When we create debt, we repay the debt, and the lender charges interest for the use of the money. How much should the borrower pay, and is there a way to reduce the cost of debt?
Interest and Sharing
The graph is from the table on the left. The first line says 5%, 0%, $200,000 and $105,000. It means the borrower paid $200,000 for a 20-year loan of 5%. The interest share was 0% to the lender's bank and 100% to the borrower. If the interest paid is taken off the amount owed, it is the cheapest loan. The borrower pays back the $200,000, and the lender bank receives $105,000 in interest. For a community, the cost of creating $200,000 is $105,000.
If the bank keeps 100% of the interest, the borrower pays $320,970, and the lender gets $120,975. In this case, the cost of $200,000 is $241,941.
The cheapest way for the community to increase the money supply with a loan is to set the interest rate to cover the cost to the lender bank plus a reasonable profit and to deduct 100% of the interest from the amount owing.
There is another way for the community to increase the money supply. The lender and borrower can work through a common entity that they jointly own.
Permanent Asset Market
A Permanent Asset Market is one in which the Asset remains unless the owners of the Market — the buyers and sellers jointly decide to sell the Asset.
The above is a simplified model of the operation of the Company. Investors get a 5% return on their original investment as a new share investment. They must sell 5% of their original shares each month.
The buyers also purchase 5% of the investor shares from their payments to the Company.
Each month, the Company recalculates its value and adjusts the shares held according to a formula agreed by the shareholders.
The approach eliminates interest and shares the profits between buyers and sellers, eliminating the need to create new money to transfer ownership.
Using the approach eliminates interest costs and shares the savings between the Buyer and the seller.
Permanent Asset Markets transfer the value of a company between shareholders using shares rather than money. The shares reflect the anticipated profits and the returns to shareholders come as more shares than money. Shareholders realise their profits by selling shares. The compulsory selling of shares by shareholders and buying of shares by buyers as part of a purchase of goods and services establishes a market and removes the need for a separate share market. The fixed price of shares eliminates the need for the share market to develop a price and removes the cost of a share market.
The number of shares is monitored continuously and adjusted to reflect future profitability and the depreciation of assets.
Shareholders never take money out of the Company. To realise their profits, they sell shares.
The approach is the same as that of Warren Buffet and companies who give their returns as higher valued shares. They increase the value of shares rather than issuing new shares. The difference with Permanent Asset Markets is that investors share their profits with customers who buy goods and services.
Summary
Financial derivatives like interest, bonds, insurance, puts and calls, etc., have high interest, dividend, market, and capital gains costs. They also have the hidden cost of stationary capital, which lies unused in financial products instead of being available for trading and investment. Too many financial derivatives are devoted to creating more money than goods and services. The problem is resolved by distributing (sharing) profits with each transaction when it happens. Previously, real-time distribution was costly and difficult, but modern technology has made it possible.
