Money has main reasons: 1. Medium of exchange (better implementation of barter) 2. Store of value. Current banking system: 1. charges propertionally to loan value. It should be replaced with something of a fiixed cost. If you borrow more, you pay less (propertional to the work the bank does to deal with your loan, and not simply a difference). You do not have that in current system. 2. Fractional banking (even infinite banking (if run by governement) is important as a gearing for expansing. 3. Indeed if different between lending and borrowing costs of banks widen, the money taken in which is greater than the labor needed by banks to manage/process/etc loans, then this leads to an eating up of labor done in other areas. As this is not productive, it will later show up as if someone just printed money and put it in the system. Labor is the only thing that produces wealth.
If everyone switched to a barter system everything would start right back up. If there was a trusted organization to appraise assets, credit ratings and give zero percent term loans the economy would start right back up. They would also need to be able to enforce the loans through asset seizure just like banks now.
".....These nations aren't going to lend at 0% because they will expect something for their opportunity cost of not investing in their own nation. Since the g-ment is lending to me at 0% but still must pay a premium to the foreign nation, they must then tax the people to raise the extra cash. So the interest that I should've been paying is replaced by tax and everyone pays it." Japan has been lending to other at 0% (or close) to other. Therefore you explanation is already wrong under the current system. I think that the source of mistakes in your analysis is that you view interest (its positive (+) sign) as the only way to price opportunity cost. Opportunity cost could also be priced in term of change of the price of currency, and in terms of interest rate you can have not only zero interest rate, but negative interest rate and still price opportunity cost correctly.
There is no borrowing of foreign credit it would just be a way to regulate a barter system. Japan is most likely choking up the supply of the %0.4 percent loans otherwise they would see significant growth in production. Their inflation is at %0 right now so they are only lending to the select few who have top credit ratings.
Insightful post. Fractional Reserve Banking and Debt-based money is parasitic by its very nature. Ever dollar minted is debt. So money supply must grow commensurate with interest payments or the System collapses. This is why we have inflation. To keep debt payments serviceable. In reality, this is stupid. There is no need to borrow something thats created freely. Further, if all debt was paid back, under the current system, there would be no money supply and the economy would collapse. Debt is money supply. And money supply is debt. So what the Great Scammers bestowed on this Country is a life of financial servitude in perpetuity that ends in cataclysmic bankruptcy. Debt cannot be paid back. It can only earn interest. And that debt (which earns interest) must grow every year to accommodate economic growth. The whole scam will eventually bankrupt the entire Country and all assets will be forfeited to FED MEMBER BANKS. Heres a simple example to illustrate: Every dollar minted costs 3% interest TO CARRY, per year. Lets assume our GDP starts at 100$ per year and grows at 3% per year. Year 1: 100 x 1.03 = 3$ interest. Year 2: 100 x 1.03 = 3$ interest ..............103 x 1.03 = 3.09 interest Year 3: 100 x 1.03 = 3$ interest .............103 x 1.03 = 3.09$ interest .............107 x 1.03 = 3.21$ interest See whats happening here? Each year, the money supply (aka debt) is only *serviced*, not paid in back full. So by the end of year 3, the interest payments on each years cumulative and ongoing debt is now 8.6% of GDP. Not 3% from which we originally started. Taken to its logically conclusion, the eventuality is debt-service payments on M3 money printed from nothing or borrowed from foreigners will eventually cost the United States 100% of its GDP. This is also why Income Tax has continued its rapid ascent since 1913 and will never come down. To accommodate the unstoppable ballooning of interest payments that must be made on the ever increasing money supply. Money supply which is 100% debt-based. This is the scam. It doesn't matter if FED Funds average rate is 1%. Sooner or later, the entire COUNTRY will be the property of BANKSTERS because the interest on all that paper created since 1913 only accumulates. The principle is NEVER paid back. Its a mathematical certainty. And very, very fucked up.
You are missing one function. And perhaps we should start with some simple questions: What is economy? What is wealth? How can wealth be created?
If we had a barter system without any form of interest payment, there would be no incentive to loan. You need to go to school and learn how to think a little more three dimensionally in your analysis (or like i said before, get off the pot).
We as a a society have an incentive to create an efficient barter system. We as a society would have a government (who works for us) regulated barter agency that makes sure the barter dollars mean something by enforcing asset seizures and possibly charges depending on severity (if fraudulent). In effect a %0 loan. So you are right no one else would have an incentive but we definitely do. Most likely the only things that would change would be that the boom bust recession depression cycles would no longer exist. There would be big business and they would compete through efficiencies. Everything else would remain the same with a very increased quality of life. We would probably be amazed at the efficiencies that have been found in the last 60 years that have been eaten by our soaring interest debt.
Question I have - for any econ guys - are the market fundamentalists / austrian school guys right that market determined interest rates are 1)better, 2)won't cause boom/bust cycles? As opposed to centrally controlled rates ala central banks.