8 September 2013
In a Mathematically Perfected Economy (MPE) with a Common Monetary Infrastructure (CMI), as proposed by Mike Montagne and his followers, anyone can buy a house with a promise.
The promise of somebody’s labour or economic production over a period of a hundreds years, they assume, will be accepted as payment to the builders of a new house or the owner of an existing house.
I quote Mike Montagne:
“ How do we solve inflation and deflation?
Simple: both together are solved by a singular prescription/schedule
of payment, which, at all times and in all cases, maintains a circulation
which is equal to the remaining value of the related wealth.
So a $100,000 home with a hundred-year lifespan for instance is paid off at the overall rate of $1,000 per year or $83.33 per month.”
Clearly, this is not realistic: even a twenty-year-old potential house buyer cannot reasonably be expected to work or produce for a hundred years. That is why in the existing economy, banks limit the duration of a mortgage loan to 20 or 30 years. That is a pessimistic estimate of the useful life of the house, and a realistic estimate or the active lifespan of the buyer (who may be 20, but also 30 or 35 when s/he buys the house).
The problem with buying a house with a promise of instalments over a period of many years, is that builders build the house within months and need their wages right then. Suppliers of building materials and building tools and machines also want to be paid at short notice.
The same is true in the case the house is not newly built, but already in existence: the former owner needs the full payment at once, in order to redeem her/his own mortgage and/or buy a different house for themselves.
How is this solved under MPE/CMI? Nobody knows, the devisers of that hypothetic system remain unclear about it. (For those who still don’t get it: I was sarcastic in that article, I wrote exactly the opposite of what I really meant.)
How is this solved in the existing economy? By banks!
Banks are willing to accept the risky promise of 30 years of monthly instalments, and convert that promise into a promise by the bank itself, to pay several hundreds of thousands of dollars/euros/pounds right now.
Banks convert or transform long-term promises by one of their clients into an immediate promise to another client. Of course such risk and time conversion has its price: interest, which the bank also uses in part to pay for the necessary loan funding.
Banks are known to always fulfil their promises, banks are generally trusted. That is why their promises to the public are money: money is claims by the public on banks. In other words: money is promises to pay, promises by banks to the public.
Paying is done by transferring part of such a promise (i.e., the balance in a transaction account held by a member of the public) to another account holder.
A CMI cannot replace that.
Copyright © 2013 R. Harmsen. All rights reserved.