MetaFilter posts tagged with credit and Debt

free as in beer money

kliuless — Fri, 25 Sep 2009 03:33:40 -0800

Illustrating the cause of, and solution to, too much debt: *ahem*

In a sleepy European holiday resort town in a depressed economy and therefore no visitors, there is great excitement when a wealthy Russian guest appears in the local hotel reception, announces that he intends to stay for an extended period and places a €100 note on the counter as surety while he demands to be shown the available rooms. While he is being shown the room, the hotelier takes the €100 note round to his butcher, who is pressing for payment. The butcher in turn pays his wholesaler who, in turn, pays his farmer supplier. The farmer takes the note round to his favourite “good time girl” to whom he owes €100 for services rendered. She, in turn, rushes round to the hotel to settle her bill for rooms provided on credit. In the meantime, the Russian returns to the lobby, announces that no rooms are satisfactory, takes back his €100 note and leaves, never to be seen again. No new money has been introduced into the local economy, but everyone’s debts have been settled.

which leads us to The Future of Global Finance by liaquat ahamed:

It has long been recognized that the global financial structure — built as it is around the dollar as the world’s reserve currency — has a fundamental design flaw that makes it inherently unstable. The problem was first identified back in the early 1960s by the Belgian-American economist Robert Triffin, in “Gold and the Dollar Crisis.” Writing about Europe’s accumulation of dollars, he argued that the system carried the seeds of its own destruction. Foreigners could acquire dollars only if the United States ran current account deficits — that is, spent more than it earned. But lending money to someone who lives beyond his means has obvious dangers, and the same is true of countries. Thus, the American deficits necessary to supply dollars to the world for international transactions simultaneously undermined confidence in the currency. It was only a matter of time, Triffin predicted, before the system would be hit by a crisis...

note this isn't about the crisis just past so much as it is the perpetuation of a system -- prone to boom and bust -- requiring ever greater ~~innovation~~ swathes of the world's population going into debt (servitude). as bsetser writes: "borrowing by U.S. households cannot be the main source of global demand growth in the future." it just so happens that it was borrowed in a currency that the federal reserve can print and that the rest of the world has bought into (predicated implicitly upon future productivity...) so i've been reading God and Gold by walter russell mead [a favourite of SDB] and was struck by the passages on the legacy of the bank of england:

Britain fought a series of wars with France for a century and a quarter. France was a far larger and wealthier foe - the strongest power on the continent. The conflicts repeatedly left France financially exhausted and bankrupt. Britain's debts mounted astronomically as we have seen, but Britain went from one peak of economic and financial strength to ever higher peaks after each conflict. The secret financial weapon was public credit and the Bank of England which managed the debt. A million pounds were borrowed in 1692 to fight the French. By the time Louis XIV died, the debt was over 50£ million. The War of the Austrian Succession pushed the debt to 140£ million. It was almost 250£ million by the end of the wars that included the American Revolution, and 800£ million by the time Napoleon was safely ensconced on St. Helena. These were HUGE sums. They have been calculated as 222% of GDP after the American Revolution, and 268% of GDP at their peak in 1822. Mead explains how the Bank helped finance these wars. It sold government bonds that became assets in private hands and facilitated the development of the financial system that aided commerce. Influential people came to rely on government bonds and Bank notes and Bank shares for income and liquid wealth. The nation's civil and business leaders thus quickly had a stake in the success of the new monarch, William III, who had recently chased James II from the throne. "Government debt, historically a source of weakness, had been transformed into an instrument of strength." Alexander Hamilton copied the English financial system, and the young United States enjoyed similar financial and economic success.

now, not everyone was happy, but it's worked more or less over the centuries and, depending on how you're counting, we're apparently on version 3.0 (BW2 edition) of central bank mediated finance. yet while obama seems unable to, as schama puts it, "make – as American history yearns for him to do – money moral again," perhaps mead is on to something when he concludes that...

Lula is right: the global crisis emerged from a system built, with all its many flaws, by blue-eyed palefaces. But if countries like Brazil can stick with their own versions of Dutch finance, the future of the system will increasingly be shaped by people who look more like Lula—and the palefaces are going to have to run hard to keep up.

afterall, as lula sez, "when my presidency ends, I will go back to my home industrial city town, 800 meters from my local trade union that projected me my political life. And if I fail, when I go back to my hometown, it's going to take another century for another worker, another member of the working class to reach the presidency, because they're going to say that the workers do not have the competency to run a country."

Debt, slavery, and violence in history

languagehat — Sun, 23 Aug 2009 07:31:45 -0800

Debt: The first five thousand years. Anarchist anthropologist David Graeber (previously) writes about "debt and debt money in human history" in Eurozine. Lots of thought-provoking stuff here; I'll put a sample in the extended description. (Via wood s lot.)

Commodity money, particularly in the form of gold and silver, is distinguished from credit money most of all by one spectacular feature: it can be stolen. Since an ingot of gold or silver is an object without a pedigree, throughout much of history bullion has served the same role as the contemporary drug dealer's suitcase full of dollar bills, as an object without a history that will be accepted in exchange for other valuables just about anywhere, with no questions asked. As a result, one can see the last 5 000 years of human history as the history of a kind of alternation. Credit systems seem to arise, and to become dominant, in periods of relative social peace, across networks of trust, whether created by states or, in most periods, transnational institutions, whilst precious metals replace them in periods characterised by widespread plunder. Predatory lending systems certainly exist at every period, but they seem to have had the most damaging effects in periods when money was most easily convertible into cash.

Should the Government Give You a Credit Card?

emjaybee — Mon, 25 May 2009 12:48:17 -0800

"In fact, while transactional credit provision is a perfectly good business, it might be reasonable for the state to offer basic transactional credit as a public good." Blogger Steve Randy Waldman has an idea that's so crazy it might work. He buried it in a nice wonky, obscure post about transactional and revolving credit, but now has been linked by Ezra Klein at his new WaPo blog. Will Metafilter heads explode?

You have to be rich to be poor

desjardins — Tue, 19 May 2009 08:38:57 -0800

The High Cost of Poverty : The Washington Post explores why the cost of living is proportionately higher in poor areas. Double Jeopardy: Why the Poor Pay More (pdf): a report on payday loans, the cost of homeownership, medical debt, and banking in poor communities.

For anything but privacy, there's MasterCard

trondant — Thu, 02 Mar 2006 21:52:14 -0800

DHS monitors your credit card payments. (via)

Export Credit Agencies--The Secret Engine of Globalization

faux ami — Fri, 26 Nov 2004 12:16:01 -0800

Worse Than the World Bank? Export Credit Agencies--The Secret Engine of Globalization The amount of investment that export credit agencies (ECA) support worldwide is significantly greater than the total amount of lending from the World Bank, IMF and all other multilateral institutions combined. ECA's account for the single biggest component of developing country debt and half of all new greenhouse gas-emitting industrial projects in developing countries have some sort of ECA support. Investments in places like Guatemala, South Africa, Pakistan, Chile [PDF], have had unacceptable social, environmental and economic consequences. Administered or backed by a g o v e r n m e n t, an ECA uses taxpayer money to make it cheaper and less risky for domestic corporations to export or invest overseas. ECAs privatize the profit and socialize the risk while negatively impacting indigenous cultures and enironments, all with little or no governmental oversight or public awareness of the matter. So what can we do about it? [PDF]

Miss a Payment, Triple Your Interest Rate

archimago — Tue, 14 Oct 2003 08:13:15 -0800

Americans are not going broke over lattes! Salon (warning: ad click-through required) interviews the author of a book who contends that American middle class overconsumption is a myth. This made me really think about how I relate to my $$$, and what I think is pushing me deeper into a hole. According to this author, kids are forcing people into bankruptcy, and it's not because we buy them gameboys and expensive clothes. The author also claims that credit card companies and mortgage lenders need to be regulated by the govt., as they are feeding off of middle class hardships. It's also making me wonder why real estate developers aren't building small homes anymore, at least in my state of the union.

mathowie — Wed, 20 Jun 2001 10:23:14 -0800

Currently, consumer personal debt is at an all time high, and at the same time we're being inundated with ads asking us to "live richly" and pay for all those "priceless" moments with credit. Credit card companies have maintained a steady stream of advertising that focuses on living in the now, and worrying about the consequences later. Without discounting personal responsibility, should credit card companies be left to advertise their message unfettered, or does anyone think they are too good and perhaps somewhat responsible for the high consumer debt levels?