Dear Jamie, I’m sorry that you seemed to have misunderstood form five economics and apparently english too ??? Congrats on acheiving excellence in supercilliousness and a merit in talking down to others.
: Lending for profit, if you follow basic economics, means the PRICES
of everything people borrow for, is massively inflated. END
QUOTe /// and the BLOCK CAP
were inserted by myself for emphasis on that one word)
Sorry ,,, but that’s still nonsense especially from an apparently accomplished economist such as yourself. You seem to be saying that you do not understand that there is a BIG DIFFERENCE
between THE PRICE
of an article and THE COST
of the same article using credit ( borrowed money) . The CoA of the article is the price paid PLUS
attached and the amount of INTEREST
applied to the loan. Thats not even Form Five economics it’s a glance at a few words in a dictionary!
You appear to further show your own confusion when you said
: More money a person has and is willing to spend, the more any reasonable profiteer will charge. Banks lending out sums of up to millions, obviously changes that. END QUOTE
Doubly nonsensical … but we’ll ignore your theory that such a thing as a ‘REASONABLE PROFITEER
’ even exists .. the term itself is an oxymoron ( a contradiction of the words that make it )
IF a person has more money (ie liquid cash or assets) THEN
likely to borrow anything – because they can pay for the item in cash AND
case the COST
is the SAME
as the PRICE
( some economists will argue there’s a loss of interest on the cash withdrawn if it were earning interest – but lets keep simple )
b) IF they choose to borrow ( they might do so in order to maintain a ‘cash reserve’ – often called a safety net) THEN
simply because they have the CASH
to cover the loan their credit rating will be higher ( less perceived risk of default) AND
they’ll get the best possible (lowest) interest rate from a ‘First Line’ ie respectable lender who wants this kind of business.
The ‘Gold Standard’ for financing high value consumer goods ( Cars, Boats, Motorcycles, extensive foreign travel etc etc) might be seen in the customer who has good % equity in their home and a steady reliable income – such a person can obtain finance (borrow the money) at the same rate as his home mortgage. Even there though the PRICE
and the COST
still differs but will not be so high as borrowing from the second or third tier ( also called subprime) lenders who chatge horrendous rates of interest knowing that many / most of their loans will never be repaid ( but again we’ll go no further in the interests of brevity and simplicity )
And in the CASE
of a BUSINESS
Purchae I supported the explanation by showing you that the tax treatment of the item PRICE
(aka Capital Cost) and the additional sums involved are treated differently by IRD
( and most countries have loosely similar taxation rules – some looser / some tighter and sometimes investment incentives apply but again … simpicity and brevity )
Your middle post has me a tad curious Jamie – I don’t see HOW
can you possibly claim to " be sure, the logic and basis in economics is sound" when you have just openly stated" it may have ramifications that you haven’t thought of "
To answer your first, longer post ( third in list below) …. I’ve already explained above ‘How I got onto interest’ … to explain to you the difference between PRICE
1 ) Makes no sense because
a) IF people ( prospective buyers) have less money THEN
they make lower offers OR they abstain from buying at the time or else
b) They do actually get to buy at lower prices because sellers observe that the value of offers coming in is falling and they probably want to be rid of the asset that’s declining in value before it falls further. That applies across the board … for examples sake – falling property prices, a glut of a particular model car on the market, poor reviews of products (inc things like holidays) in consumer magazines that leads to less demand / desirability, or even ‘run out models’ as the old model declines in value as soon as the new one is in the showroom )
Optimal mean best or most favourable – so that can only mean biggest )profits are always achieved by the seller with the BEST NEGOTIATING SKILLS
and that applies regardless as to whether the market is rising, falling or static and whether the product is in short or plentiful supply … perhaps you’ve heard about salespeople who could " sell sand to the Arabs ?" or maybe you’ve seen TV Infomercials for dubious junk where the voice always says " But wait, we’ve got a special deal for the viewers " and soon after their phones begin ringing … great sale / negotiating skills … literally people get talked into buying whatever
but again back to simplicty n brevity!
2) Yes indeed ‘Lending for profit means that people have money available to purchae things. It does NOT
however mean that they have MORE MONEY
at all. Usually the money is paid direct from lender to seller and the buyer acquires an ASSETT
( his car or whatever) and at the same he is burdened with a LIABILITY
( the debt amount borrowed ) The only way to have “more money” is by receiving payment for one’s labour or selling something at a profit ( overly simplified perhaps … brevity and simplicity )
3) Current lending rules demand a 20% deposit for a personal home and a 40% deposit for an investment property . ( Yes, there are some 10% first time buyer incentive schemes but again brevity and simplicity OK )
However the amount of money that any person can borrow (aka the amount a lender is prepared to lend) and the rate of interest and other terms demanded by the lender is more complex. Suppose a person on Job Seeker allowance receives a $200,000 inheritance. They look at that number and realising that 200,000 is 20% of 1,000,000 they head off to borrow $800,000 … they will never get that loan approved as their income is not going to meet the repayments.
Across town Bob the Boss (manager of a thriving meatplant and earning 250,000 pa ) also received a $220,000 dollar and easily gets approved on $800,000 as his income can easily meet the repayments.
No disrespect intended James … I’m not even going to talk to you about the fiat system and I can assure also that I;m well aware that lending has been taking place for thousands of years … long long before paper (fiat) money was ever thought of. It failed with the egyptians, romans, french, british, americans, greeks and germans … and it will always fail.
The goal of fiat systems are ‘to smooth out the gaps between booms and busts’
Booms and busts are just like tides – tide comes in we’ll call it a boom, tide goes out we’ll call it bust ?
Now … did you ever hear of a King called Canute ?
The significance is the economist advisers told the King ’Do as we say … just give the order and the tides will obey"
As you’ve seen on the billboards … Yeah right – TUI
Cheers Jamie … hope this has been helpful to you, all the best!