Tag Archives: Costs of debt

Three ways to wipe out the National Debt

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Spend less, pay down Principal

  • This requires tough budgetary sacrifices to create a budget surplus which can then go toward paying down principal. In order to do this we need to determine what the minimal role of government should be and set priorities from there… politics be damned. This means minimal leadership, law, and law enforcement/security, all else is extraneous.

Convert Public debt to Private debt

  •  If I owe you $100 every month for the next year and you owe me $100 every month for the next year we can simply sit down and cancel each others debt. We can do the same thing with the government’s debt and tax-payers who also own the debt. To do so we create a trad-able financial instrument that represents debt paid off and provides a tax break equivalent to a principal and interest payment on the debt for some duration into the future. It is also a good idea to split out the debt based on the debt to tax revenue ratio so that people understand how much debt is their responsibility.

Create Wealth, pay down Principal.

  • Turn the currency into an investment by making it into shares of a mutual fund of all trad-able goods and services in the market. This is the equilibrium and the definition of stability between markets also it is an explicitly backed currency, both add value. As the economy grows so does the shares of currency in your accounts through stock splits. This will help drive up demand for our currency increasing the number of shares in people accounts as the fed maintains share stability.
  • As you transition to the new currency first move to a full reserve system by increasing the federal reserve requirement on new loans thus shrinking fractional reserve created currency which the fed will replace by creating it out of thin air and introducing it to the market by the purchase and cancellation of Government debt. This creates a more stable banking environment and removes currency created via debt increasing the value of the currency. Yield for the Government $10.75 trillion dollars of debt wiped out. Add the $2.54 trillion dollars the fed currently owns and new currency needing to be created to keep up with economic growth and the full debt can eventually be wiped out. Yield for currency holders is more money, less debt, greater economic stability, and a higher economic growth rate.
  • Move the banking industry away from lending financing and toward non-lending financing. Lending financing has a tendency to place people and businesses in difficult positions that are not conducive to real wealth building, often credit financing invests in non-performing assets, businesses, and ideas simply because they can make the payment. Non-lending financing is essentially joint investment and wealth creation is the name of the game. This leads to higher economic growth rates meaning more tax revenue and fewer of the costs of debt upon society (divorce, stress, failed relationships, difficult to recover from financial situations, etc).

*As a note I believe that we will need all three approaches to wipe out the National Debt quickly but my preference lies in reverse order, create wealth, convert debt, and then spend less.

With all Hope,
Joshua Smith, Brier WA

On going list of the costs of Debt.

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This is an ongoing list of the costs of Debt which I shall add to as time goes on. Many items will seem to be repeats or the same thing in different words and some are just subtly different. They are so just forgive me. This is more of a brainstorm than anything else. If you have anything to add than add it in the comments and I will add it to the list when I get around to it.

Interest

Fines

Fees

Reputation Risk/Loss

Over inter-connectivity

Non-intuitive nature of Compound Interest

Greater Debt than necessary in society due to Debt Chains and Debt Loops

Puts people financially in the Red

Puts Businesses Financially in the Red

Budget Stress

Human Stress

Increased investment in non-performing Assets

increased investment in non-performing Businesses

Increased investment in non-performing Ideas

Amplifies Business cycles

Amplifies budget swings in non-fixed expenditures

Contributes to Divorce and broken Families

Contributes to stress related health problems

Contributes increased death resulting from health problems and suicide

Contributes to financial related health problems

Contributes to stress related relationship problems in people’s personal lives

Contributes to stress related relationship problems in people’s professional lives

Psychological costs of debt

Appearance of financial weakness

Fails to directly promote wealth creation

Ties up money

Lost opportunity costs

Investments made by shortsighted borrowers less likely to be as good as an investment as those by farsighted investors

Allows overly easy access to capital resulting increased poor usage and subsequent problems

Government “investments” via debt are less responsive to the Market feedback loops that keep good investments and eliminate bad investments resulting in less real wealth creation per dollar invested(if any).

Fails to align the interest of the Banks with that of their clients

Fails to maximize the profits of Banks

Fails to help banks build the wealth of their clients while at the same time building theirs

Fails to have unlimited profit potential

Remains overly dependent upon conditions of the economy as a whole and interest rate rather than the economy of a banks clients

Fails as a product to significantly differentiate itself from other credit products creating a commodity, increased competition, and less profit for banks.

Subjects Nations to more difficult financial choices than need be

Increase the Gap between Rich and Poor

Contributes to National financial instability

Contributes to Business financial instability

Contributes to Personal financial instability

Slows economic growth

Divides the interest of the Fed between creating enough flowing currency for people to meet their debt obligations and creating enough currency for  economic growth. Unless they happen to be the same they cannot do both.

Lending with the fractional reserves system leave part of currency creation in the hands of the Fed and part of it in the whims of the banks leading to instability and improper currency management.

Enslaves the Borrower to the Lender

Increases risks to Borrowers

Does not adjust well to fluctuating revenues

Inflexible

Puts people in difficult to recover from financial conditions

Places the burden of responsibility on the least responsible party…the borrower for repayment

The hidden costs of debt are indeed a cost of debt making for poor decisions

In the light of alternatives (joint investment and other non-lending forms of financing) credit financing has the greatest problems and the least benefits.

Costs of Bankruptcy(lawyers, courts, etc)

Costs of Foreclosure(lawyers, courts, etc)

Costs of Collection(lawyers, courts, etc)

Contributes to crime

Slows the flow of Assets through the economy

Invests based on collateral and (current) ability to make payment rather than on the quality of the underlying investment.

Leads a large percentage of financing to be in non-performing assets, businesses, people, and ideas which leads to slow economic growth.

Comes at the expense of focused real wealth creating joint investment

Expands the gap between rich and poor leading to french revolution style reforms (off with their heads)