Gyroscopic Investing

Moda,

Good one doodle... is there some well-thought-out philisophical & operational reason for this?  I think a mix of debt & equity is healthy both for businesses and investors.

Philosophically all of the worlds religions historically forbade usury because it converted people into debt slaves while doing nothing to enrich them or society in general. You could argue that personal consumer loans have converted a huge part of our population into debt slaves enamored by the deceptive notion that they can have whatever they want if they only sign away their life on the dotted line to their credit card overlords.

Operationally I think that there are some benefits to eliminating interest bearing debt.

First, it would remove private banking system control over the money supply which I would think would smooth out the business cycle. You wouldn't have periods of massive expansion of leverage and then a subsequent massive contraction.

Second, you could have a more stable growth of the money supply which would allow for people not to worry as much about the future devaluation of their money. This would allow businesses and individuals to make more accurate projections for the future and improve their ability to invest their money wisely. In a world where money is loaned at interest, the money supply must be constantly expanding in order for there to be enough money in the system to repay principal plus interest. During periods of credit contraction like today, there simply isn't enough money for people to repay debt + interest and therefore a percentage of people will lose their homes, cars, etc.

Generally exponential growth isn't possible forever. Therefore, when you look at the exponential growth of our post gold standard money supply you must ask yourself how long the present system can continue.

1) Money supply growth (see chart below). It took us from 1620 until 1973 to create the first $1trillion of US money stock (measured by adding up every bank account, CD, money market fund, etc). Every road, factory, bridge, school, and house built, together with every war fought and every other economic transaction that ever took place over those first 350 years, resulted in the creation of $1 trillion in money stock.. The most recent $1 trillion? That has been created in only 4.5 months. The dotted line in the chart is an idealized exponential curve, while the solid line is actual monetary data. The fit is nearly perfect (with a correlation of 0.98, for those interested). Data from the Federal Reserve.

Usury is a crime against God because it is charging for time and time is the property of God .

The Tally stick currency used in England from 1100AD was also an interest free fiat monetary system that relied on taxation being payable only in the Tally Sticks in order to ensure that the tally sticks kept value.

I agree with doodle that the business cycle is an artifact of usury. Indebtedness grows exponentially until the debt burden can not be serviced by the productive capacity of the economy so the debt defaults. Rinse and repeat.

I think a lot of those Islamic mortgages and car loans are actually convoluted tricks to try and pretend that usury isn't taking place when in reality it is and they are charging for time and so stealing from God. I think they will have a hard time excusing themselves when the day of judgment comes .

To be honest, house prices would probably be modest and affordable if there wasn't such a push by usurers to get the housing bubble blowing. Car makers would presumably just accept no-interest payment by instalments so as to sell cars if the alternative was fewer sales. I've never taken a car loan but I like have a rubbish car .

Moda, the massive difference between lending for an equity stake and lending for fixed interest is that profits are variable. The "liability" to pay profits does not mount up in a macroeconomic cycle across the economy because if profits don't happen there is no payment to make.

In tally stick times, the two halves of a split tally stick were cut to different lengths. The borrower had the "short end of the stick" and the lender had the "stock". Those longer halves of tally sticks were traded in the "stock market". (this is private tally stick use for equity accounting rather than tally stick currency).

Indebtedness grows exponentially until the debt burden can not be serviced by the productive capacity of the economy so the debt defaults. Rinse and repeat.

Rinse and repeat has a name...it is called a debt jubilee. What about if we rinse and then not repeat?

woah...that money supply chart looks REALLY unsustainable.

methinks when that bubble pops...you'll really want to already have hard assetts? (not GLD)

is fear of the aftermath why HB originally went heavily into gold?

looks like the chart takes off around time of Nixon (closing gold window)

"rinse and repeat"...sounds very sanitary 

murphy,

There are a couple things to consider.

1) What do they count as "money supply?"  Looks like M2 maybe?  Definitely not M0.

2) If inflation is truly too much money chasing too few goods, then there are two other factors that we should ask ourselves about this graph:

  2a) How much more productive capacity (aka, "more goods") have we acquired during this time?

  2b) How much inflation has already incurred?

  If the two add up to about even with the money growth, then I don't see a sustainability problem.

3) If the value of our money supply is truly sustained by our government's power to tax and support a large productive capacity, then maybe our sustainability graph should be made up of other factors such as military might, our court system's perceived legitimacy, the amount of natural resources we have left, or whether other destruction of productive capacity or US clout is likely.

I would agree, though, that any of that "money" that is the form of leveraged deposits that need to be paid back in the future has a sustainability factor to it that is worth considering.

Today is another one of those glorious days when everything was up. How can it get any better than having one's assets totally diversified as in the HBPP and having all of them rise in unison?

Reub wrote: Today is another one of those glorious days when everything was up. How can it get any better than having one's assets totally diversified as in the HBPP and having all of them rise in unison?

I agree, it's quite glorious. I haven't let go of my habit of checking every day, but I honestly don't think it hurts me anymore because I do it out of curiosity more than anything else. There's a feeling of confidence that I didn't have before. Even on down days, I don't panic because I feel like I know why it happened. And on those days, gold usually goes up anyway