas I have been using it in its more technical sense specific to paying debt interest on unpaid debt interest. I see you used the phrase "compounding debt load", which I would not even say, given that the meaning of "compounding" I've been using.

[jtabeb]

Re: Wealth Distribution

JT,

Did you read the Kennedy articles. They are good easy reads.

Not yet, but I did skim the graphs. ( I hear ya bro, esp on exponential growth vs linear growth vs plateau ).

Linear growth may not be possible in a resource contrained environement.

[radon]

Re: Wealth Distribution

Not yet, but I did skim the graphs. ( I hear ya bro, esp on exponential growth vs linear growth vs plateau ).

Linear growth may not be possible in a resource contrained environement.

You could go even further and say that growth cannot continue indefinitely in a finite environment. This raises the question of what people could possibly mean when they mention "sustainable growth" as, clearly, there is no such entity. People who are hoping for a sigmoid may not be pleased with what typically happens to populations when their resources are exhausted.

[jtabeb]

Re: Wealth Distribution

Okay, I give. I agree with your techincal definiton of compounding. (It's easy to have a disagreement when you are using different definitions, I think that happens more in these time shifted discussions we have on message boards, they are cleared up very quickly in real-time discussions)

But as to the other point about system design, I don't want to make failure impossible, I want to limit the effects of failure so that it does not result in catastrophe. The concept (aside my hyperbole) is one of limiting the size of potential failure to a sub critial thereshold so that you don't achieve a self-reinforcing cascade effect. And I honestly don't think that that reduces anyone's ability to succeed AND thrive (except for our friends, the financial terrorists at the BIG 6 TBTF banks). And Frankly, I don't really Give a SH!T if it reduces their ability to fleece people. They have robbed three generations of wealth from this country, and that is too much already.

There is a middle path between old standards of financial probity and modern technology that I think offer the best solution to the problem.

If you notice I DON'T advocate for a "Gold-Standard", I advocate for the FREEGOLD concept.

Lot's of info here (and it makes a hell of alot of sense to me).
http://fofoa.blogspot.com/

Bottom line (about freegold) is currency sucks for saving but is good for spending. Let money have a divorce and let physical PM's do the savings lifting (the preservation of purchasing power function of money) and let GOVERNMENT ISSUED currency (digital or otherwise) do the lifting as a transactional medium of exchange. (Notice I didn't say private credit either, back to the ladder example: is it fair to allow people to charge rent for something that they can create costlessly and in unlimited supply? I'm gonna argue, umm, NO!) The government can AND SHOULD maintain this privilege, it is the government's soverign duty and responsibility to do this wisely and the benefits go into the governments coffers for use to support it's operation and improve our economic and physical infrastructure.

[Rajiv]

Re: Wealth Distribution

You could go even further and say that growth cannot continue indefinitely in a finite environment. This raises the question of what people could possibly mean when they mention "sustainable growth" as, clearly, there is no such entity. People who are hoping for a sigmoid may not be pleased with what typically happens to populations when their resources are exhausted.

As discussed in this thread - Growth isn't Possible

As for the populations here is a disturbing image from that discussion

[ThePythonicCow]

Re: Wealth Distribution

There is a middle path between old standards of financial probity and modern technology that I think offer the best solution to the problem.

I'll agree to that. I'm not so clear what that middle path is, but my intuitions are not yet well enough formed on that matter to guide my learning. I'm still poking at this half dead carcass with my stick, trying to figure out what it is and to avoid getting harmed too much by it.

[ThePythonicCow]

Re: Wealth Distribution

If you notice I DON'T advocate for a "Gold-Standard", I advocate for the FREEGOLD concept.

Lot's of info here (and it makes a hell of alot of sense to me).
http://fofoa.blogspot.com/

The FOFOA page at http://fofoa.blogspot.com/2009/07/bo...-freegold.html describes this well. Thanks. Interesting.

[yernamehear]

Re: Wealth Distribution

"The dangers of credit default swaps on leveraged derivatives of tranches of securitized sub-prime option-ARM mortgages (or whatever that crap is :rolleyes have apparently exceeded the mastery of human civilizations finest."

That has to be the best description of this little adventure I have seen.