What would happen if loans were illegal?

GarIT

Would currency work much better if it was illegal to loan it? I think we would all be much better off, there would be no debit at all anyway.

Mr. CooL ICE

Nobody could afford houses and few could buy new cars. In short, no loans = no movement of funds between consumers and businesses = bad stuff happening

Kylo Ren

If you ever get into a position of power within this country, would you PM me?

I'll be booking my flights then.

Dravokivich

No Loans means no way to acquire stuff that's of high value, for people unable to have that huge amount of money. Such as cars. That's one industry you'll kill off the top of my head.

Keno 92 wrote: »

If you ever get into a position of power within this country, would you PM me?

I'll be booking my flights then.

Make sure you take out a loan to pay for the ticket!

GarIT

People could actually save for things, I know I'll be saving, I'd never get a loan of any kind.

There would never be any business start ups ever again because they couldn't get financing. Existing businesses would not be able to finance any expansion. All the shops you see around you now - that would be it. Any of them go out of business, too bad.

Silly idea

Duggy747

Also limiting people's chances to start up a business.

Dravokivich

GarIT wrote: »

People could actually save for things, I know I'll be saving, I'd never get a loan of any kind.

A lot of people will find it hard to save to a 15k car. And even then the motor industry makes it's money more so off cars that are higher up the line. Even people with greater salaries take out loans to pay off those.

Duggy747

Duggy747 wrote: »

Also limiting people's chances to start up a business.

Even the big ones need finance from debt or equity Or reinsurance, I suppose, which would help small ones set up - but not 100%, so they're all still stuck

Tiddlypeeps

The divide between the rich and the poor would grow much larger.

The market for high expense items would collapse completely.

There would be less jobs because fewer people could afford to start up new businesses.

Innovation in technology would slow right down to a crawl because fewer people could afford to start up new businesses.

GarIT

bluewolf wrote: »

There would never be any business start ups ever again because they couldn't get financing. Existing businesses would not be able to finance any expansion. All the shops you see around you now - that would be it. Any of them go out of business, too bad.

Silly idea

It probably is a silly idea, I got it from an idea in a thread about the government being the only bank.

Has nobody heard of saving though? Why do we need to spend money we don't have.

GarIT

GarIT wrote: »

Has nobody heard of saving though? Why do we need to spend money we don't have.

No, nobody has ever heard of saving

noodler

Ask developing countries what a lack of access to credit does for small businesses.

Basically, you are stuck with your lot for life (that piece of land you have), you'll probably never be able to make the improvements required to make it more productive

a5y

GarIT wrote: »

Would currency work much better if it was illegal to loan it? I think we would all be much better off, there would be no debit at all anyway.

All currency is a loan. Effectively every banknote is an IOU, that's given for a useful service, its really only different in that the IOU is transferrable.

Banknotes and IOUs have no intrinsic value, the second they stop getting transferred around en mass the economy will hit the fan.

Getting ride of loans and debt means getting rid of currency too.

Mr. CooL ICE

GarIT wrote: »

People could actually save for things, I know I'll be saving, I'd never get a loan of any kind.

Y'see, if you don't get a loan/mortgage for a house, you will need to spend 20-30 years saving. In those 20-30 years, you need somewhere else to live, and if you don't own the place in which you live, you will need to pay rent. Where does that money go? Into the landlord's pocket. From your point of view, it's going down the drain.

Now, if you instead took out a mortgage and bought a house, you could use the same money you pay to your landlord to pay off said mortgage. By the end of the 15-20 years of paying your mortgage off, the money you have spent would be with the bank and you would have a house.

BOHtox

There'd be a hell of a lot of illegitimate loan sharks and crime would shoot up!

Dravokivich

GarIT wrote: »

It probably is a silly idea, I got it from an idea in a thread about the government being the only bank.

Has nobody heard of saving though? Why do we need to spend money we don't have.

Fools and money are soon parted, so they say. Doesn't have to mean everyone that makes use of financial services such as loans, do so foolishly. There is always going to be an element of some naive twat that comes along and borrows more than they can pay back.

Your argument is better suited to credit cards by the way. When you get a loan, it is money you have.

The rich would get richer, the rest of us would suffer.

Those with resources would buy the assets as they became available and collect rent on those assets (a form of interest). That rent would be saved and used to buy further assets further concentrating the wealth.

Most of us would be saving for a lifetime to buy a house.

gallag

What if intrest was capped at 2% so that pension funds could exist but the likes of the barkley bros would not.

Three Seasons

In short, poverty, famine, disease, death.

krudler

OP needs a slap of an economics book.

Anyone

krudler wrote: »

OP needs a slap of an economics book.

Or a loan of one :pac:

smurgen

GarIT wrote: »

Would currency work much better if it was illegal to loan it? I think we would all be much better off, there would be no debit at all anyway.

zero social mobility unless and alternative way of giving poor people funds was put in as a replacement.

schnitzelEater

GarIT wrote: »

Would currency work much better if it was illegal to loan it? I think we would all be much better off, there would be no debit at all anyway.

No credit and no debit?

schnitzelEater

GarIT wrote: »

People could actually save for things, I know I'll be saving, I'd never get a loan of any kind.

Cool. So no Credit Cards, no pay monthly phone or broadband etc, no insurance payment by instalments.

No lending your mate a tenner when he realises he forgot his wallet.

schnitzelEater

gallag wrote: »

What if intrest was capped at 2% so that pension funds could exist but the likes of the barkley bros would not.

Gnarls Barkley or Charles Barkley?

Cody Pomeray

What a waste of money, just sitting in the bank, doing f all.

You'd have very rigid social structure. Most people would have very low access to entrepreneurship and wealth would be totally held by those with the most resources for defence and physical strength.

Imagine playing monopoly with someone who owns every property on the board, and that will give you an idea.

cml387

Lending money is forbidden in the Muslim faith.

Outside of the oil producing countries, there you have a model for a no-lending economy.

jimmybeige

GarIT wrote: »

It probably is a silly idea, I got it from an idea in a thread about the government being the only bank.

Has nobody heard of saving though? Why do we need to spend money we don't have.

You'd be a long time saving for the price of a house! Might get one by the age of 60, and what are you supposed to do in the meanwhile?

Cody Pomeray

cml387 wrote: »

Lending money is forbidden in the Muslim faith.

Outside of the oil producing countries, there you have a model for a no-lending economy.

Muslim finance is booming. They get around it handy enough. Plenty of borrowing going on there.

gallag

cml387 wrote: »

Lending money is forbidden in the Muslim faith.

Outside of the oil producing countries, there you have a model for a no-lending economy.

Lending money is fine with the Muslims, they are just not hot on the old charging intrest but intrest free loans are all good.

cml387

gallag wrote: »

Lending money is fine with the Muslims, they are just not hot on the old charging intrest but intrest free loans are all good.

Yes of course you're right, it's interest that they can't charge. Maybe there's an idea?

GarIT

Its probably a bad idea so.

But I'm still going to save. Depending on your expected earnings it can work out cheaper to rent and save. I rather give money to a landlord than pay 900,000 back after borrowing 300,000.

IM0

bluewolf wrote: »

There would never be any business start ups ever again because they couldn't get financing. Existing businesses would not be able to finance any expansion. All the shops you see around you now - that would be it. Any of them go out of business, too bad.

Silly idea

and the problem with that is?

jam_mac_jam

IM0 wrote: »

and the problem with that is?

Really? You cannot see a problem with no business or shops in the world?

srsly78

cml387 wrote: »

Yes of course you're right, it's interest that they can't charge. Maybe there's an idea?

They get around that by using various loopholes.

Example:
You want to buy a car.

The Islamic bank and yourself form a partnership company which buys the car. Then you lease the car off the partnership for an agreed period of time, at the end of which ownership transfers to you.

As you have probably guessed the total amount you end up paying for the car will be more than the purchase price, but no interest has been charged so that's ok with Allah.

Three Seasons

IM0 wrote: »

and the problem with that is?

Well if you're happy to live in a forest somewhere, build your own shelter and hunt for food then do it. Nothing stopping you.

Glenbhoy

It's an interesting concept with extremely complicated and convoluted outcomes.

Society as we understand it has moved past the point where it could function without credit, but some of the points that some of you are raising neglect the fact that availability of credit is probably the main factor behind pricing structures for many goods and services.

The problem with credit is that it has to continually expand in order that we achieve the necessity of economic growth (which is necessary in order to fund the growing expansion of credit).

gallag

You can buy a car on intrest free over five years, why not a house? Sure as hell would not take 25 years to pay it off with every penny coming of the total. Imagine a 15 year intrest free mortgage to boost building. The system as is is only benefiting the super rich, I would be happy with a small intrest rate that was used for pension funds etc.

IM0

noodler wrote: »

Ask developing countries what a lack of access to credit does for small businesses.

Basically, you are stuck with your lot for life (that piece of land you have), you'll probably never be able to make the improvements required to make it more productive

LordChessington wrote: »

Y'see, if you don't get a loan/mortgage for a house, you will need to spend 20-30 years saving. In those 20-30 years, you need somewhere else to live, and if you don't own the place in which you live, you will need to pay rent. Where does that money go? Into the landlord's pocket. From your point of view, it's going down the drain.

Now, if you instead took out a mortgage and bought a house, you could use the same money you pay to your landlord to pay off said mortgage. By the end of the 15-20 years of paying your mortgage off, the money you have spent would be with the bank and you would have a house.

and 15-20 year mortgage lol where are you living!

jam_mac_jam wrote: »

Really? You cannot see a problem with no business or shops in the world?

the 'developed' world is built on unneeded consumerism, let the cards settle and the law of the jungle take hold. I know that sounds extreme, but when I hear of places like india and other up and coming countries falling over themselves to become more 'first world capatalist and consumer nations' I cringe and say to myself dont be like us, be happy, dont be conned by the lifestyle of consumer possessions tries to sell you.

its like this little story..

guy who works for a big company goes to a remote island in 3rd world country somewhere on his holidays, he goes to the beach and sees another guy busting his ass to catch fish in a small wooden raft to feed his family. he spends alot of time at thebeach over his time on his holiday and by the end of it finally decides to say something to the hard working fisherman.

"hey I noticed you busting your ass all week, your a hard worker and could make alot of money if you expanded your business! if you bought another boat you could catch more fish and sell them! - and grow your business that way! - then when you grow it big enough for the wooden boats, you can have money to buy a steel boat, then keep going....buy a fleet of steel boats!! then start exporting fish to other nations!! "

so the local fishman says "ok so why are you here then?" "I m stressed with my job need a holiday so I came here to this lovely tranquill slow paced island life you have here!"

"so what do you?" asks the fisherman,,,

"the story I told you, thats me!"

"so after all that you are escaping to a quiet island to get away from it all here!" says the fisherman

"so why would I want to to that then if im happy now and my children and happy and my wife is happy?" and walks off to his wooden boat sniggering to himself..

Mr. CooL ICE

God damn hippies

IM0

LordChessington wrote: »

God damn hippies

curse them happy people with less 'stuff' to harp on about!

Three Seasons

Glenbhoy wrote: »

It's an interesting concept with extremely complicated and convoluted outcomes.

Society as we understand it has moved past the point where it could function without credit, but some of the points that some of you are raising neglect the fact that availability of credit is probably the main factor behind pricing structures for many goods and services.

The problem with credit is that it has to continually expand in order that we achieve the necessity of economic growth (which is necessary in order to fund the growing expansion of credit).

Credit doesn't need to expand for economic growth. Increase in population causes economic growth ( not necessarily per head), technology improvements and better efficiency causes growth.

Latchy

It not so much the loans that's the problem for many people ,it's the high interest rates and charges which can go up, and up ,which bogs them down ...exactly where the loan company's and loan sharks want them .You hear of people in a financial fix , who borrow something like £500 and end up paying nearly as much back ( if not more ) in interest , which is why it's handy to not only save with a bank but also with a credit union = low interest charge.

schnitzelEater

IM0 wrote: »

curse them happy people with less 'stuff' to harp on about!

Yeah, having less stuff gives yhem more free time to complain - about having less...

schnitzelEater

gallag wrote: »

You can buy a car on intrest free over five years, why not a house? Sure as hell would not take 25 years to pay it off with every penny coming of the total. Imagine a 15 year intrest free mortgage to boost building. The system as is is only benefiting the super rich, I would be happy with a small intrest rate that was used for pension funds etc.

The interest free car loan is generally arranged by or somehow tied to the company selling the car, in fact many of the manufacturers have banks to give credit to purchase their vehicles, to boost sales.

As such the price the purchaser pays basically factors in the cheap credit or free credit.

Glenbhoy

Three Seasons wrote: »

Credit doesn't need to expand for economic growth. Increase in population causes economic growth ( not necessarily per head), technology improvements and better efficiency causes growth.

You have a point of course, I was basing that on present developed countries norm with declining or stagnant population.

However, without increased credit, how can these technological improvements bring increased income, somebody somewhere must be obtaining credit in order to purchase some of the extra goods produced as a consequence of this increased efficiency. I don't know, it sort of hurts my head, better stop thinking!!

schnitzelEater

Latchy wrote: »

It not so much the loans that's the problem for many people ,it's the high interest rates and charges which can go up, and up ,which bogs them down ...exactly where the loan company's and loan sharks want them .You hear of people in a financial fix , who borrow something like £500 and end up paying nearly as much back ( if not more ) in interest , which is why it's handy to not only save with a bank but also with a credit union = low interest charge.

And you also hear about people who borrow 10k and repay a total of 11k (ie 1k in interest).

The interest rate you pay or availability of prime credit to you basically reflects the risk of lending to you (as well as other factors). If the people using money lenders had a better credit history they wouldn't need to use the money lender or get a sub prime mortgage.

A significant % of people borrow money responsibly.

Latchy

schnitzelEater wrote: »

A significant % of people borrow money responsibly.

A significant % who borrowed during the celtic tiger years didn't but then people will tell you it was the banks knocking on their doors and shoving the cash into their hands .

KyussBishop

The OP's question is actually a good one, as a 'what if' for understanding economics better. Currently all money in the economy originates from private bank loans, so what would need to happen, is government would need to step in and use money creation to spend money into the economy instead.

Where private banks used to put money into the economy through loans, government would put money in through spending, and where private banks used to take money out of the economy through debt-repayments and interest, government would take it out through taxes.


Still, the only way anyone could obtain money would be by directly working, and all economic activity would flow from the public services first (since money would no longer originate from private banks), which means everything you buy you would have to save up for beforehand, which just isn't practical for a very large variety of economic activity, and a lot of private business would probably become very hard to sustain (and even more difficult to setup, without government help); it could only work in an extremely crippled way.

Steve O

Make them illegal, then I won't have to pay mine off.

/boards logic.