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SIIAEC Email network:    Considerations about debts.

1) Human beings or states may have debts by many reasons:

+ By taking a credit, to carry out a project, which cannot be covered by the available resources.  

+ Without big projects there can arise considerable debts as well, when a household (private or public) regularly spends more than its income can cover.

+ Bankhouses live by offering credits. In order to raise turnover and profit, they try to attract  clients, sometimes clients with weak financial standing. These credits cause debts by  external reasons, like the recent immobility credits in theUnited States.

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2) Rules for handling debts:

 + The level of interest rates refer to the financial standing of the borrower, which is understandable: The risk of the creditor is balanced by a higher interest rate, which accelerates the repayment.

 + A negative balance on a current account is punished by considerable interest rates, a warning against spending too much money.


3) Critical evaluation of these rules:

 +  The current rules are evidently in favour of creditors. In case somebody (private or public) gets into a debt trap, it is tough to get out. (Example:Greece)

 +  In case the situation of debt is chronical, recover may be impossible, when the interest rates cannot be covered by the income. (Example: SomeThird WorldCountries)

    In many cases such countries pay regularly more interest rates than they get support for development, a situation of exploitation. Poor countries pay to the rich without service in return.

 + These rules cause a reduction of economic activity of single persons, companies or states, more than necessary. Therefore they reduce economic chances of families, regions, states.

 + Overall, these rules support the well known trend, that rich get richer and poor get poorer.


4) Proposal for improvement:

 +  In case a borrower of weak financial standing must pay for example 9% of interest, it is understandable until he has payed the sum, which a borrower of strong financial standing must repay, for example with 3% interest rate. Further payment is not justified, becausethere is no risk any more.

    There is still an advantage for the creditor of the 9% credit: He gets his money back earlierthan in case of a 3% credit.

 +  It is interesting to compare this form of credit with usual ones as to: 

       + Time for repayment, + payment per year, + sum of interests and  + sum of payments.


Example:        Credit:     10000.-  (Credit calculation from

 Interest      end of payments      payment / year     sum of  interests      sum of  payments

 3%                  10 years                     1172.-                         1723.-                      11723.-

 9%                  10 years                     1558.-                        5582.-                      15582.-

 9%                  ca 7,5 years +)          1558.-                        1723.-                      11723.-


+) After about 7,5 years the sum of repayment is equal to the repayment of a 3% credit. This credit version is much more in favour of borrowers and helps to get out of debts. The creditor gets his money back earlier than in case of a 3% credit.



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