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Better business finance

Jan 03 2014 07:09
*Edward Ingram
THIS is the final instalment of a three-part series.

The first of the previous two columns is The Low Inflation Trap, which describes the problem of instability in finance and savings which makes it almost impossible to recover an economy with very low interest rates back to a normal thriving and stable condition.

The second, Safe alternatives, offers solutions in the form of new mortgage and government debt models.

The low inflation trap is my name for the problems of extreme interest rate sensitivity that entraps Japan, and now also the leading low interest rate/low inflation economies which are unable to plot a safe and rapid economic recovery path because of their extreme sensitivity to interest rates.

This does not happen to such an extent when interest rates are more normal (higher), because it is low interest rates combined with the lending structures that we are using which underpin the property and bond price bubbles that result, and whose collapse so threatens the whole economy.

So last week we looked at ways that can protect the wealth of savers (pension funds and annuities included), and borrowers including government borrowers and mortgagees; and how by doing this, everyone benefits - including the whole economy.

It not only removes the threat and so provides an escape route out of the low inflation trap, but it also makes everyone’s finances much safer for the rest of time – for evermore.

What about business finance?

Business finance can be made much safer as well, because a mixture of wealth bonds as described last week, paying only the true interest - or even being interest-free initially - and later repaying in a variety of possible ways, including mortgage repayment schedules like those described last week, in the safe alternatives script, can be designed in such a way as to keep borrowing costs down until there has been time for the investments made to show results.

Importantly, as also explained, with property values now reasonably safe and unlikely to crash, business loans can be more generous and better protected by collateral security.

So, rolling up some or all of the interest may not be the threat to the borrower (or the lender) that it may have been in the past; and with these new financial services/investments in place, people, businesses, lenders and governments will all be safer and the economy will not be panicked into any crises like the ones we have seen every few years for the past century and more.

There will be no low inflation trap. Inflation can be reduced without the usual pain or worry. Businesses and lenders will both know that no economic crises of that nature lie ahead.

Central bank economists will not need to worry about things like human behaviour not being easily understood. We will have human behaviour that is based upon safe finances, and that will make both people and policymakers(!) relatively predictable.

Interest rates and currencies will be less volatile for two reasons – a more stable economy, and safer bonds and other investments. A new era of financial stability will begin.

Next week I will write about pure inflation – what it is and why it is important to get as close to that as possible. The above new savings and debt models are a significant part of getting there. But there is more.

 - Fin24

Edward Ingram has a strong and growing support base. One American has started a petition asking President Barack Obama and/or his senate committees to look into these ideas.Ingram says: “Why not here in South Africa? The ideas are universal.”

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investments  |  money

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