1
   

Economic Question

 
 
Reply Sun 10 Dec, 2017 09:29 pm
Hey, I've got a question about Money/Economics.

A long time ago, one of my friends suggested that it'd be better to have a system which only allows the leasing/renting of houses, with no ability to permanently buy a house. He said that an advantage of this would've been that there'd be more money circulating in the system.

Is this true? Can someone please tell me some of the Advantages and Disadvantages to these theories?
  • Topic Stats
  • Top Replies
  • Link to this Topic
Type: Question • Score: 1 • Views: 3,596 • Replies: 8
No top replies

 
roger
 
  1  
Reply Sun 10 Dec, 2017 10:30 pm
@Pisiu248,
If someone owned the house that someone else were renting, don't you suppose they came into their ownership status by buying it. The net effect on money in circulation would almost have to be approximately zilch.

If increase in money in circulation were considered good, I'm reasonably sure the Federal Reserve could handle the situation.
AngleWyrm-paused
 
  1  
Reply Mon 11 Dec, 2017 12:56 am
The primary use of real estate by the banking system is as a claimed asset upon which to heap loans. That is to say, if I have a house worth 1/2 million USD, then I can take out a loan for 1/2 million. Furthermore, if the loan is good enough that it's unlikely to default, I can continue taking out more 1/2 million dollar loans.

There's no end to it, except if something goes wrong. Like if one of those loans fails and the house is forfeit. Then the fit hits the shan. But also not so good for the current bank model is the idea of paying off a loan. Because then they don't have the asset they print money with.

More rental properties removes some of the absurdity from the equation, as landlord purchases from developers are designed to pay off soon and start earning the landlord some dough.
roger
 
  2  
Reply Mon 11 Dec, 2017 01:14 am
@AngleWyrm-paused,
I don't really believe you can take out multiple 1/2 million dollar loans on the same asset. Your second mortgage might, and I emphasize might produce a loan of up to 80% of your equity.
0 Replies
 
AngleWyrm-paused
 
  1  
Reply Mon 11 Dec, 2017 03:03 am
Quote:
I don't really believe you can take out multiple 1/2 million dollar loans on the same asset.

Not only does it happen all the time, several attempts have been made to prevent excess multiples. At first banks were all assuring us that 10 loans against one house was ok, because it would fail less than 1/10 of the time. They're up around 100:1 these days. These are the assets that belong to the bank, not the loan-ee.

The economic depression of 2008 was attributed to real-estate deals gone bad, and it's likely that there was some reverse-Ponzi schemes in play, where bad loans were being juggled like hot potatoes, and Humpty Dumpty broke his toy.

They've since written new laws to prevent that kind of thing, and then those laws were repealed so that that kind of thing could be repeated.
roger
 
  1  
Reply Mon 11 Dec, 2017 03:23 am
@AngleWyrm-paused,
The buyer owns the Asset; the lender owns the Note Receivable.

If you're saying it's legal, feel free to document your belief. I am inclined to think you are confusing borrowing with fractional reserve banking.
0 Replies
 
Pisiu248
 
  1  
Reply Mon 11 Dec, 2017 06:32 am
@roger,
The owner in this case was presumably the government, which owns all land and has abolished private property, does that change much?
0 Replies
 
AngleWyrm-paused
 
  1  
Reply Mon 11 Dec, 2017 06:36 am
Quote:
I am inclined to think you are confusing borrowing with fractional reserve banking.
Oh I'm pretty sure someone is confusing things, just not you or me.

bank owns property -- bank asset = 1/2 million dollar house.
bank pops 1/2 million dollars into a buyer account out of thin air, balances it with a notes receivable on their end, and covers it with the house as capital.
They then go on to publish a lot of 1/2 million dollar loans, claiming that same house as the assets they have covering the loans/promisory notes.

Loans create money on a promise to pay it back out of existence. That is to say, giving money 'back' to the bank cancels that money out with the notes receivable, except of course the part they keep, the interest paid in addition to the magic money coming & going.

When the loan fails, someone goes after the property backing it up -- in this case a 1/2 million dollar house. That's when the trouble hits, because there's still a bunch of loans that claimed an asset that's undergoing radical changes in ownership.
0 Replies
 
cicerone imposter
 
  1  
Reply Wed 19 Dec, 2018 04:45 pm
@AngleWyrm-paused,
We've already been through a housing bubble that ended up with our Great Recession in 2008-2009. https://en.wikipedia.org/wiki/Great_Recession
0 Replies
 
 

Related Topics

Dollar circulation map - Discussion by gungasnake
Who Deserves to Be on Money, But Isn't - Discussion by Brandon9000
The future of money - Question by Cyracuz
HOW TO GET WEALTHY - Discussion by farmerman
$100 B series 1950 - Question by Carl W Vincent
Places in house to hide a wallet? - Question by singlesucks13
 
  1. Forums
  2. » Economic Question
Copyright © 2019 MadLab, LLC :: Terms of Service :: Privacy Policy :: Page generated in 0.03 seconds on 12/10/2019 at 08:21:39