An economic idea

Full disclosure: I'm not an economist.

So, with that out of the way, I have an idea (its not really my idea but it doesn't seem to be one that you hear much in the public discourse and this is my effort to promote the discussion) for helping improve the economy.

The idea?

Raise interest rates.

"What?!" I hear you ask. "How could you possibly suggest the government raise interest rates during such a slow economy? Doing so will put a huge break on what little credit flow currently exists, thereby killing the economy!"

On the surface that would indeed seem to be the case, but I ask you: why do people lend others money?

Is it altruism or are they motivated by a desire to make money?

I think we can all agree that the vast majority of institutions that lend money (banks for instance) do so as a way of making money through interest payments. The higher the interest rate the more money they can make on the money lent. The lower the interest rate the less money they can make on the money lent.

So if interest rates are kept below 1% (the currently reported prime interest rate [US] is 0.25%) where is the incentive for people to lend money?

If you were to borrow $100,000 at a rate of 0.5% with interest compounded annually over a life time of 5 years would only earn the bank $1,275.80 over the life of the loan. Less than $1,300 over five years? Why bother?

Currently the 15 year fixed rate for a home mortgage is 3.13% (the 15 year fixed rate during the boom of 1997 was averaging more than 7% by comparison). If you were to try and buy a $250,000 home with 10% down you would need to borrow $225,000. This would earn the bank $57,225.60 over 15 years (or 3,815.04 a year). Hardly a great return on the investment given the current economic climate of mass foreclosures, high unemployment and massive credit contraction on both the home owner and financial sector markets.

There is simply no incentive for people to lend money unless its to the most secure of creditors due to the lack of return given the dramatically low interest rates. The end result is that credit shrinks.

Money is lent in order to make money. Its not done in the name of altruism or a sense of fair play. Its a means of making money and the way that that is done is through interest rates. If the interest rate was raised it would give an incentive for those hoarding money to lend it out to others knowing that they could make a decent return on their investment.

The current interest rates are artificial method being implemented by the government to try and lure people into borrowing money. Great idea, but if one is to borrow money it usually requires that they have a job or enough equity to warrant an investment through debt. The current jobless rate is officially over 9% but more realistically more than 20%. The housing market has crashed and there are hundreds of thousands of home foreclosures still being processed. So the government is trying to lure people into borrowing money that they can't afford regardless of the interest rate, and simultaneously giving creditors no reason to extend credit.

People talk about supply and demand. Okay so lets look at it that way.

If the supply of borrowers exceeds the supply of lenders, then credit is harder to come by and one would expect that they would have to pay a price to gain access to credit: a higher interest rate.

If the supply of lenders exceeds the supply of borrowers, then there would be more credit available and therefore it would be easier to access credit and one would pay a lower price to gain credit: a lower interest rate.

So the low interest rate would suggest that there is massive amounts of credit available but people aren't borrowing. Funny given the massive credit contraction that has taken place over the previous two years. Reality is that credit is shrinking which would suggest that interest rates should rise reflecting the nature of supply and demand and giving creditors an incentive to lend what they do have. But no, the government is keeping the prime rate too low which offers creditors no incentive to lend what they have which furthers the credit contraction.

So, why not raise the interest rates? Give creditors an incentive to put their money out there thereby allowing those with the ability to obtain credit (even at higher rates - say 4%) get it and move the economy forward.

It can't hurt any more than the credit stagnation that the US is currently experiencing.

All things are not the same

The Church in Wales says it is investigating after a Gwynedd rector burnt some pages from the Bible.

The Reverend Geraint ap Iorwerth of St Peter ad Vincula Church, Pennal, also cut up pages from the King James Bible to create an artwork.

...

Mr ap Iorwerth told BBC Wales he had burnt scraps of cut up the passages at the public event because he had been making a statement as part of an art experiment.

Reaction?

Was there mass protests across the globe held in "Christian" nations proclaiming death and retribution to those who would desecrate their Holy text?

Nope.

An elderly woman from across the street said that she understood the man's point but that it didn't offend her.

Dead or alive

Recently I read an article from the BBC about a program being offered in Turkey called "Muslim for a Month - a programme from social enterprise group The Blood Foundation where participants get to "test-drive" a religion."

Interesting idea.

There were a few things about this struck me.

Firstly, the people in the article talked about it as essentially cultural exchange. It was an opportunity to get to know a culture more fully in order to help them with people living in their own neighborhoods back home or to simply expand their understanding of Muslim culture.

Participants pray, fast, have lectures from Muslim scholars and spend time with Turkish families. Most are here for their first taste of Islam, but some for a deeper understanding of the Sufi culture of Turkey.

Not a bad thing, but I think what has been lost here is that religion is not culture. Sure there is a religious culture and sure cultures can and do include religions in which there is overlap, but one can't say, for instance, that Western culture is Christian culture. They are separate things and while there is some areas of similarity there are also areas of divergence.

This I think leads to a seeming a dichotomy between how the participants (at least those that are included in the article) approach the program and how those who lead the program think it should be approached.

From the standpoint of the program leaders I think that they intended this cultural exchange element to part of the program. To help people see the religion from the inside and to see the practitioners as people not as a faceless mass or even worse, as terrorists.

However I can't help but think that the core concept behind the program is evangelism. They are bringing people to Turkey to "try on" the Muslim religion in hopes that some will "buy into" it and convert to Islam.

Not a bad idea. I mean even people such as Richard Dawkins hold camps to help people become atheists. Numerous Christian churches host retreats or programs to help draw people's interest.

But this is the other thing that struck me about the article and the dichotomy between the participants and the leaders.

One would think that the leaders of the conference would hope that those taking part in the program would have an experience with Allah through the ritual of Muslim practice. This experience would then lead to conversion not simply to a better understanding of Muslim culture. But perhaps I'm just thinking too much in Christian terms and I guess that that is perhaps a point of difference between Islam and Christianity.

Christianity isn't about doing things. We do do things. We attend Church, we fellowship, we pray, we serve, we do all sorts of things but we don't do them to become Christians, we do them because we are Christians.

We are Christians because we have experienced the living God and have understood the truth of Christ's death, resurrection and all that it means. Belief did not come through my actions, my actions are the result of my belief and experience and one can't 'become' a Christian by doing things. One can only become a Christian when they are called by the living God and until that happens there is a clear gulf between those that are ritual Christians and those that are believing Christians. The former do things and hope to experience God in those moments. The latter have experienced God and as a result act. For one its a ritual of formality, for the other its a ritual of devotion and meaning.