Hi Pete,
To answer your question, variable interest rates of a universal currency
could occur just as they do now within a national currency. A country with
a central bank interest rate of, say, 4% p.a. can also have a spectrum of
other interest rates operating within it (even up to 1,000% p.a. -- as is
the case of Fidelity small loans in this country at present) according to
the credit-worthiness of the borrower and the uses to which the loan is put.
Thus a traditional building society in this country requires evidence of a
mortgagee's income and the deeds of the house being mortgaged -- the latter
not only as collateral but as persuasive evidence of the use to which the
loan is being put. At the other extreme, a loan shark (the local
representative of a much larger firm such as Fidelity in this country)
charging, say, 30-50% interest per week, dealing with a borrower with
little or no collateral, constantly updates his much flimsier evidence. He
usually lives in the same area as the borrower and visits the borrower
every week (usually on payday or, more usually today, benefits day) to
collect repayment.
It's up to the lender to ensure that he has the evidence of
credit-worthiness and borrower's intention and has a continuing level of
supervision that the loan is being carried out according to stated
intention. However, since the rise of securitized mortgages and credit
derivatives, contact with the original borrower or lender respectively may
be any number of indirect steps away. The collateral follows through
legally with the paper documents, but the value of the collateral becomes
vaguer each time the paperwork is bought and sold -- rather like the game
of Chinese Whispers.
Thus today's banks have little idea of the current circumstances affecting
a great deal of the paperwork they possess -- but which they have been
calling assets in their books. This is why the banks are not lending to one
another -- they know that much of their own assets have values which are,
in day-to-day practice, impossible to determine with any degree of
accuracy. Each paperwork trail can only unwind when an original mortgagee
pays off his loan or when an original creditor (or an intermediary) goes
bankrupt.
Today, the present stock exchange crashes all round the world are supposed
to be mainly due to sub-prime securitized mortgages in America but this is
only the visible part of the iceberg. As some of these (only a minority a
year or two ago) began to unwind -- visibly reducing the asset value of
banks -- then a whole lot more financial paperwork started to became suspect.
Whereas only a year or so ago most Western economies were awash with money
(and being absorbed by shares and houses and, simply, wasteful spending) we
are now massively short of it. The stock exchanges will show us in the next
few days whether governments are offering enough to reassure shareholders
of banks and businesses. But this might be like trying to stem a river too
far downstream and the real extent of the suspect paperwork will still not
be known. My guess is that, over the next few weeks, the only way that the
real situation will emerge is by continuing stock exchange slides which
will then unwind many of the paper trails by the brutal process of making
thousands of business bankrupt.
Keith
At 15:13 07/10/2008 -0700, you wrote:
Howdy Keith, welcome back...
On Tue, 07 Oct 2008, Keith Hudson <[EMAIL PROTECTED]> wrote:
> The only other alternative is that a world currency could be
> adopted. This would stop currency speculation for one thing, prevent
> differential national inflations for another, and ensure that interest
> rates in this or that region were truly appropriate to the local
> circumstances and not guess-fixed by central banks for political
> reasons.
>
> And here we have two pointers which could make this politically
> feasible. Firstly, we have a World Bank already. Secondly, the idea of
> a transnational electronically-based currency is also firmly on the
> agenda. We already have PayPal and several other systems which aspire
> to do this.
Hmmm. First, I'm not convinced that things are so dire as to require
such radical measures. And second, though I agree that currency
speculation is an external force which can exert unnecessary hardship
on a region, I would say that a universal currency accompanied
by universal interest rates and borrowing practices (the inevitable
consequence) will exert hardships of their own, and I'm not sure which
would be worse.
Here in Canada we get to see the effects of a universal currency
and borrowing regime spread out over a widely disparate population
in vastly different geographic and economic circumstances, and it
can lead to hardships which seem near impossible to overcome, even
with the benefit of mutual goodwill, common language, etc. Some
parts of the country become "depressed areas" which are stubbornly
difficult to bring along to the economic health of the rest of
the country, due apparently to the combination of lack of obvious
business development prospects combined with relative geographic
inconvenience. I would suggest that on a world scale, the economic
violence done by such a regime would be orders of magnitude worse.
The obvious fix would be to impose a regional variation in interest
rates, but in this country, this has never been done (to my knowledge,
anyway, since the advent of national banks), whether because of the
perceived impossibility of policing the system, hidebound resistance or
lack of imagination, or insufficient daring. Your comment "This
would...ensure that interest rates in this or that region were truly
appropriate to the local circumstances and not guess-fixed by central
banks" seems to imply regional variable interest rates on the
universal currency, so I'm interested to hear how you believe
this can be done.
-Pete V
Keith Hudson,
6 Upper Camden Place, Bath BA1 5HX
(044 1225 311636 or 312622)
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