Profit Margins = Profit / Sales
Interest Rates = Interest / Loan

Profit:Sales::Interest:Loan

Therefore, to prevent people, companies, and governments from getting into debt, should the interest rates in each case per entity be set to each entities profit margin (except if the profit margin is less than the growth in nominal GDP - in that case, set it to the nominal GDP growth)? Assume that the periods involved with profit margins, interest rates, and nominal GDP growth are the same.

Interest rate is set according to risk, which has little to do with profit margin.

A startup company with no revenue has no profit margin. In fact, it's likely to lose money for a year or two even if successful. So how would you price a loan to such a company?

What if the profit margin is seasonal or unstable and thus unpredictable?

Perhaps I'm misunderstanding you, but this proposal doesn't appear to make much sense.

__________________
Man up.

I forgot to put into the post, which was in the title, the following:

"Should interest rates be set to profit margins... Unless if the profit margins are < nominal GDP growth?"

Suppose this were the case. In the case that nominal GDP growth rate (nationwide) in the given period was more than profit margins (for that company) in the given period, an interest rate would be comparable to the nominal GDP growth rate.

Loans to individuals and families, I believe should be dealt with differently if necessary.

I think they system of supply and demand is better tool for determining fair and equitable interest rates.
I think people should have the freedom to take out high rate loans, if they feel it is the right thing to do.
I think people should have the freedom to make horrible decisions and bankrupt themselves.

In the end, the loanable funds market has a way of working itself out.

I am curious as to what your rational or thinking is on this?
Why have a set rate, whats the benefit? That bad business people don't go bankrupt?

Ixtellor

My rationale was to lower interest rates by having fewer people on debt, but what you say makes more sense. I retract my argument in this thread.

Another one of my rationales was that good businesses and industries with high profit margins, I think, have less need to borrow money. Having them borrow money increases the demand for loanable funds and having interest rates rise for other companies whose industries are known to have lower profit margins than the oil, pharmaceutical, and banking industries. Having lower interest rates on companies with lower profit margins would discourage borrowing money at higher profit margins than lower profit margins. If a company thinks they need to borrow money, as do some individuals with low pay, they are likely to have a lower profit margin.

A problem I see with my idea in this thread is that it places more importance on the low profit margin companies borrowing money than high-profit margins. However, do we really want our dollars businesses that charge us, leading them to higher profit margins, to be used to pay for much interest? If they did get a loan, their interest would be high, if not, it would not be necessarily due to the high loan interest rate.

My idea was basically that if the utilization of the loan was as effective as utilization of sales (assuming constant profit margins), then the company would have expanded its operations practically for free, as far as the company is concerned (though without a profit). It was to set the interest rate according to the means of the company that was loaning. In other words, only if a company increased its profit margin as a result of the loan, during the loan period, would the company actually profit off of the loan. This, I think, would encourage companies to loan on the basis that it increases their profit margin so that companies would never loan without such a reason. This principle, I think, would encourage companies to ration for increased profit margins if they loan, reducing the need for loaning, and thereby lowering interest rates.

In short the idea was to set the interest rate for borrowing to an ROI, whether it was standard ROI that should be met (I proposed that it may be related to or equal to the nominal GDP growth rate nationwide), or the actual ROI of the company.

I still think you (Ixtellor) have a point though. I'm not banking so much on this other idea of mine yet.

Your style of writing and/or thought process is kind of hard to follow. No offense but it comes off as kind of clumsy. It might very well be genius, but I have to read and reread it several times.

My question is, Why do you think its important to decrease loaning?

Loaning out money is how you create money.

Its the money multiplier effect. Its good for our economy.

It also contributes to entrepreneur ship. Who would have loaned a street gang member 1 mil to start a buisness 30 years ago? Now we see that some street gang members are in fact savy business men. (50 Cent)
My point being, some people are high risk, thus high interest rates. They should be free to prove us wrong and get rich (thus improve the US economy) or fail and go bankrupt.

I agree.

Yes, inflation is wonderful.

The interest rate should not be set at all. There should be no interest rate, other than the rates banks choose to offer.

Yes deregulation in the banking industry has resulted in wonderful results.

Ixtellor

P.S. This was sarcasm. Neil Bush + S&L = Bad.