<html><head><style type="text/css"><!-- DIV {margin:0px;} --></style></head><body><div style="font-family:arial, helvetica, sans-serif;font-size:12pt"><DIV>I'm not sure microlenders here are creating money. My impression was they have money that they loan out -- not that they are, say, like fractional reserve banks or fiat money central banks, producing money beyond their reserves.</DIV>
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<DIV>As for charging interest, there's nothing fundamentally wrong with this. Market interest rates, setting aside other coercive interferences in them, basically have three components: a risk premium, a price premium (which confuses things a little here, but that's the terminology), and time preference. The first is the lender's assessment of how likely it is for the borrower to pay back the loan -- the risk of default, in other words. The second is what the likely inflation is going to be when the loan is paid back. For instance, if inflation were going to double the money supply by the time of payment, the lender would want to be paid at least twice the amount back.</DIV>
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<DIV>The third, however, is a stumbling block for most people. Time preference is how much someone values the present over the future -- or, more particular, a present good or service or what one believes its future otherwise equivalent good or service (this is, of course, based on subjective valuations -- not physical identity). For a trade to happen here, there must be a difference in how the lender and borrower value these things. (This is true of all trades. Trades only happen because people have different valuations for things.* If, say, you value my apple more than your pencil and I value your pencil more than my apple, we have the basis for a trade.) In essence, the lender and borrower must come to some agreement on what's to be loan, for how long, and what's to be paid back. The difference, in money terms, in what's paid back is the interest. (The interest rate is merely dividing the money amount of what's paid back by what's loaned out over
a specific time period -- and stated in percentage terms.)</DIV>
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<DIV>Plugging this back into people complaining about high interest rates, this only amounts to people not liking the interest rates being offered. There is nothing scientific about this -- in other words, if it's uncoerced, these interest rates are merely what people agree to pay and no third party can say they are too high or too low. In an uncoerced setting -- which doesn't mean nirvana or a setting where everyone gets whatever she or he wants -- there is no such thing as the interest rate being wrong. (And if particular people can't agree to trade here -- as happens often enough as merely wanting to lend or borrowing or buy or sell doesn't always end in a trade -- then the trade simply doesn't take place.)</DIV>
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<DIV>Regards,</DIV>
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<DIV>Dan</DIV>
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<DIV>* This is not to say the valuations don't change. In the example that follows, I might latter regret trading my apple for your pencil. Of course, any trade is going to be forward-looking with the people trading both expecting to be better off in the future -- maybe immediately following the trade or, in the case of long-term loans, years afterward. (Think of someone who trades nights when she could be out partying for night school to get an advanced degree. Her benefit is definitely not immediate and she might be completely wrong about her expectations: maybe her goal was more money, but she finds she doesn't make enough to even cover the student loans.)</DIV>
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<DIV style="FONT-SIZE: 10pt; FONT-FAMILY: arial, helvetica, sans-serif"><FONT face=Tahoma size=2><B><SPAN style="FONT-WEIGHT: bold">From:</SPAN></B> Stefano Vaj <stefano.vaj@gmail.com><BR><B><SPAN style="FONT-WEIGHT: bold">To:</SPAN></B> ExI chat list <extropy-chat@lists.extropy.org><BR><B><SPAN style="FONT-WEIGHT: bold">Sent:</SPAN></B> Tue, November 23, 2010 9:38:33 AM<BR><B><SPAN style="FONT-WEIGHT: bold">Subject:</SPAN></B> Re: [ExI] Micro-loan programs not as successful as hoped<BR></FONT><BR>2010/11/22 Dan <<A href="mailto:dan_ust@yahoo.com" ymailto="mailto:dan_ust@yahoo.com">dan_ust@yahoo.com</A>>:<BR>> Basically agreed. When people complain about a price being too high or too<BR>> low (in an uncoerced setting*), they demonstrate a misunderstanding about<BR>> how prices work. None of these claims hold up under scientific scrutiny.<BR><BR>OTOH, money need not be supplied "for a price", let alone after having<BR>been
produced out of thin air by some private entity.<BR><BR>-- <BR>Stefano Vaj</DIV></DIV></div><br>
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