Quote from: jtimon on July 18, 2011, 07:11:13 AM

My point is that with money interest will never go to zero.

Quote from: jtimon on July 18, 2011, 05:58:10 PM

If the demand for that capital was fully satisfied, the capital yield would tend to zero.

Quote from: jtimon on July 19, 2011, 11:26:52 AM

Quote from: hugolp on July 18, 2011, 07:50:02 PM

Quote

Simply by competing "dishonestly" with other capitals. The accumulation of every type of capital stops when that type of capital yields less than money itself (which as said doesn't produce any good or service on its own).

I think you are getting it upside down. Money produces a yield because there are people willing to borrow it. If nobody borrows money does not produce interest.

Now if there are no real world projects that are profitable at a certain interest rate, nobody will borrow. Therefore money will yield absolutely nothing. What savers will do (through the financial system) is lower interest rates until they find someone willing to borrow, meaning that the yield of capital will be higher than the interest of money. Does that makes sense?

That makes perfect sense.
The problem is that we can't reach the point where nobody borrows because there's no capital to invest in. Before reaching that point we reach the point where nobody lends, because holders can make more profit from their liquidity than what they could get from borrowers.
That point, even with no growth, is well above 0% (2%, 3%?).

Combining the three statements, you say:

capital yield > interest > capital yield > 0
Which can't be.

Quote from: jtimon on July 20, 2011, 04:00:33 PM

Quote from: Rassah on July 19, 2011, 04:51:57 PM

If you take the gross interest, and subtract assumed inflation rate and the risk premium, the only thing left would be profit, which in our vastly large, liquid, and competitive currency market, is pretty much 0. That's profit on just currency lending alone. But most profit comes from either sale of services or goods. Paper itself doesn't give a profit other than through someone else's work, and that someone else is free to chose where they get their paper in an extremely competitive and saturated market. So I just can't wrap my head around this claim. Where is this hidden, and seemingly impossible, profit coming from? Is it a relic of when banks were few, information wasn't easily exchanged, and banks could get away with charging you way more for the loan than your risk called for?

So the liquidity premium/basic interest doesn't exist? It's only profit that tends to zero by competition, inflation and risk premiums for money?
Do you at least agree that it would cause (if it existed) the undesirable effects I'm describing?

I pretty much agree with the gross interest consisting of risk premium and profit. The aggregate profit I would call growth of economy. If there is nothing to grow (Japan by the way is a great example, as mentioned here before!), profits of all firms tend to zero (a few may last a bit longer and grow faster and quickly reach the equilibirum). So one could assume, the interest still consists of the risk premium. This is theoretically correct, but if there are no borrowers, there is also no risk premium. Also it becomes almost inifitely easy to pay back loans, since interest tends to zero. So both components of interest tend to zero. Imagine a market where nobody wants any money! There can neither be interest nor can there be use for the money-owners.
One could loosen the assumptions here and say "in reality, it never reaches zero", because of several reasons:
-there is always some rate of technological development
-there is always someone who needs money because he did miscalculation within his budget
-there is always someone who thinks he can make money from investment even if he can't

Nevertheless, the implications of my theory remain valid: Higher growth rates lead to higher wage gap, higher wealth gap and to a higher worth of money and education.
Japan actually is a really nice example because some "numbers" of japan appear at the top of some ranking, e.g. Japan in the 90's was the second most equal contry of the world (only highly redistributing denmark had a lower gini coefficient).
japan has the highest government debt in the world. this might have different reasons, but the reason the debt remains is, that due to low interest its somehow irrelevant.
japan has the worlds highest wealth per capita (200.000$). Fits in my theory. Wealth isnt s valueable within a low interest framework, so you need more to provide for the future AND that high wealth did not lead to higher gap in income as one could assume in a high interest environment.

I am lazy but somewhere you wrote something like "how can there be interest while a depression".
I am not sure if we ever had a worldwide recession at a time where we also surveyed data about interest and growth. In the latest recession there still was economic growth in the average world (I think around 4%). The only thing that makes my model somewhat unrealistic is, that large differences in interestrates are possible between countries. e.g. why doenst china suck up all the low interest money of japan and US and boost their growth a little? interestrates should then converge; again this is somewhat prohibited by customs and central bank policies. Maybe this is already happening on a larger scale as I think and it just takes its time.