[kitchencabinetforum] REAL NATURE OF INTEREST

Originary interest is the ratio of the value assigned to want-satisfaction in the immediate future and the value assigned to want-satisfaction in remoter periods of the future. It manifests itself in the market economy in the discount of future goods as against present goods. It is a ratio of commodity prices, not a price in itself. There prevails a tendency toward the equalization of this ratio for all commodities. In the imaginary construction of the evenly rotating economy, the rate of originary interest is the same for all commodities.

Originary interest is not the price paid for the services of capital. The higher productivity of more time-consuming, roundabout methods of production, which is referred to by Boehm-Bawerk and by some later economists in the explanation of interest, does not explain the phenomenon. It is, on the contrary, the phenomenon of originary interest that explains why less time-consuming methods of production are resorted to in spite of the fact that more time-consuming methods would render a higher output per unit of input.

Moreover, the phenomenon of originary interest explains why pieces of usable land can be sold and bought at finite prices. If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it. Land could neither be bought nor sold against definite amounts of money, nor bartered against goods which can render only a finite number of services. Pieces of land would be bartered only against other pieces of land. A superstructure that can yield during a period of ten years an annual revenue of one hundred dollars would be priced (apart from the soil on which it is built) at the beginning of this period at one thousand dollars, at the beginning of the second year at nine hundred dollars, and so on.

Originary interest is not a price determined on the market by the interplay of the demand for and the supply of capital or capital goods. Its height does not depend on the extent of this demand and supply. It is rather the rate of originary interest that determines both the demand for and the supply of capital and capital goods. It determines how much of the available supply of goods is to be devoted to consumption in the immediate future and how much to provision for remoter periods of the future.

People do not save and accumulate capital because there is interest. Interest is neither the impetus to saving nor the reward or the compensation granted for abstaining from immediate consumption. It is the ratio in the mutual valuation of present goods as against future goods.

The loan market does not determine the rate of interest. It adjusts the rate of interest on loans to the rate of originary interest as manifested in the discount of future goods.

Interest rates are at historic lows for three reasons. First, the recession has dampened investment demand and thus lowered interest rates across the economy. Second, the Central Bank has actively kept interest rates low. Third, investors decided that deposits are the safest place to park their money. All three factors will reverse themselves.

At some point, the economy will recover. When that happens, those seeking home, auto and business loans will be competing with government to borrow from the same limited pool of savings, resulting in higher interest rates. To prevent inflation, the Central Bank will likely pull out the new money they had poured into the economy, and raise interest rates. Finally, at some point investors will move their money back to a stabilized stock market, thus forcing the Treasury to offer higher interest rates to attract buyers.

Accordingly, interest rates are virtually guaranteed to jump over the next few years. Had the government relied more on long-term bonds, it could have locked in affordable interest rates. Instead, the Treasury went for short-term teaser rates, providing temporary savings but exposing the government to higher interest rates when these bonds must be refinanced in the next couple of years.

Basil Venitis asserts the Fourthreichian bank stress tests are a hoax! Fourth Reich(EU) wasted an opportunity by not pushing harder criteria and by leaving important crisis scenarios out of the tests, such as Eurokleptocracy, gigaregulation, Antitrust Armageddon, gigataxation, especially VAT, a real estate crash, the collapse of certain markets, and total defaults of PIGS. The hoodwinking test did not bring any real insights. The whitewashed test criteria prevented what could have been an opportunity to really clean up the banking sector. Stress tests were never expected to show massive capital shortfalls, as banks have also already raised about 300 billion euros since the start of the crisis, which includes about 170 billion euros of government support to 34 banks.

Venitis notes one scenario used in the fake stress test was a drop in the value of Fourthreichian government bonds. The test assumed a 23% drop in troubled Greek bonds relative to their levels at the end of 2009. Five-year German government bonds, on the other hand, dropped just 4% in the scenario. The writedowns, only done on paper, were based on the securities that are already listed in the banks' account books in which all securities that are meant for sale must be listed at their market values. But most government bonds are held in the bank book, meaning they are not intended for sale but will be kept until they mature. Bonds held in the bank book were not included in the test.

Basil Venitis, an Athenian orator, points out fiat currencies trade people's freedom and security for the government's freedom to squander the wealth of the nation on wasteful pet programs, wars, and corruption. This is why the freedom of the people is so intertwined with a sound monetary unit. This is also why venitists like gold and silver, and supporters of big government hate them.

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