That puts every âhomeownerâ on the hook for 5% mortgage interest for the next 30 years. It shifts an immense amount of wealth from the masses into the financial and real estate sectors. It isnât that the government wants homeownership. The financial industry pushes the government to incentivize purchases to secure âtheirâ interest, rents, and an ever-inflated asset class that promises greater rents in the future. The financial and real estate sectors are also the ones pushing to lower taxes on real estate, which makes more income available for mortgage interest at the expense of social programs depending on that tax basis.
Discussion
But if I was able to get a fixed mortgage rate below 3%, then Iâm now winning and the bank holding that debt is losing given higher rates. How do you square that?
Theyâre not borrowing that money to buy you that house. Most money is loaned into existence by private institutions. It isnât printed. Youâre paying them 3%/yearâŚsay $9,000 of your work energy⌠which is real value. Theyâre adding a $9,000 credit to their balance sheet entitled âSquirrelMasterâs real work energyâ, which can be redeemedâŚfor your house. On the debit side, they loan you money out of thin air. A loan in fiat currency is a trade: one manâs labor for one institutionâsâŚpromise. They make loans off of depositorsâ holdings, but theyâre allowed to leverage those deposits and lend out almost 100x of their real assets. The myth of an IOU is that it is always goodâŚbut debts that cannot be paid, wonât. Itâs musical chairs over and over again. It works as long as the music is playing, but the cyclical nature of finance capitalism that has replaced industrial capitalism, will devastate common people every 8-12 yearsâŚas long as it exists. People will default, lose their assets. Banks will demand bailoutsâŚwhich is tax payersâ future purchasing power. People will lose their work energy which the FIAT (finance, insurance, real estate) sectors encouraged them to leverage because âbuying a house is the American dream.â
My dream is not to be enslaved by a system of musical chairs, and to not trade my time for a promise that by design, can either impoverish me or my fellow man
The goal of the FIAT industries is to shift an ever larger percentage of the peoplesâ income into rents: home insurance, mortgage interest, realtor fees, construction costs, inspection fees, etc. As long as the people believe that real estate âalways go up,â itâs easy to encourage them to drink from the well of ever-indebtedness. The virtue of home ownership is key, and an ever-explaining money supply is key. There was a time that a man could buy a house for 2-yearâs labor, and still eat. Now heâs on the hook for 30-40 years and is buying his house 2-3 times. This is debt peonage, and Karl Marx, Adam Smith, JS Mill, Bertrand Russell, Noam Chomsky, and Sheldon Wolin all said (in different ways) that debt peonage is slavery. The difference is, that the masses are aware of slavery and so they fight it.
Interesting, but cheap borrowing advantages the borrower (if they have the cash flow to service the debt). Do you believe that all debt is bad or just debt created through fractional reserve?
If you have to play your masterâs game, by all means play to the best of your ability. If you need to borrow, go for cheaper money.
The structure of debt has been altered from its of original form, to the advantage of the finance industry. The natural state of things is for a lender to make a loan based on his understanding of the likelihood that a borrow will pay it back. If they made a loan to someone who couldnât make the payments, it was a bad loan. Default ensued and it was the bankâs loss. There was a risk to both sides of the contract. The natural rate of interest that covered such default risk was around 6%.
But now, loans are a one-sided risk. 1. Because 90% of loans are made on real assets (property) and are no longer made for business ventures, there is always an asset for the bank to redeem.
2. Debtors prisons are a real thing, and the possibility of imprisonment alters the mathematics of a potential debtor who cannot pay a loanâperhaps heâll sell his child into slavery instead of defaulting on a bad loan.
3. Banks have written their own laws to make default impossible for some loans. If a graduate cannot pay 7% on her student loans, too bad. A 200k loan for a cooking degree would have been considered a bad loan in any other generation. The banks know it cannot be paid back. But now default is impossible.
4. Large default is no longer absorbed by the banks who are responsible for their poor business decision. Obama made it clear in â08 that losses would be passed on to taxpayers.
Even low interest rates are far higher than are needed to cover a loan that has no counterparty risk. 3% seems like a deal only because 18% credit card loans exist. A reversion to fair lending practices must happen, but will never happen so long as the banks write their own anti-default laws.
Most important is the success that the finance industry has had in convincing the populous that prompt debt repayment is next to Godliness. Never before was virtue tied up with debt repayment. But now, people are expected to impoverish themselves, eat twinkies, live in boxes, and sell kidneys to repay debts. A debt that canât be repaid, historically wonât. And it shouldnât. Excessive interest is usury, and excessive charges from monopolies that corner people into participating with a one-sided loan, are unjust.
If you default on a loan, perhaps youâre a creep. But perhaps you canât repay it. And if you canât repay it, it was a bad loan and a bad business move by the bank.
âCheap borrowing advantages the borrower.â
Not really. The fact that money is cheap means that everybody has already borrowed on the real assets that you desire. Prices are inflated on houses not as a virtue of their productiveness, but because of available money. Paying 6% interest to borrow on a house that was worth 2 years of your income in 1950, has now transitioned into borrowing at 3% on a house that is worth 12 years of income. Youâre paying far far more in interest because youâre playing with an asset class that is massively inflated because of those aggressive loans, because of the myth of necessary home ownership, because of the impossibility of bank default due to bailouts, and because of the belief that prices will always rise.
So what would be an acceptable interest rate in your view? That wouldnât be considered usury
I think you start with a return to traditional lending models, and the natural interest rate will reappear.
1. Encourage lending for productive purposes instead of just on real estate
2. No loans that cannot follow you after bankruptcy
3. No debtor prisons
4. Remove the belief that repayment is virtuous
5. Hold banks accountable for loans they make
6. Let banks fail if they make bad loans
7. Hold executive boards responsible for targeted lending
8. Reenact anti-usury laws
9. Donât have a money system that inflates perpetually
With these things in place, good loans will be repaid, and bad loans will now. Banks who act antisocially will suffer for it. Asset classes that people need (houses) will return to more accessible pricing.