JUNE 2014

LOAN OR WORK

You have extra money and you want to get more.

Want to work?

Well, you have some decisions to make:

Do you want to want to sell something that you make yourself?

Do you want to sell something that is made by your employee?

Do you want to sell something that someone else makes?

Do you want to sell a service that you perform yourself?

Do you want to sell a service that is performed by your employee?

Or do you want to have income without having to work?

How about selling something that requires you to buy or to make nothing and that requires you to do nothing except collect money after someone else agrees to buy?

Such an outcome sounds pretty good, would you agree?

If so, then you want to be a creditor:

You want to loan money and to collect debt, fees, and interest payments.

In other words, you want to be a banker.

Your product is debt and it costs you nothing but a bookkeeping entry to produce.

How is that possible?

All is accomplished by these steps:

  1. The bank customer signs a note promising to pay back a loan of $100 at 6% interest at the end of one year and to pay a loan origination fee of $10.

  1. The bank increases the customer’s demand deposit payable by $100 and increases the bank’s asset notes receivable by $100.

  1. The bank increases the customer’s account balance by $100 and decreases the bank’s demand deposit payable by $100.

  1. The bank increases its income and its asset income receivable by $10.

  1. The bank increases its income and its asset interest receivable by $6.

And there it is:

Sixteen dollars of income and the promise to be paid $116 in exchange for making a few accounting entries on the bank’s ledger.

But here is the real miracle:

After the year is gone and the loan is paid . . .

The bank customer has likely spent the loan proceeds generating demand for a $100 worth of goods or services in economy of the nation.

At the same time the bank has received income of $16 and loan payments of $100 without having to give anything in return to the economy of the nation.

The bank customer has gotten $100 worth of goods or services.

The bank has had its wealth increased by $116 less whatever taxes are due on its income of $16.

Yet the only one who had to do any actual work was the debtor who had to earn the $116 to pay the bank.

Conclusion:

Loaning money is nice “work” if you can get it . . .