"R. A. Hettinga" wrote: > At 6:03 PM -0700 on 5/11/02, Eric Cordian wrote: > > > The reason we have ready availability of credit in the first place > > is because consumer debt is the most profitable business in the > > United States.
What are the margins on consumer debt? Isn't it all securitized, thus efficient? > I really wonder what component of this market is actually payment > driven. After all, to easily buy *anything* over, say, $100 right > now, you have to borrow money, use a credit card, to do it. Well, all of it, if you are talking about costs of doing the payment. The problem with paying for anything over $100 is having the money with you at that time. Most purchases are done at some random future time, and without a credit payment, it would be necessary to take huge amounts of cash with you at all times. This results in costs: forgone interest on ones wealth, risk of seizure, and the mere cost of having to wear clothing with big pockets. A credit token allows you to bring the stored wealth with you; but it's not the only way. If there was pervasive FC, then you would have choice between credit and accrued wealth. You could flip out your palmtop, access your stored stocks in MicroHard, flip it in the market and pay with straight "now" cash. Or you could chose credit. But one could imagine that if you can access your real wealth straight away then a lot of rational people with palmtops with financial modelling on them would calculate the effective price of the two choices (credid v. now-cash flipped from stored wealth t+3) quickly enough to show you that paying with cash was optimal in far more circumstances. > If it were actually cheaper -- and safer -- to use some form of > internet financial cryptography protocol like blind signatures, I > wonder how much of that "consumer debt" market would go away. Not all > of it, obviously, but I do wonder about how much of that number is > purely consumer debt and not just "payment finance", for lack of a > better term.... Rational individuals pay with cash when they can. They stop paying with cash when they run out, as the cost of cash rises rapidly with volume. CC vendors exploit this by offering free credit for a month, thus making one perceive that there is no benefit to using credit, and then, it wins hands down over cash. Providing access to stored wealth in t+3 would redress the balance and provide for a more optimal solution. OTOH, rational companies pay with debt when they can. So it's not as if the world will lose the credit industry just because FC provides us with now-cash. And, I suspect people acting as corporate actors would treat their credit requirements as delivering cash and adding to their total credit equation, as the spectrum between credit and wealth becomes efficient. That is, they might pay with credit, but the credit is provided in cash, and then passed on to the merchant, so the credit provider is unlinked from the purchase. PS: t+3 means trade settlement in 3 seconds. -- iang
