The Dean

...how do you encourage lending without offering some reward for the risk taken by lenders?

Quite.

And it's not just 'risk'. Plenty of wealthy people and cash-rich companies borrow money simply to manage a cash flow mismatch.

There's also the time value of money - if I offered you a free gift of one million dollars today or one million dollars next year, which would you choose?

Interest is not merely a 'reward' for lending, it's compensation for being willing to go without the use of the money yourself.

Beard Man

what if 1 million today is less than 1 million a year from now .... example ... because of the economy problem .... money now can buy more than before.

The Dean

Yes - that's what I was saying.

Think you got that the wrong way round, Blackbeard.........

Money is still a commodity, and it has a price. That price is the fee paid for the use of it.............

Beard Man

money is not a commodity.

100 in lended today to give it back after one year with 10 percent increase

the 10 percent is the price for time given to the person to make use of the money.

which is wrong you can not buy or sell time.

lets assume that 100 today can buy 100 banans ... but after one year 100 can only buy 90 banans ... the value of money went down.

that's why they are asking for the interest rate

but what if something happend like today .. and 100 that was able to buy only 100 banans can now buy 110 banans (10 percent more) is the lender willing to get back only (90) rather than (100) because the money value of the (90) is now equal to 100 in the past?

Charismatic

Traditionally currencies don't deflate because governments turns on printing presses, inflation motivates people to invest capital (although not if it gets too high because investors move capital to more attractive markets).
"A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk." - http://en.wikipedia.org/wiki/Commodity

Although you could argue that it's also a debt claim on an asset.

Beard Man

I agree that normaly deflation is not happening but what if it happend??

i am not sure about the commodity thing... but i have this feeling that there is difference between money and commodity.

Charismatic

That's usually when a market correction turns into an economic depression, investors pull their cash and asset prices collapse leading into a cycle which can only be broken by assets being so cheap that the returns outstrip the rate of deflation. We have economies built on debt now, the central bank has no real assets to support the value of currency.

Interestingly the past we had reserves of precious metals we could sell to buy back currency and hence stop it's value from plummeting if the central bank made a greater quantity of currency available, a very useful buffer in times like this. Between 1999 and 2002, against the advice of the Bank of England, Gordon Brown sold 60% of the gold bullion at a 20 year low to some folks in China making them a mint. It's a brave new wold for those who keep money in Sterling which, traditionally, was a very strong currency .

Beard Man

are you an economist

i enjoyed reading what you wrote and i admit that i really wana read it again and again

thanks

The Dean

Sterling which, traditionally, was a very strong currency

You must have a long memory, Charisma........... ever since the collapse of Bretton Woods, with odd exceptions along the way, it has been mainly weakening - and there were of course the pre-1971 devaluations.

Charismatic

Gosh no, that's for clever people.

Biochemist, I prefer the simple things in life (like conversations with myself ). Although she's very shy and quite modest Indie is the real expert here, it's her job after all to keep an eye on such things .

I only started the thread because of all the (IMO) idiots in the UK who bang on about "British jobs for British people..." but it seems silly to me. During a recession don't we need a low cost workforce? From my own observations (though I have no data to back this up) countries that embrace economic migrants seem to have a faster rate of growth in the long term than those that remain closed. First generation immigrants usually work very hard and are very motivated it seems.

Charismatic

Yes, sorry. I was particularly referring to times of economic downturn the GBP tended to hold it's value better than other currencies but I forgot to make that clear.

And don't get me wrong, despite everything the UK is still a great place to invest if it's with the right company. Heck, so is Argentina for that matter. Market adjustments don't last forever (unless you live in Japan ) and people have short memmories.

Sandboy

Brendan Barber is spot on in my eyes, MrsT created the notion that everyone must own property and after a while the banks start lending people 10 times their salary to buy a shed in Solihull which isn't really worth the 1million they paid for it

is the bitch not dead yet anyway ?

tomarense

NAW!!!!!!!!:curse: But you'll know when the Broon thing declares a Public Holiday for her State Funeral:curse::curse::curse:

Burnin's too good for her!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!