Election winners

Nov 27 2013 07:08
*Edward Ingram
HAVING written a series of four essays for Fin24, all basically saying one thing – that the financial services that are on offer to the world are not up to the task, that they confuse people, and are based upon the false assumption that money never changes in value...

...some people make the important point that once people really understand what is being offered, (which undoubtedly will need a significant marketing project), it will present any opposition party with the opportunity to promote the new financial services for savings and loans as a part of an election manifesto.

In that case the ruling party would be unable to resist. Should they hesitate or even resist they would likely lose the election. Here are the vote winners:

1. Just making everyone feel significantly financially safer and so better able to plan their lives and/or their businesses is a vote winner.

The resulting boost to economic growth and employment is a vote winner.

3. The reduced risk and volatility will prevent some unloved financial institutions from grabbing wealth from the rest of the population. That is a vote winner.

4. And the idea that an easier economic recovery can be planned once these things are in place is also a vote winner. This option is outlined very briefly below – how to get away from low interest rates linked to central banks printing vast amounts of money.

In response to these ideas, an American has just drafted a petition to top American officials, for the public to sign in support of this agenda. It is early days but he has immediately attracted a lot of support.

What's on offer

Readers of my previous columns will know something about the merits of the new mortgage structures, and the benefits of wealth bonds. The same structures can be used for business finance, with benefits on both sides – borrowers and lenders.

In the essay on wealth bonds it was pointed out that some governments are, or have been, paying up to nine times too much for their borrowings when using fixed interest bonds; these bonds make it very expensive to borrow when growth rates slow or reverse, or when a government wants to reduce inflation; and at other times governments will be robbing investors through inflation.

Both ways, the instability caused is damaging to confidence, financial planning at every level, personal, business, and government, and therefore to economic growth.

Use of wealth bonds in policy making

Wealth bonds could be issued by mortgage lenders as well as businesses and governments to raise funds. Because the investment carries little if any risk to the wealth of either the borrower or the investor, the rate of interest payable would be low; but it would be the rate at which the supply and the demand comes into balance. The amount of income / GDP borrowed is the amount repaid plus some market related interest.

In the present environment of super-low real interest rates, and even negative true interest rates, (the rate of transfer of wealth from borrowers to lenders / investors), such bonds could be sold at a premium, which might reduce a government’s debt.

Governments can reduce their debt in this way, or they can use inflation to do it for them. Or by raising taxes of course. Inflation would damage confidence, taxes would slow the economic recovery. Wealth bonds would build confidence and boost economic growth.

In the present environment, housing finance and property values everywhere are vulnerable as already explained in the proposed new mortgage model and associated new science of risk management.

This would enable governments to stabilise property prices and protect borrowers from interest rate rises to the extent that the cost of repayments would constantly fall, year on year, relative to an index of average earnings / incomes no matter what was going on in the economy.

The combination of this and wealth bonds should leave currency as the only outstanding issue before economies are restored to full functioning, and a better, more financially stable future.

- Fin24

*This is a guest post from Edward Ingram, a leading specialist in mortgage finance and macro-economic design for sustainable growth who is involved in studies in macro-economic reforms.




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