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Mobile Loans Ponzi
Rank: Elder Joined: 7/22/2009 Posts: 7,845
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When you borrow for businessIf I borrow for business (and it works out) I will have more money in my pocket but there will be no more money in circulation from the bigger picture point of view. The more money in my pocket will have come from another business person's pocket. Take an example of where I start selling chicken in addition to my groceries. Assuming my groceries customers were buying chicken from another chicken seller 3 shops away, some will now buy from me. The customers will not all over sudden start buying two chickens because we are now two chicken sellers. If my sales go up by x, you better believe they have gone down by x elsewhere. If I was making m and the other seller y earlier, now we will have (m + x) + (y - x) - bank interestwhich is m + y - bank interest This is less total money than earlier! But personally I will not care because I will have more money in my pocket! But the total money in general will be less. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 7/22/2009 Posts: 7,845
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Long term, low interest rate is a totally different story. That would bring in inflation and/or volatility. We would borrow money that we don't need to pay any time soon and flood the market with a lot money chasing few products and the prices would rise. Of course when it comes time to pay, our expenditure will go down as we channel the money to repaying the loan and hence the volatility. Inflation would be all over the place. Sometimes very high, sometimes very low, sometimes in between. That is why fares are more stable throughout the day in rural areas (route za huko ndani) as opposed to urban areas. In urban areas, demand spikes in the morning and evening lead to much higher fares and decrease in demand during the day lowers them to less than half. Cheap, long tenure loans would have similar effects. You don't want an entire economy to operate like that. That is why CBK buys and sells dollars to stabilise the currency for example. Otherwise the shilling would be very strong during peak tourist seasons, tea, coffee etc. harvest and export and tumble the months we are doing more importing than exporting. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 1/1/2011 Posts: 396
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MaichBlack wrote:When you borrow for business
If I borrow for business (and it works out) I will have more money in my pocket but there will be no more money in circulation from the bigger picture point of view.
The more money in my pocket will have come from another business person's pocket.
Take an example of where I start selling chicken in addition to my groceries. Assuming my groceries customers were buying chicken from another chicken seller 3 shops away, some will now buy from me. The customers will not all over sudden start buying two chickens because we are now two chicken sellers. If my sales go up by x, you better believe they have gone down by x elsewhere.
If I was making m and the other seller y earlier, now we will have
(m + x) + (y - x) - bank interest
which is m + y - bank interest
This is less total money than earlier!
But personally I will not care because I will have more money in my pocket! But the total money in general will be less.  the mere extesion of credit increases money supply immediately as the credit-based transactions exceed the total printed currency in circulation. Regardless of the borrowers' success in their endeavours the increased money in circulation still changes hands. In other words, unless everyone in a given economy was required to settle all obligations in physical fiat currency at the same time ( i.e. probably within the same 24 Hr period), then money supply is ever-expanding.
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Rank: User Joined: 8/15/2013 Posts: 13,237 Location: Vacuum
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jmbada wrote:MaichBlack wrote:When you borrow for business
If I borrow for business (and it works out) I will have more money in my pocket but there will be no more money in circulation from the bigger picture point of view.-Wrong, If you borrow whether for consumption or business, there is more money in circulation since either way you will spend it
The more money in my pocket will have come from another business person's pocket.
Take an example of where I start selling chicken in addition to my groceries. Assuming my groceries customers were buying chicken from another chicken seller 3 shops away, some will now buy from me. The customers will not all over sudden start buying two chickens because we are now two chicken sellers. If my sales go up by x, you better believe they have gone down by x elsewhere.
If I was making m and the other seller y earlier, now we will have
(m + x) + (y - x) - bank interest
which is m + y - bank interest
This is less total money than earlier!
But personally I will not care because I will have more money in my pocket! But the total money in general will be less. the mere extesion of credit increases money supply immediately as the credit-based transactions exceed the total printed currency in circulation. Regardless of the borrowers' success in their endeavours the increased money in circulation still changes hands. In other words, unless everyone in a given economy was required to settle all obligations in physical fiat currency at the same time ( i.e. probably within the same 24 Hr period), then money supply is ever-expanding. Money supply in an economy is primarily affected by the monetary policy. Increase in interest rate=reduced money supply and vice versa. Inflation is caused if there is increase in money supply with no corresponding increase in output. P.s There is no correlation between loan tenor and inflation. MaichBlack wrote:Long term, low interest rate is a totally different story. That would bring in inflation and/or volatility. We would borrow money that we don't need to pay any time soon and flood the market with a lot money chasing few products and the prices would rise.
If Obiero did it, Who Am I?
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Rank: Member Joined: 2/20/2007 Posts: 767
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@swenani, @Maich, I think you guys are quoting theories learnt in highschool. What I know is that 1. Inflation is the progressive increase in prices of goods and services over time. 2. In Kenya today, when interest rates go up, the next thing to go up will be cost of fuel and before long everything else will go up. That is the reality. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 2/20/2007 Posts: 767
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MaichBlack wrote:tom_boy wrote:@Maich, kindly fafanua how mobile loans do not increase money supply. I am really interested in learning this point. As a river road economist, I think they increase money supply. Okay. Here we go. First off, remember we are talking about short tenure, high interest loans. Practical Example:Assume I have 30,000/= to spend every month. In January I have 30,000/= and I take 30,000/= loan. I will get 27,000/= (or less) because they deduct the interest/service charge upfront. Now I have 57,000/= to spend in January. In February I will spend 0/= because the 30,000/= will go to repaying the loan. Total spending money for the 2 months = 57,000/=. If I had not taken the loan, total spending money would have been 60,000/=!!! What if I keep taking a new loan every month for the whole year??? It would be worse! If I want to end the year loan free (how I started in January) I would borrow up to November. December money pays for November. So my total spending money for the year would be: 57,000/= + 27,000/= × 10 = 327,000/= If I hadn't borrowed my spending money would have been 30,000/= × 12 = 360,000/= I can keep extending the loan/re-borrowing as long as I want but that only makes things worse because every month I will have 3k less to spend till the day I stop borrowing (and skip a month of spending for the final repayment). Problem with this analogy is that you assume the individual will stop borrowing.
Most likely scenario is the individual will borrow every month until they are not able to pay.
Imagine a worst case scenario where 100% of bank loans are on mobile. What happens when these people progressively stop paying back one month after another. That is when you borrow to spendNext.... They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: User Joined: 8/15/2013 Posts: 13,237 Location: Vacuum
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tom_boy wrote:@swenani, @Maich, I think you guys are quoting theories learnt in highschool.
What I know is that
1. Inflation is the progressive increase in prices of goods and services over time.-Who disputed this? What causes the progressive increase?
2. In Kenya today, when interest rates go up, the next thing to go up will be cost of fuel and before long everything else will go up. e.g when?
That is the reality. If Obiero did it, Who Am I?
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Rank: Elder Joined: 7/22/2009 Posts: 7,845
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tom_boy wrote:MaichBlack wrote:tom_boy wrote:@Maich, kindly fafanua how mobile loans do not increase money supply. I am really interested in learning this point. As a river road economist, I think they increase money supply. Okay. Here we go. First off, remember we are talking about short tenure, high interest loans. Practical Example:Assume I have 30,000/= to spend every month. In January I have 30,000/= and I take 30,000/= loan. I will get 27,000/= (or less) because they deduct the interest/service charge upfront. Now I have 57,000/= to spend in January. In February I will spend 0/= because the 30,000/= will go to repaying the loan. Total spending money for the 2 months = 57,000/=. If I had not taken the loan, total spending money would have been 60,000/=!!! What if I keep taking a new loan every month for the whole year??? It would be worse! If I want to end the year loan free (how I started in January) I would borrow up to November. December money pays for November. So my total spending money for the year would be: 57,000/= + 27,000/= × 10 = 327,000/= If I hadn't borrowed my spending money would have been 30,000/= × 12 = 360,000/= I can keep extending the loan/re-borrowing as long as I want but that only makes things worse because every month I will have 3k less to spend till the day I stop borrowing (and skip a month of spending for the final repayment). Problem with this analogy is that you assume the individual will stop borrowing.
Most likely scenario is the individual will borrow every month until they are not able to pay.
Imagine a worst case scenario where 100% of bank loans are on mobile. What happens when these people progressively stop paying back one month after another. That is when you borrow to spendNext.... Can you read @tom_boy??? Read the entire last paragraph starting with first line. Slowly!!! Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 7/22/2009 Posts: 7,845
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tom_boy wrote:@swenani, @Maich, I think you guys are quoting theories learnt in highschool.
What I know is that
1. Inflation is the progressive increase in prices of goods and services over time.
2. In Kenya today, when interest rates go up, the next thing to go up will be cost of fuel and before long everything else will go up.
That is the reality. I give up on you. Officially!!! Let's allow others to continue with this discussion. We have both said what we wanted to say. We might bore people to death. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: New-farer Joined: 12/14/2015 Posts: 29
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How the Economic Machine Works- Ray DalioThe hot stock is the one that everyone thinks that everyone else thinks....is the hot stock (Dixit & Nalebuff, 2008).
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