[P2P-F] [P2P Foundation] New Comment On: BIBO - A Standard for Stable Currencies

[Roberto Verzola]

On the BIBO debate:

In addition to the sustainability issue, may I also point out a social
justice issue: a privileged section of the population (bankers) are
allowed to create *money out of nothing* temporarily, and then, from
that conjured fund, earn interest which is permanently theirs. An
ordinary citizen like me is not allowed to conjure such money, lend it
to a bank as deposit, then close the deposit after a year, destroy the
conjured money, but keep the interest for myself as real cash. (Indeed,
why should I destroy it? I would deposit it again!). That is why bankers
who resort to fraud to make even *more* money are truly greedy -- they
are not satisfied with this super-special privilege they already have to
earn interest out of conjured money.

On Ardeshir's point that "loans are NEVER issued for unlimited amounts
of time":

Banks do open credit lines to favored/established customers, who do not
have to apply for new loans, pay them fully over time, reapply again,
etc.  Since these credit lines do not have a fixed time period, they are
in effect loans for indefinite duration, and as long as the bank is in
business, and the borrower remains in good standing, the latter will be
paying interest indefinitely on the average level of credit that he is
using.

Roberto


P2P Foundation wrote:
> There is a new comment on the post "BIBO - A Standard for Stable Currencies". 
> http://blog.p2pfoundation.net/bibo-a-standard-for-stable-currencies/2009/12/03
>
> Author: Ardeshir Mehta
> Comment:
> Sepp writes, on January 29th, 2011 at 10:18 am:
>
> [QUOTE]
>
> Ardeshir wrote:
>
> <i>"Don’t get me wrong: I am against interest. But the argumentthat interest NECESSARILY and INEVITABLY causes instability is clearly incorrect."</i>
>
> What causes instability in the current system, in my view, is the fact that a large part of all extant money (up to 90 %) is being created on anongoing basis by commercial banks as they grant loans to customers. Those loans are burdened with interest, and thus the majority of the money weuse to mediate economic interactions is by the nature of its creation burdened with interest. Thus the majority of our economic interactions are only made possible if we consent to pay interest for the money needed to mediate them. THAT is the source of instability in the current financial/economic system, not the mere fact that interest exists.
>
> As a matter of fact, Marc argues in his paper that CURRENT LENDING PRACTICES are unstable, and he proves that statement by calculating the interest on money loaned. He never said – as far as I know – that interest NECESSARILY and INEVITABLY causes instability.
>
> Ardeshir seems to be attempting to shoot down a strawman’s argument that he himself put up.
>
> [END QUOTE]
>
> I should have been more clear. Marc claims that current lending practices are inherently unstable, AND that they are unstable due to the presence of INTEREST (for, as I understand Marc's argument, if interest were abolished, even current lending practices would not be unstable). And he claims that the instability results from the fact that INTEREST is unbounded: that is, approaches infinity. My argument against Marc's position is that current lending practices, even WITH INTEREST, are not inherently unstable in PRACTICE, because in PRACTICE, even according to common lending practices, loans are NEVER issued for unlimited amounts of time; and thus the interest on them never grows towards infinity. In other words, there is a limit after which, in PRACTICE, interest does NOT grow. Thus what I am saying is that Marc's thesis is altogether theoretical; it does not apply to what happens in PRACTICE.
>
> Also, as I understand Marc's thesis, the problem he identifies has nothing to do with debt *per se*. As I understand Marc's thesis, as long as interest is abolished, growing debt would not be a problem; nor would money created exclusively as debt be a problem. I myself don't agree that debt is not a problem as long as interest is abolished, nor that money created exclusively as debt is not a problem; and I have written a paper on the subject which can be found on line at 
>
> http://homepage.mac.com/ardeshir/Debt-FreeMoneyIsBetterThanDebt-BasedMoney.html
>
> Best wishes.
>
> See all comments on this post here:
> http://blog.p2pfoundation.net/bibo-a-standard-for-stable-currencies/2009/12/03#comments
>
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