A World Without Debt

[Chiropteran]

Imagine that debt didn't exist as it did.

Debt has benefits, and we would miss out on them.

But credit also destroys lives. A lot of people can't control their spending when giving easy and free access to credit.

And there are the hidden negatives of debt, where it hurts even those who use it responsibly. For example, see the housing crisis, or see education costs. College costs have increased immensely, due to easily available student credit.

So imagine a world much like our own, without debt as we know it. Legally, you could lend a person money, but there would be no legal framework to ever recover that money, no garnishing wages, no credit reports, no denied jobs due to poor credit.

Some things would be very different, IMO. For example, I believe housing would be cheaper. Without mortgages, homes would only sell if they were truly affordable for the buyer, pushing prices down. And with home prices lowered, rental prices would have to be reduced to be competitive with home ownership. Maybe more people wouldn't be able to buy homes, but I don't see that as a serious problem.

College education would be cheaper without the upward pressure of easy cheap loans.

Impulse purchases and such would have to wait until you actually had the money. I don't see the drawback for this, except for sellers that rely on selling to people who can't really afford to buy except for via credit.


I can see one potential complaint. "Why would the government get in our business and tell us we can't use credit, the government shouldn't interfere!" Thing is, credit and debt only exist as they do because of government laws and regulations allowing them to exist. In the absence of contract laws allowing the credit system to exist, anyone could still be a lender but any legal expectation of getting your money back would be gone.

The natural state is a market without debt, not with.

 

[highland145]

Legally, you could lend a person money, but there would be no legal framework to ever recover that money, no garnishing wages, no credit reports, no denied jobs due to poor credit.

For all intents, that's the system I work with now. If some guy says, "eff you," I'm out my $$. Sure I can get a judgement...so.

A lot of people can't control their spending

I would lend to them and be in a much better position to get paid back than I am now because, in the short run, I'd be the only game in town.

 

[gevorg]

Debt is part of human progress. Just because some nations and people are irresponsible with it, doesn't make it bad. Extremely low interest rates (near-free for the Wall Street mafia) fuels the irresponsible spending.

 

[woolfe9998]

The consequences of having no legally enforceable debt would be economically disastrous. Businesses couldn't get loans for startup or expansion. Housing would indeed have to be cheaper, but jobs would be lost in construction, brokerage, timber, building materials etc. with so much of the profit removed. The quality of education would suffer as colleges have to reduce tuition so that people can afford it without loans. In reality, all colleges and universities would have to be well funded by tax payer money. Private universities would go away or radically downsize to serve only the wealthy. We'd have to use more taxpayer money to greatly expand public transit as many people can't afford cars to drive to work.

I disagree that legal enforcement of debt is not "natural." When people form agreements amongst themselves, they are morally obligated to honor those agreements. Legal enforcement ensures the honoring of this moral obligation. Without the ability to legally enforce an agreement, there is no basis for doing business except on sheer trust. No one is going to take that risk.

Even hardcore libertarians tend to agree than legal enforcement of contracts is one of a few essential functions of the state.

- wolf

 

[s0me0nesmind1]

You are talking 2 VERY different things here - and they can't be assocaited by just using them under 1 word:

1) Consumers - Your average consumers ability to plunk down a $100k+ mortgage debt, with little to no down payment - as well as rack up credit card debt is beyond belief. It is is evil. It is stupid. You are stupid if you do so. Everytime you use your credit card you need to tell yourself "Debt is evil". It only exists in my wallet for the purpose of churning rewards for free and paying off month-to-month.

Our consumer debt problem has done nothing but produce Wall Street expectations that now must be met. If consumers stopped using credit cards our nation would crumble because no company would be able to reach their expectations on Wall Street. Maybe thats a good thing - maybe not - depends on the recovery. Either way, consumers are too stupid to realize we are a slave to it.

2) National economy and commercial - There are plenty of reasons why debt can be a good thing. Nations such as the US can loan money that is turned over and easily re-invested for more than the original loan interest. It also helps the economy turn with things with R&D and other opportunities to produce more jobs through more investments. This is entirely different from #1.

 

[OverVolt]

This would be Christian anti-usury laws circa forever ago.

SSDC... same shit different century... :awe:

Pretty sure the Vatican is made of gold embedded into the architecture for a reason :awe:. It ain't their first rodeo.

 

[xBiffx]

But you don't need money or a market based on it to have a world full of debt. There are many other debts other than monetary based ones.

 

[OverVolt]

The consequences of having no legally enforceable debt would be economically disastrous. Businesses couldn't get loans for startup or expansion. Housing would indeed have to be cheaper, but jobs would be lost in construction, brokerage, timber, building materials etc. with so much of the profit removed. The quality of education would suffer as colleges have to reduce tuition so that people can afford it without loans. In reality, all colleges and universities would have to be well funded by tax payer money. Private universities would go away or radically downsize to serve only the wealthy. We'd have to use more taxpayer money to greatly expand public transit as many people can't afford cars to drive to work.

I disagree that legal enforcement of debt is not "natural." When people form agreements amongst themselves, they are morally obligated to honor those agreements. Legal enforcement ensures the honoring of this moral obligation. Without the ability to legally enforce an agreement, there is no basis for doing business except on sheer trust. No one is going to take that risk.

Even hardcore libertarians tend to agree than legal enforcement of contracts is one of a few essential functions of the state.

- wolf

Credit initially is very helpful. People need startup costs. But it runs a certain course that can end badly if people use credit haphazardly... like now. Banks have reserve requirements for a reason. They need to be regulated. As far as I can tell they have a political free pass to do what they want these days.

 

[Anarchist420]

The natural state is a market without debt, not with.

I agree with that mostly.

 

[juiio]

Some things would be very different, IMO. For example, I believe housing would be cheaper. Without mortgages, homes would only sell if they were truly affordable for the buyer, pushing prices down.

More likely, all housing would be owned by like 1% of the population, and instead of building equity in their own house, the carbon blobs would be making the rich even richer by having to rent from the 1%.

Maybe more people wouldn't be able to buy homes, but I don't see that as a serious problem.

Paying off a house is one of the major steps to retirement for lots of people. How much longer would many people have to work if they had to make rent payments in perpetuity?

 

[Anarchist420]

Even hardcore libertarians tend to agree than legal enforcement of contracts is one of a few essential functions of the state.

Wrong. Hardcore libertarians don't want to live under a State.

 

[juiio]

Wrong. Hardcore libertarians don't want to live under a State.

Libertarianism isn't really the same thing as ACism.

 

[OverVolt]

More likely, all housing would be owned by like 1% of the population, and instead of building equity in their own house, the carbon blobs would be making the rich even richer by having to rent from the 1%.



Paying off a house is one of the major steps to retirement for lots of people. How much longer would many people have to work if they had to make rent payments in perpetuity?

That is yet to be seen on storing wealth in your house for retirement. Many baby boomers plan to sell their homes and use that money to retire. To whom are they going to sell their houses exactly? Tell me when it actually works out that way, because I don't think it will. That only works when the demographics are normal not lopsided on the older end.

That worked the generation prior when the baby boomers grandparents retired. That won't work with our current demographics.

 

[poofyhairguy]

Imagine that debt didn't exist as it did.

Christianity tried that. The mainstream belief was lending was a sin. Imagine that perspective trying to survive in 2013 with Supply Side Jesus on the loose.

 

[berzerker60]

Christianity tried that. The mainstream belief was lending was a sin. Imagine that perspective trying to survive in 2013 with Supply Side Jesus on the loose.

Actually it's usury - the lending of money for interest - that's the sin, not lending itself. Lending for free, however, was perfectly fine!

 

[AustinInDallas]

Actually it's usury - the lending of money for interest - that's the sin, not lending itself. Lending for free, however, was perfectly fine!

like in Saudi Arabia?

 

[OverVolt]

like in Saudi Arabia?

I'm sure the oil helps the lack of financial system.

 

[AustinInDallas]

I'm sure the oil helps the lack of financial system.

exactly. anyone can go down to the government bank and get an interest free loan. sharia law does work!

 

[IronWing]

like in Saudi Arabia?

They found a way around it. That's one nice thing about religious strictures, they are usually crafted by folks of litttle imagination.

 

[woolfe9998]

Libertarianism isn't really the same thing as ACism.

Some people consider AC like a branch of libertarianism. To clarify, when I said libertarians I meant the minarchist variety, which seems to be more common. I should probably have left out "hardcore" as it doesn't really clarify my meaning well.

 

[Chiropteran]

The consequences of having no legally enforceable debt would be economically disastrous. Businesses couldn't get loans for startup or expansion.

Couldn't a business save capital, and then use it to expand? I mean, today, business takes a $100k loan, expands, and pays back the loan at $5k a month for 20 months. In no-debt world, business saves $5k a month for 20 months and then spends the $100k outright. I don't see a huge difference.

Yes, in the loan example, the business has the advantage of supposed additional income from expansion, but it also has the disadvantage of paying back with interest. Also, all business would be on the same level, so from a competitive point of view there would be no difference.

Housing would indeed have to be cheaper, but jobs would be lost in construction, brokerage, timber, building materials etc. with so much of the profit removed.

I don't think that is a given. Most homes today, the cost to buy/rent or value to sell them is so far removed from the cost of construction that the two are completely disconnected. For example, a single family home in Arlington costs about a million dollars. Would it cost a million dollars to construct one today, brand new? Of course not. Most of the price is created artificially by the market and supply and demand, which in turn is highly inflated by easily obtained mortgage money. If a seller had to sell into a market without such mortgages, the offers would be much more realistic, and would be forced to sell for much lower.

The quality of education would suffer as colleges have to reduce tuition so that people can afford it without loans.

So nothing would change? Because my understanding is that even with loans, many students can't afford college. Yeah, they can go, and take classes on their loans, but then they get out with crippling debt for the next 20 years of their life.

I wonder how our economy would be doing if the current workforce actually had a large disposable income, instead of the majority of it going to pay back student loans.

We'd have to use more taxpayer money to greatly expand public transit as many people can't afford cars to drive to work.

Anyone who can make car payments PLUS insurance payments month after month could very easily save up to buy the same car outright. For a first time car buyer, insurance is often a huge part of the cost of owning a car, so saving up to buy the car outright is actually much easier and faster than making payments on a car plus making insurance payments.

Of course, once you have that first car you are in good shape. You might not be able to upgrade as easily and thoughtlessly without credit, but in the long run you certainly can, and you can do it for less money.

 

[IronWing]

Let's go with the zero debt scenario. Liquid wealth is currently stored as bank deposits. Under the current debt-based system, banks pay (very low currently) interest for the use of that money. In a debt free system a bank would have to charge a fee for the service of storing liquid wealth. This would discourage saving money as, in the absence of perpetual deflation, the longer one holds money, the more its value is eroded by fees. At the macro-scale, balancing the money supply in a debt-free world would be very tricky with no bond market to act as a cushion to over/under supply.

 

[dud]

Imagine that debt didn't exist as it did.

Debt has benefits, and we would miss out on them.

But credit also destroys lives. A lot of people can't control their spending when giving easy and free access to credit.

And there are the hidden negatives of debt, where it hurts even those who use it responsibly. For example, see the housing crisis, or see education costs. College costs have increased immensely, due to easily available student credit.

So imagine a world much like our own, without debt as we know it. Legally, you could lend a person money, but there would be no legal framework to ever recover that money, no garnishing wages, no credit reports, no denied jobs due to poor credit.

Some things would be very different, IMO. For example, I believe housing would be cheaper. Without mortgages, homes would only sell if they were truly affordable for the buyer, pushing prices down. And with home prices lowered, rental prices would have to be reduced to be competitive with home ownership. Maybe more people wouldn't be able to buy homes, but I don't see that as a serious problem.

College education would be cheaper without the upward pressure of easy cheap loans.

Impulse purchases and such would have to wait until you actually had the money. I don't see the drawback for this, except for sellers that rely on selling to people who can't really afford to buy except for via credit.


I can see one potential complaint. "Why would the government get in our business and tell us we can't use credit, the government shouldn't interfere!" Thing is, credit and debt only exist as they do because of government laws and regulations allowing them to exist. In the absence of contract laws allowing the credit system to exist, anyone could still be a lender but any legal expectation of getting your money back would be gone.

The natural state is a market without debt, not with.

We are prisoners to our indebtedness. We may not realize it nor acknowledge it but we are.

Debt serves it's purpose only as a means to an end but some decide to stay and reside within the indebtedness "vicious circle". You cannot control a country nor society but you CAN control what you do ...

Debt free since 2005 and loving every minute!

 

[Fern]

-snip-
The natural state is a market without debt, not with.

I disagree.

Debt is natural.

I've no doubt cavemen loaned food, tools, hunting weapons etc.

When they loaned women, prostitution was invented. Everybody knows that immediately after that happened accounting was invented. (The earliest accounting records we've found are 7,000-8,000 yrs old.)

The family structure/tribe served as the arbiter of disputes regarding debt. And as can be seen in the Old Testament, there was a lot 'Western Justice" way back when. No govt needed.

Fern

 

[Gintaras]

Money As Debt

People in debt aren't free...Those are monetary slaves.
debt free people could go anywhere they choose - to the north, to the south, west or east...

People in debt can not do that - they have to work - WORK MAKES YOU FREE...after you pay off your debt....