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Post by zzr600 on Apr 1, 2015 13:20:08 GMT
As many of you know, 'money' in the modern world comes into existence when commercial banks make a loan, also see article here. This is self-inflationary as there is practically no limit to the amount of money that can be created. Conversely, the P2P model, whereby loans are only made that can be backed 100% by savers' money, does not itself create money, merely redistributes it. Therefore, the P2P model, in a fiat currency world, is massively deflationary. I personally don't think deflation is a bad thing (how can it be bad if the car/house/pint of milk I need to buy is cheaper than it was a few months/years previously, as I save money) but the powers that be are desperately trying to battle deflation as (a) they perceive it to result in lower economic growth and (b) is means less opportunity for financial wizards to make money and transfer wealth from poor to rich. Therefore, I think the P2P model will never be allowed to succeed. It undermines the current system and at most, it will be allowed to continue as a niche product. That's not to say that it will be deliberately sabotaged, but that P2P lenders will never be covered by the government's guarantee scheme as banks currently are and ISAs may well never materialise. This is to discourage transfer of money from traditional banks to the P2P model. Any thoughts? |
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Post by yorkshireman on Apr 1, 2015 13:58:05 GMT
I personally don't think deflation is a bad thing (how can it be bad if the car/house/pint of milk I need to buy is cheaper than it was a few months/years previously, as I save money) I agree 100% with that but it’s too simple for the so called financial and economic “experts” (and politicians) to comprehend as they all live in a parallel universe rather than the real world.
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am
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Post by am on Apr 1, 2015 13:58:20 GMT
"Economists generally believe that deflation is a problem in a modern economy because it increases the real value of debt, and may aggravate recessions and lead to a deflationary spiral." (Wikipedia)
The other recessionary feature of deflation that I have read about is that is causes people to postpone purchases in the expectation of being able to buy more cheaply later.
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Post by zzr600 on Apr 1, 2015 14:03:14 GMT
The other recessionary feature of deflation that I have read about is that is causes people to postpone purchases in the expectation of being able to buy more cheaply later. Totally false assumption in my opinion. If I need to buy milk today, I do so, not wait a few months for the price to drop. Ditto a car if I need one because my current one is broken, or just about anything else I can think of. It means I'm left with more disposable income for other things and gives me more purchasing power in the long run.
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jonno
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nil satis nisi optimum
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Post by jonno on Apr 1, 2015 14:09:00 GMT
The other recessionary feature of deflation that I have read about is that is causes people to postpone purchases in the expectation of being able to buy more cheaply later. Totally false assumption in my opinion. If I need to buy milk today, I do so, not wait a few months for the price to drop. Ditto a car if I need one because my current one is broken, or just about anything else I can think of. It means I'm left with more disposable income for other things and gives me more purchasing power in the long run. Agreed.After all, the price of tech items like T.V's have been falling ever since I can remember, but it has never stopped people buying them by the millions.
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Post by zzr600 on Apr 1, 2015 14:19:48 GMT
But back to my original question, do others think the P2P model will be doomed to fail in the longer run due to vested interests?
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acorn
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Post by acorn on Apr 1, 2015 14:34:55 GMT
It is worth remembering that FSCS protection only happened in December 2001, and the £85,000 only from 31 Dec 2010.
There is a lot being done ATM to promoted "the sharing economy", which gives people access to extra income which would not normally be available to them. A good example is JustPark, who have just raised three times more investment than they were asking for in a fortnight on Crowdcube.
P2P finance is an important part of the sharing economy and there is a drive for the UK to be world leaders - see the Govt. commissioned "Sharing Economy Review" by Debbie Wasskow.
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Post by batchoy on Apr 1, 2015 14:47:41 GMT
Totally false assumption in my opinion. If I need to buy milk today, I do so, not wait a few months for the price to drop. Ditto a car if I need one because my current one is broken, or just about anything else I can think of. It means I'm left with more disposable income for other things and gives me more purchasing power in the long run. Agreed.After all, the price of tech items like T.V's have been falling ever since I can remember, but it has never stopped people buying them by the millions. It is not necessarily a false assumption. Many purchases are made due to a perceived need to replace rather than an actual need to replace i.e. the replacement of a perfectly serviceable 3D HD TV with an 3D 4K TV simply because 3D 4K TV is the latest thing and early adopters of 4K TVs will pay a premium for the latest technology, whilst late adopters of 3D HD TV will be paying much lower prices. Whilst a small amount of deflation is no bad thing, when it becomes noticeable and your 3D 4K TV becomes cheaper by the week rather than over a period of months then yes people do start delaying purchases and only purchase items when there is an absolute need to replace an item which creates problems for retailers and manufacturers as product stops selling. In the case of TVs you may well find that many people wouldn't immediately replace their TV even if their old one had broken given that TV programmes are available on a myriad of other platforms, leaving the purchase until just before a major televisual event such as the Olympics or World Cup. A short term example of not purchasing due to noticeable deflate was that when fuel started dropping rapidly in price instead of topping up our vehicles we ran them almost to the point where they were out of fuel in order to get the lowest price possible.
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Post by zzr600 on Apr 1, 2015 14:48:24 GMT
My point is that in the current system (whether the government likes P2P lending or not) moving to a full reserve banking system (if ALL lending is done P2P) brings money creation by private banks to a halt and completely undermines the financial system that relies on constant inflation.
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Post by zzr600 on Apr 1, 2015 14:56:02 GMT
A short term example of not purchasing due to noticeable deflate was that when fuel started dropping rapidly in price instead of topping up our vehicles we ran them almost to the point where they were out of fuel in order to get the lowest price possible. Maybe, but in the end, the same volume of fuel was sold, as mileage was never reduced. Also, as a consumer, I may have paid a bit less for my fuel, which left me a bit more money to spend on other things, thereby benefiting some other retailer, what's the problem with that? In a proper supply/demand economy, prices would be set by efficiency of production and transport, availability of resource and real wealth, not by fluctuations in the availability/value of the medium of exchange (the currency we use, an instrument of debt).
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Post by batchoy on Apr 1, 2015 14:59:51 GMT
But back to my original question, do others think the P2P model will be doomed to fail in the longer run due to vested interests? There is no one P2P/P2B model and I think some will live on, particularly niche players with a clear vision of their product, whilst a lot will be subsumed into mainstream financial institutions simply through the encroachment of institutional money into the platforms either through edging out of personal lenders by institutional lenders or through the flotation of the platform and the consequent loss of control of the business to institutional investors which will lead take overs.
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Post by davee39 on Apr 1, 2015 16:13:31 GMT
I worry about any post which uses the arcane term 'fiat' currency since there is a greedy troll at the Daily Mail who posts bizarre doom laden comments on almost every thread....
In the 1930's deflation bred a spiral of decline as wages were cut. We have had a lengthy period of near frozen wages (for non bankers) which in the real economy is turning into lower wages - ie NHS contracting out replaces union agreed rates with labour on the minimum wage. The ultimate is the zero hours contract. Greece has suffered massive cuts to pensions and that could happen here if the cash runs out. Indebted governments and householders also need inflation to slowly reduce their debts.
None of this has anything to do with P2P. The BOE has magicked up £375 billion with no effect on inflation and I find it hard to see how using technology to lend a mate a few bob could have dire consequences. What may happen is that as P2P becomes mainstream the rates on offer drop, reflecting demand for better returns on investments.
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mikes1531
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Post by mikes1531 on Apr 1, 2015 16:25:58 GMT
I worry about any post which ... I worry about any poster who 'Likes' their own postings! 
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am
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Post by am on Apr 1, 2015 16:37:17 GMT
I worry about any post which uses the arcane term 'fiat' currency since there is a greedy troll at the Daily Mail who posts bizarre doom laden comments on almost every thread.... Fiat money is not an arcane term. It just means money that is not backed by specific assets. (One could argue that the money is backed by the totality of economic activity.) The problem is not with the term, but with the people who decry fiat money, such as goldbugs. The problems with requiring money to be backed by assets include that economic growth is at the mercy of the production of new assets, and that the relative value of assets changes over time with the result that bimetallism is (said to be*) unstable. Fitting the money supply to the economy may not be trivial with fiat money, but I suspect that it easier that trying to fit rates of asset production to the economy. * It is said that you can line up 100 economists and still not reach a conclusion, and indeed there are, fide Wikipedia, economists who disagree on the instability of bimetallism.
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Apr 1, 2015 17:03:33 GMT
My point is that in the current system (whether the government likes P2P lending or not) moving to a full reserve banking system (if ALL lending is done P2P) brings money creation by private banks to a halt and completely undermines the financial system that relies on constant inflation. I see your point, but if mortgage rates are kept very low, then P2P lenders are more likely to put their savings in P2P than pay off their mortgage. I've even considered re-mortgaging to invest in P2P. Does that help money creation?
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