On Thu, 09 Oct 2008, Keith Hudson <[EMAIL PROTECTED]> wrote: >Pete, > >At 14:26 08/10/2008 -0700, you wrote: > > >On Wed, 08 Oct 2008, Keith Hudson <[EMAIL PROTECTED]> wrote: > > > > >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. > >>What you are describing here is simply the protocols of a single >>universal lending regime. What I am talking about is more lenient >>lending terms for economically depressed areas, which is the opposite >>of the effect which results from the regime you describe here - >>depressed areas are preceived as higher risk, so they face _higher_ >>lending rates than boom regions, under a universal system. What is >>required to prevent enhancing economic hardship for depressed areas is >>a regional overall adjustment to the lending regime: all the >>computations you describe would still hold sway, to allow appropriate >>pro-rating of interest rates based on relative risk, but all this >>would be based on a less onerous base rate, reflecting the depressed >>economic climate of the region. I have never seen this concept applied >>within a single currency. With a separate regional currency, the >>effects on relative value computed by the bean counters manifest as a >>change in the exchange rate of the regional currency, but at least >>within the region its currency (with its own interest rate structure) >>allows a continuation of much more vigourous economic activity than >>would be possible facing the lending regime of a broader currency >>based mainly in more affluent and booming regions. >> >>-Pete > >I appreciate your concern about economically distressed regions and, of >course, the sort of universal currency that I think ought to be (and >will be) brought into existence sooner or later, will do nothing for >these specifically. But, if anybody's, this is a government's job not a >bank's. And even governments can do little when a region loses its >former prosperity. For example, in this country both Tory and Labour >governments have been trying all sorts of ways for the past 50 years to >help northern England but to no avail. There is still a large disparity >in incomes between north and south and, in fact, it has been growing >rather than declining in the last ten years of a Labour government. >Despite much cheaper costs of living, and land and property costs in >the north which ought to help entrepreneurs set up new businesses, the >more talented of the young decide to go down south. > >Keith Yes, all large enough jurisdictions with a single currency and a single lending regime will develop depressed regions, due to both real and perceived disparities. In all these cases, the depressed areas would have, to some degree, a better economic environment if they were buffered by a separate currency, simply as a mechanism for providing a distinct lending environment somewhat insulated from the larger currency. In that sense, being subjected to the broader currency enhances the financial hardship of these depressed regions. Noting how this happens now, within the relatively limited size of country regions currently administered by single currencies, my point is that with a universal currency, the oppression of lending regime logic will result in much greater financial hardship for depressed areas - if a country as a whole is doing fairly poorly in the world market, imagine how badly a depressed area (relatively to the rest of that country) will fare when it must conduct its financing with the lending regime of a universal currency, whose interest rates and risk assessments are based primarily on the performance of the most currently successful regions, which will necessarily represent the bulk of their business. Without the buffering of an independent currency, I contend that such regions will do much worse under a universal currency regime. I cannot see how individual bank franchises can ameliorate such an effect, when such banks will have to fend in the universal currency regime. It may be that some sort of regulatory framework could be brought forward to provide such buffering, but I don't see how it would work, nor do I foresee such a framework being implemented over the objections of the doubtlessly unenthusiastic financial community. -Pete _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
