Ah yes, “creative destruction”. The boom-bust cycle has been with us (the West) for over 300 years. It has killed millions, at least 36 million in WWII. How was that for “creative destruction”? I imagine WWIII will be even more “creative” in its destruction.

Ask yourself how the banking systems which supposedly had little to lend during the Great Depression suddenly had unlimited amounts to lend to their governments for WWII? And if that money was available (at interest) to destroy Europe then why wasn’t it available to bailout the victims of the bankers and prevent WWII?

The market “demands” a correction in housing prices and the consequences are what they are. The banks that engaged in riskier lending practices will fail and the ones who evaluated the situation better will survive.

Maybe these effects will hurt a lot of Austrians too. But if we support creative destruction, then we have to accept that “destruction” can happen to us just the same.

Well I wouldn’t blame you if you haven’t been following the discussion between me and F. Beard since it’s not all that interesting. The discussion at hand revolves around the statement he made earlier in the thread:

“So, I suggest we:

1) Abolish the banks’ ability to create any more virtual money.
2) Have the US Treasury send every American adult a large (and equal) check of new debt and interest free legal tender fiat that is sufficient on average to pay every underwater mortgage down to current price levels TIMES from 2-7 since that is the Biblical remedy for theft and also because if the banks are to practice 100% reserve lending without deflation then a large amount of real money must be created to replace the virtual money that would disappear.
3) After the debt has been cleared, then restrict legal tender laws to government debt only and allow private currencies good only for private debt to be created.”

I agree with 1. Disagree with 2. Unsure about 3

That’s what the discussion is about.

What did you think I was talking about in my comment immediately preceding yours?

Banning FRL would reduce our monetary base to around $2T and you are proposing several trillion dollars of bailouts after the fact. That is absolutely inflationary. Not only that, if deflation took place let’s say the prices of everything were halved. Then you give huge bailouts to underwater homeowners? So rather than houses being overpriced as they are right now, they would be extremely overpriced under your plan.

Your comment was a bit out of the blue in consideration (though still interesting). I’d still like to know the chain of reasoning that suggests that in the absence of government intervention, long term loans would dry up. I’m sure there would be fewer of them but virtually disappear? Could be true but have you factored changing time preferences into it?

http://theeconomiccollapseblog.com/archives/75-ways-that-the-government-and-the-financial-elite-will-be-sucking-even-more-of-the-life-blood-out-of-the-american-people-in-2011

Ain’t deflation fun?

Well, let’s just see how well the deflation works. Perhaps when the jobs of many Austrian savers are eliminated as the “mal-investments” are cleared they’ll find they have no money to buy assets on the cheap.

False dichotomy. Let’s say we had deflation from reversing the fractional banking system e.g. raising reserve requirements 15% every year. Money supply goes down, prices go down. People who owe $300,000 on a house they initially bought for $400,000 which is would now be valued at say $100,000 would simply walk away. Once the malinvestment in housing is corrected, they could buy houses at “realistic” prices. No bailout needed.

As I’ve repeated mentioned to F. Beard in this thread, I have no problem with removing government intervention but I do take issue with his plan.

Just out of curiosity though, how do you know the long term loan market would virtually vanish in the absence of government intervention. I’m sure they would decrease but it seems a possible case of mere correlation and not direct causation. Surely you’d have to factor out changes in time preference as well.

Of course the savers are left out in the cold …

But leaving aside forgiveness you have not addressed the issue of just compensation to the victims of government backed FRL. In fact, justice calls for that; no appeal to forgiveness is necessary.

That’s why the term brother is used and not countryman. The Bible gives no obligation to absolve debts of any individual that does not share a hereditary lineage.

So, no, Americans aren’t my brother and, in the Biblical sense, if you’re an American and not related to me, you are a foreigner.

I read it just a few days ago. Christians are not under the Old Testament Law but we would be wise to heed it especially with regard to forgiveness, don’t you think?

The same passage states you will require payment from a foreigner, whose debts are NEVER cancelled. J. Murray

“From a foreigner you may exact it, but your hand shall release whatever of yours is with your brother. “ Deuteronomy 15:3 [bold added]

“May” does not equal “must”.

The borrower is the foreigner and his debts are explicitly commanded to NOT be absolved after seven years. J. Murray

Chapter and verse, please. So fellow Americans are “foreigners”?

Here’s something to ponder.

Jerimiah 34:8-22

My take away is that the Jews could have escaped death and destruction if they had not reneged on their pledge to free their Hebrew debt slaves.

Is government backed fractional reserve lending in a government enforced monopoly money supply just or not? And if it isn’t, what do you believing Austrians think should be done about the victims of it?

Micah 6:8-11

Leviticus 25 makes no mention of debt.

The problem with deflation is that the debt is not marked down correspondingly. So, either we have mortgage principle cram-downs which will only benefit the borrowers OR we bail out the general population which would compensate the savers too.

Some form of debt relief (which is Biblical btw, see Deuteronomy 15, Leviticus 25) is coming. Too many people have been screwed this time and the outrage is building. So the borrowers will end up with nice affordable housing and the savers will get nothing.

Well, if that is the way the savers want it.

Banning FRL would reduce our monetary base to around $2T and you are proposing several trillion dollars of bailouts after the fact. That is absolutely inflationary. Not only that, if deflation took place let’s say the prices of everything were halved. Then you give huge bailouts to underwater homeowners? So rather than houses being overpriced as they are right now, they would be extremely overpriced under your plan.

I know you have good intentions but it is best to let markets sort things out rather than the State.

That was never true. But yes, I agree that the individual is responsible for defending his own freedom.

The bankers play the inflation game every time they create money from nothing and lend it out. Do you think they care that they are creating inflation? No, they don’t. Why not? Because they understand that the loaners of the new money benefit at the expense of every one else. They extract a PRIVATE inflation tax on society.

But do the bankers want the government creating new money, bypassing them, and inflicting an inflation tax on them? No way. That is inflationary!

But in any event, banning FRL would cause intense DEFLATION unless the real money supply was increased. Bailing out the population at the expense of the bankers (but only in real terms) would not only be justice but POETIC justice.