[Draft] Decreasing the risks of debt bubbles

[Tobosarsk]

The General Assembly,

Concerned that debt bubbles would cause spirals of loans not backed by assets (“empty” loans) which often will lead to economic crises in the long run,

Astonished at the level of these “empty” loans in many nations with potential to cause bubbles,


1. Requires nations to have a loan interest rate of at least 10% and a savings interest rate of at least 7%, with exceptions listed as follows:
a. The nation is in a recession, (general price level and GDP decrease of at least 10% over a continuous period of time of two quarters)
b. The nation has a general inflation rate of less than 3% and an asset value inflation rate of less than 10%,
c. Mortgage loans which will be covered below,
2. Further requires regulations on mortgage interest such as but not limited to:
a. A 2% cap for urban flats and apartments
b. A 4% cap for urban, suburban, and rural housing
c. Ban on mortgages for estates and villas (where the total land usage is more than 150% of the interior floor area) in favour of upfront payment of the full price
3. Demands that borrowing for investment be capped at 90% of total asset ownership to prevent personal and corporate bankrupting due to economic mismanagement.

[Eggraria]

Opposed by principle. Legislating the loan practices unilaterally like this only harms nations that sufffer from specific problems. Not all economies are created equal.

1c is entirely unnessecary.

[Tinhampton]

Why should the interest rate on mortgages be lower than the interest rate on everything else?

[Imperium Anglorum]

C Marcius Blythe. This proposal doesn't make any sense. Financial institutions operate through intermediation: they have a spread between rates paid on long term assets and short term liabilities. These rate specifications would annihilate the profitability of lending for people to purchase homes, massively reducing the liquidity of housing markets and greatly reducing home affordability. It also fails to consider how those rate limits interact with inflation, which drives real interest rates down and reduce credit spreads.

The proposal also doesn't seem to understand how debt bubbles are actually problematic. The inability to pay debts is a symptom of an underlying problem. The collateral underlying large swathes of debt might be underwritten en masse; there might be a shock to payment systems that cause large numbers of institutions to be unable to make their obligations. These are the things policymakers should focus on rather than "people borrow money", which is a normal thing that people do to smooth consumption over time.

[Anne of Cleves in TNP]

The General Assembly,

Concerned that debt bubbles would cause spirals of loans not backed by assets (“empty” loans) which often will lead to economic crises in the long run,

Astonished at the level of these “empty” loans in many nations with potential to cause bubbles,


1. Requires nations to have a loan interest rate of at least 10% and a savings interest rate of at least 7%, with exceptions listed as follows:
a. The nation is in a recession, (general price level and GDP decrease of at least 10% over a continuous period of time of two quarters)
b. The nation has a general inflation rate of less than 3% and an asset value inflation rate of less than 10%,
c. Mortgage loans which will be covered below,
2. Further requires regulations on mortgage interest such as but not limited to:
a. A 2% cap for urban flats and apartments
b. A 4% cap for urban, suburban, and rural housing
c. Ban on mortgages for estates and villas (where the total land usage is more than 150% of the interior floor area) in favour of upfront payment of the full price
3. Demands that borrowing for investment be capped at 90% of total asset ownership to prevent personal and corporate bankrupting due to economic mismanagement.

“I can tell that this needs more operative clauses. Three clauses simply won’t do.”
-Ms. Charlotte Schafer, WA Ambassador for the Clevesian Empire

[Makko Oko]

"Where did the percentages come from for Article 1?" - The Makko Oko Ministry Of Diplomatic Affairs, World Assembly Affairs Division