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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: flyboy who wrote (53924)	1/4/2001 4:57:15 PM
From: UnBelievable	of 436258

Interest Is The Price Of Money If the money supply is managed so that it grows at the same rate at which the economy is growing, the result is stability in present and future purchasing power. That situation results in the lowest total cost of interest for the economy, since lenders do not need to add a risk premium associated with possible future devaluation of the dollar at the time it is repaid. The rate of interest is then determined by the market place. The result is efficient allocation of capital to those enterprises that are able to generate the greatest return. This also is in the best interest of the economy. When the government intervenes in the capital market by increasing the money supply faster than should be case to achieve the objective on an artificially low interest rate the result is that borrowers who are not actually able to employ capital so as to generate the rate of return associated with its real cost, are now able to borrow. Since the economies pool of capital at any point in time is fixed any mechanism which allocates this capital other than on a market determined basis will result in the rate of return on the scarce resource, capital, being lower than its true cost and value. The allocation of any type of resource based on anything other than market factors compromises the very essence of the underpinnings of the capitalist economy. Whether the excess money is created prior to the capital allocation process or in an attempt to protect an enterprise from defaulting on loans because their business model has not worked the result is the same, mal-investment. The after the fact Monetizing of losses associated with bad loans is especially troublesome since it relieves the lender of the necessity to be diligent in the decisions they make concerning how they loan their money. Bad loans are a part of lending. Reimbursing lenders for this legitimate business expense constitutes a government subsidy, which also is a significant compromise to the capitalist model. Much like Democracy, Capitalism is not perfect. But it is clearly more efficient than any of the alternatives including the one being practiced in the US, which is a nominal capitalist economy with significant central government planning and intervention.

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