|MATHEMATICALLY PERFECTED ECONOMY™ DISCUSSION FORUM
|YOUR THOUGHTS ON DE-ESCALATED DEPRECIATION (RATE OF PAYMENT)
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|Author:||mike montagne [ 28 Apr 2009, 6:23 pm ]|
|Post subject:||YOUR THOUGHTS ON DE-ESCALATED DEPRECIATION (RATE OF PAYMENT)|
The following tables propose tangible models for what I've long simply called "de-escalated depreciation," or de-escalated rates of payment, and what you've interpreted as you will. The involved processes are readily worked out at any time, but I've decided to do so now, to ask for consideration and feedback in preparation for our constitutional amendment drive.
"De-escalated rates of depreciation" are higher than the linear rate of depreciation in the initial phases of an asset's lifespan, and lower in the later phases. By intention, de-escalated calculations match perceived consumption and remaining value across the lifespan, whereas linear depreciation only expresses the overall cost and rate of payment, the implementation of which would make it unrealistically undesirable to purchase depreciated property at periodic costs which would be indifferent from new property. De-escalated rates of depreciation therefore are intended to reflect perceived rates of consumption and remaining value which are generally consistent with the intentions of purchasing an asset of any serviceable age. Thus approved de-escalated rates of depreciation for various classes of property prescribe governing rates of payment under mathematically perfected economy™, with the remaining balances and patterns of payment comprising appropriate influences toward buying new or aged property; for preserving existent property to the full extent of potential service; and for consuming the full worth of property, as opposed to wasting wealth.
The following tables are examples of de-escalated depreciation requiring an inital payment of 3% of a $100,000 home with a 100-year lifespan and expressing periodic rates of payment as a multiple (Lin X) of the linear rate of depreciation:
1. Q : "quarter" of the lifespan (0...4);
2. TO YR (END) : year (of the 100-year lifespan) in which the specified period/rate of payment ends;
3. Lin X : specifies the rate of payment in terms of the linear rate ("Lin") times "x", with the linear rate for this example being our familiar $1,000 per year or $83.33 per month;
4. ANNUAL : expresses the resultant annual rate of payment for the period;
5. MONTHLY : expresses the resultant monthly rate of payment for the period;
6. ACTUAL RED FROM PREV : expresses how many dollars per month the rate is reduced from the previous rate per month;
7. PERCENT REDUCTION : expresses what percentage the previous rate was reduced for the subsequent period;
8. BAL, END : is the balance at the end of the period (graphed);
9. PCT PAID : expresses the percentage of the balance paid at the end of the period.
The following chart graphs the remaining balances or value of these schemes together:
Each of these hypothetical schemes requires a relatively major initial payment of 3% (3 years of a hundred year lifespan) of a $100,000 home. For the first 12.5 years of Proposed Process 4, the rate of payment thereafter is 2.6 times the linear rate of depreciation ($83/month), or $217/month. As you can see in the tables, each scheme 1..3 is a moderation of Proposed Process 4, with each process scaled to pay the overall/linear rate of depreciation in the second quarter of the lifespan, paying increasingly more for consumption in the preceding quarter, and paying decreasingly less in the subsequent quarters. The first and fourth quarters are further broken into halves, emphasizing the curvature/pattern of de-escalation. From this explanation, I expect the remaining de-escalated rates of payment should be clear from the second and fifth columns of data.
The one aspect of the philosophy which I will explain at this initial stage of discussion is that while the general concept of depreciation tends to fit a curve or arc, an approximation of such an arc as represented by these linear segments provides for us to readily understand and account for consistent payments across the duration of a period, as we necessarily do in budgeting.
Understand however that higher initial and reduced later rates of depreciation can be said to impose a "greener" standard. That is, they discourage neglect of property and encourage preservation of property, which of course at the same time is "economical." In weighing the different scenarios, what you want to do is ask yourself whether the remaining value (balance) of the resultant data yet best reflects perceived depreciation of newer and older property throughout the lifespan of your chosen/preferred process. That is, are the initial rates of depreciation sufficient to discourage reckless spending on new without penalizing for spending on new — is the remaining value a just reflection of consumption of new value? Likewise, are the later rates of depreciation sufficient to encourage preservation of property without so awarding owners of older property, that it makes little sense for them to dispense (sell) relatively unused property to those who might make better use of it?
Regardless of the remainder of underlying reasoning, what I'm asking for is candid initial impressions of the rates of payment over such durations, not just for the home, but for virtually/prospectively anything. That is, you can input different lifespans and values to examine resultant rates of payment for anything from trinkets to cars, planes and homes, or if you don't have the software to operate on the model, yet you can appraise how this one pattern may fit/apply to anything and everything conceivable — whatever your anticipated exceptions.
The basic questions are:
A. With this hypothetical $100,000 home and ostensibly demonstrable, expected 100-year lifespan, how well does this pattern match your interpretations of real depreciation of *perceived value*; and
B. What are your concerns with whatever impact you anticipate this pattern may have on anything at all? In other words, how do you believe it may wrongly or rightly affect you or anyone else?
Any suggestions for further processes such as requiring say 3% of the lifespan at the current rate of depreciation to purchase the home at any later stage may best be posted to the forum.
Much thanks to all for your consideration.
|Author:||Wayne Lajoie [ 10 Mar 2010, 9:21 am ]|
|Post subject:||Re: YOUR THOUGHTS ON DE-ESCALATED DEPRECIATION (RATE OF PAYMENT)|
how would you calculate certain variables such as how the value of a certain thing changes over time... for instance a victorian home over a hundred years old... in most peoples eyes their value hasn't depreciated at all, I haven't done the math, but I think it's fairly safe to say that well maintained ones have appreciated... same with a lot of products we call antique or classic... on the flip side of that you have homes built in the 70's that because of their design make them less desirable today... also what about maintenance and improvements... if a home is well built, well maintained and kept modern... shouldn't it's value depreciate slower or even appreciate? I personally find older wood and wine more valuable... some things grow finer with age. in other words isn't value relative? would you have to refinance everytime you put a coat of paint on a home? does not that variation in a percieved value of a good or service inherently cause inflation or deflation as that perception changes? if so how would that be regulated? and by whom? I'm new to your version of economics... even though it seems very similar to some others I have studied... just trying to understand, thanks...
|Author:||sureshottips1 [ 04 Aug 2010, 9:23 pm ]|
|Post subject:||Re: YOUR THOUGHTS ON DE-ESCALATED DEPRECIATION (RATE OF PAYMENT)|
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|Author:||cam [ 12 Oct 2010, 10:08 pm ]|
|Post subject:||NO NEED TO MICRO-MANAGE DE-ESCALATED DEPRECIATION/PAYMENTS|
I think there are two HUGE mistakes in MPE which should be corrected.
I will probably be writing my own page pretty soon, at the risk of being called an “eleventh hour pretender” by Mike. But my motivation is not to obfuscate the Principles, but to give my two cents in the Implementation and strategy areas.
First, I disagree that the total value of the currency should somehow represent the assets present in the economy. The currency, as a medium of exchange is only to be there temporarily, when two properties (i.e the results of two equivalent amounts of work) change hands. Once that has been achieved, there's no need for the notes anymore; even if the properties still exist (in whatever state they might stand). Only under Usury the perception is carried that money has a perpetual intrinsic value.
Suppose that A makes house #1, and B makes house #2. If one day they decide to exchange them, they will sign a couple of napkins during coffee; then A will simply tell B: "take this paper, and when you get to house #1, show it to the butler and he will hand you the keys, the house will be yours", likewise will be said by B to A.
After each one goes to his new house, the napkins will simply be disposed.
There is no need for anything to represent the existing houses after that point.
I think that from the above, my second point can follow:
There is no need to try and determine/micromanage any perceived depreciation of any property whatsoever under an interest-free system. The state of an object during its lifetime is completely irrelevant to the transaction that took place when it changed hands.
Only the people are to determine the value of what they transact and hold. Anything else is impractical, expensive, or worse: it risks easily being attacked as Marxist or Communistic.
The only important thing is the credit-worthiness of the borrower.
The requirement -or rather myth- of the Collateral exists only under Usury;
the only thing that matters is that the purchaser of said house, through his willing work, produces an equivalent amount/value of goods to get back and repay the credit tokens. Once he does that, the money is simply destroyed with a mouse-click, or reused on new transactions.
If he uses the house/apple/chair for a fireworks demonstration, that's his problem, he's still liable for the debt.
Normally -under Usury- the concern would be that the asset should remain as a collateral, but simply because interest itself makes pay-ability more marginal.
In practice, and in spite of interest, defaults really are low over the whole economy, at an average 5% (the so called "risk" that mammonists decry so much).
What I propose then, is a system of repayment that has nothing to do with any remaining ‘value’ of the property whatsoever, but on the most immediate retribution to the sellers [the true creditors, as Mike correctly calls them], while creating the most seamless transition from the current travesty.
Where does one start?
Well, since the accepted notion is that people currently choose to spend 20-30% of their income in housing, I find it logical to keep the same numbers, that is, to act according to THE PEOPLE.
Thus, in today’s numbers, someone with a 30K job, and a 25% payment rate would pay: $625 a month.
The question that then must be answered, necessarily, is: How MUCH house can then he afford?
Well, he can buy as much house as he can pay for of course. That is, how many of those payments can he make in his working age, as nothing else will pay for it but his work. Again, following current customs and expectations, this comes to be about 20 years of strong production.
Following the above example, if he’s 20 years old he can expect to retire at 40 and own a $150,000 house (whatever ‘value’ the house may have to his eyes or an outside observer is irrelevant to us).
But one must note that he is NOT forced to do so; he may choose -if he wants more leisure time- to purchase a half as modest property and pay until he’s 30. He’s also free to re-sell at any time and move to a better/worse house according to his personal development. He can also pay-off earlier if he so decides and is able. It is up to the individuals.
To recap and to make sure we don’t leave things in abstract form, I propose that Credit Worthiness, as far as issuing the Official Currency goes, would be determined in the following fashion:
-1)Income, a percentage of which will be dedicated to principal payment.
This is calculated as the average of the income during the # of previous working years.
-2)Current Debt. Whose principal payments are simply deducted from item 1 above.
-3)Previous Credit performance.
-4)Age, expected years before retirement.
It’s easy guys, this is not the secret magic that the pundits have sold to everybody, telling them this is omehow mastered only by the skanks of the current system.
The last thing to do in this introduction to the subject, which to be honest, is my first attempt to put this stuff in writing, is to add the usual objections and give an honest and short response to each of them, to see if the whole idea is sound:
But, wouldn’t the availability of this free credit be inflationary? As more people have access to ‘easy money’?
It cannot be more inflationary than in the current system, since right know, when you bid for a $150,000 house, you’re actually bidding $300,000 or more; which is what everyone knows (but a fact that everyone seems to want to brush under the carpet) you’ll end up paying in the end. You’re upside down from the start.
It is of course valid to perceive/estimate that if you are relieved from interest, you will up-bid the house until it reaches the same 300K (i.e. ending up with the same monthly payment). However, even if that happened (see last paragraph), what takes place is that the full imbursement goes to the real creator of the house, and no-part to the Usurer, which until now has just been a government-appointed middle-man in charge of the circulation; he has thus been removed from the equation.
In the long run, the overall benefit is equivalent for the borrower, since he is a producer as well.
The only loser on that numerical inflation (not a purchasing-power loss), as we intend it, is the Usurer.
To the objection that this transition would wipe-out people’s savings we can only say that they already get wiped out today many times over by usury-inflation, unless they embrace Usury themselves (i.e. mutual predation).
That is to say, if someone has saved $150,000 to make purchases today, their true purchasing power actually is:
(+)What they originally worked for and deposited
(-)Minus what was usurped from them by usury-inflation,
(-)Minus what they in turn usurped in an attempt to recover the previous loss, by
whatever little usury they were allowed to engage into.
No one else can be blamed for this loss -if it happens- but Usury itself. This is a necessary correction, as the newer generations can’t be expected to pay for that, as Mike Montaigne correctly asserts.
Having said this, I believe such numerical-inflation will not occur in the first place anyways: As soon as there is any marginal increase in the nominal price of goods (up-bid), new production will be stimulated, regulating the supply-side, unless there’s some artificial restriction, which is not what we’re studying here. This is basic, even the current technocrats can acknowledge that, although they usually hide it when it’s convenient for them.
Wouldn’t this just create another bubble and crisis in the housing sector?
Refer to Question #1.
But this should be added: There is no housing “Crisis”, the only problem is that people can’t afford the Usury. Everyone was doing fine until they cranked up the Interest on them, as a 3% increase on a $200,000 house will cost you an extra $6000 a year.
There was indeed a speculation bubble, but partially because of the mutual predation allowed by the current constrains on credit. This made the last purchaser -who actually wanted to live in the house- pay the profits of the ‘investors’ before him.
Additionally, we have stated that it is not in the scope of these ideas to analyze any fundamental constrains that there may be on the supply side, that is a separate phenomenon.
Even then, I believe people could still pay their expensive houses by refinancing on the new system (this as proposed by Mike Montaigne). I make emphasis in ‘their’ and ‘expensive’ to note that the system proposed is not meant to bail-out anyone from actual trade-losses. Keeping them in their houses is the only way to avoid that we all end up paying for that.
But, the requirements for Credit Worthiness presented here seem like an imposition from government, instead of being a Private Free-Market scheme like we have now.
First of all, we don’t currently have a Private and Free System, as the Government currently is already choosing arbitrarily who to issue money to. And second, by definition, it is impossible for the Official Currency to be Private, that’s mutually exclusive.
You may have Private Currencies (which are ok) but they will not be the Official Currency, and not every body will readily accept them (see Riegel’s Valun). I think it’s hard for those to achieve the critical mass to become widespread.
If you still have a hard time accepting the Credit-Worthiness formula proposed, then consider the following:
This can be turned over to third party Competing Private Consultants that can issue verifications (using their own statistical methods) for small nominal fees.(i.e. a total one-time fee of $400 to evaluate a house loan), with commissions based on repayment performance. This is acceptable as well.
Are you implying that the Credit-Worthiness of an individual will be determined by a
Refer to question #3.
Add this: A bureaucrat is already deciding your credit worthiness. That’s why the Fed’s bank branches get issued money before you.
But, won’t these Credit Worthiness requirements limit and cap the free risk-taking of individuals, and thus cap development? Aren’t people supposed to be able to risk as much as they want? What if someone wants to spend 50-75% of his income on a more expensive house in the hopes of selling it for even more? Or buying the lottery?
Since the issuing of new Official Currency is a commitment to the rest of the society (even with the current system), then NO, you can’t risk their good faith in that fashion.
However, you are free to risk money you have already earned. Note the distinction very carefully, money you have earned with production you have already made (i.e. you have sold something to someone that took a loan in order to pay you for it). The implication here is that if you risk the money at this point, and loose it, it can still circulate around until it reaches the original borrower and be re-paid, at your loss alone.
In the same fashion, you are free to run to the closest sewage drain and ask an Usurer a loan for an amount you want to gamble, at his risk. It is not our intent to persecute those witches, as long as they can’t snatch the issuing of the official currency from the hands of the people and monopolize it.
Regardless, keep in mind that only two things can happen in this scenario:
- If, in the medium term average, it is seen that those risks pay, we will simply annotate this and relax the
Credit-Worthiness requirements to reflect it, ultimately eliminating the Usurer anyway.
- If however, it’s seen that indeed the losses for those risks were excessive, it will only confirm the
paradigm/ratios that we’ve described.
But, aren’t the current Banking system and Venture Capital the best ways to avoid mal-investment, since they procure profit?
Everybody procures profit/benefit, including borrowers. All that matters is that borrowers can repay their loans, as has been explained. The fact that today Interest is used simultaneously as its own-litmus-test and as the penalty against industry, has nothing to do with true pay-ablity.
Interest is like putting broken glass on the shoes of long-distance runners and saying:
“See? this way we guarantee that the best runners reach the goal, thanks to the selection of the most enduring ones”, But that is as flawed a logic as it can get, for if every one ran without the broken glass, all of them would reach the goal according to their capacity, and the very best could go even further, truly unimpeded.
Also it is worth noting that what is known as Venture Capital covers about only 5% of the economy. And even those exist only because money has been converted into a commodity in the first place. Yet, in what we propose we don’t prohibit anyone from risking his own money in some venture, as explained in question #5.
if you want to spend $50,000 you’ve already earned on a kid that seems to be a programming genius and has a great new idea, that’s your risk. But, why would the programming genius recur to you anyways? Since he and his family would already have so much disposable income thanks to the elimination of Usury and Rent in the first place? He himself is the best guarantor of his well- investment.
If people can’t afford a house loan at interest, they should just rent.
If they can rent, they can pay an interest-free loan. Refer to questions #1 and #2.
These reflections are to be followed by more general Objections/answers in a dedicated post as time allows.
Any suggestions or corrections are appreciated of course, Am I out to lunch here?
Note: I don’t give a damn if anyone uses/reproduces this material, I just want it to get implemented; but just give me a little credit at least.
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