Читать книгу За границей капитала. Глава XXII - О. А. Ряполов - Страница 10

EFFECTIVE METHOD OF FINANCING IN CAPITAL TURNOVER.

Annotation: According to the analysis, one of the main issues in the modern financial system is selling expensive goods (ex. property) to final consumers simply because of their limited income. In order to continue the distribution chain, the production loan needs to be paid off with the money of the consumer loan which is provided by the commercial bank to the end consumer to obtain those goods. The author proves that while the first loan remains in the production sphere, it gets replaced by the second loan when the end user makes a payment for the final product, and returns to the lender of last resort through mutual fulfillment of all obligations. Utilizing the right analytical models of supply and demand within intersectoral balances throughout this turnover of capital allows the Central Bank to control inflation. The author demonstrates how considering all factors of capital turnover and using Central bank bonds to keep the prices more affordable to final consumers, we can create fast economic growth without putting a strain on regional budgets.

Keywords: loan, finance, turnover of capital, development.

In comparison to traditional intersectoral balances, digital intersectoral balance software1 [1] contains complete, reliable, detailed and most up-to-date information that is continuously being added in real time. This data is collected from electronic accounting records and source documents, which allow us to have access to the most reliable coefficients and trustworthy information that fully reflects all economic and social activities of particular companies, organizations, enterprises or individuals. Coefficients that are fixed on a certain date will present an estimate for a dynamic development model with the optimal investment scenarios of providing supplies and satisfying demands based on set goals and given resources. Digital intersectoral balance software presents the methods of financing the whole project: from the production requirement to the necessary infrastructure for the final consumption. Considering an accurate supply and demand analysis by digital intersectoral balance, the most effective way of financing is using Central Bank2 [2] bonds of accelerated capital turnover which are transferred to the trust management of an investment corporation that arranges financial transactions and ensures the complete capital turnover.

In order to transition to the new paradigm development, we need 3 components: the most reliable and latest economic data, algorithms that can organize the data into intersectoral balance matrices to estimate the amounts of resources needed, and the methods of accelerated turnover of capital. Digital intersectoral balance and the collection of data are not difficult to implement in software algorithms, therefore, we are going to focus on the third component: financial instruments within digital intersectoral balance calculations and the opportunities they present for the dynamic development of any country.

In practice, we see that there is a big gap in the existing capital turnover system when we are talking about production and consumption of expensive goods, as it can take years to pay off a car loan or a mortgage considering an average salary. Municipal institutions and regions3 [3] can act as the end consumers as well in regard to infrastructure development and its effective functioning. Infrastructure projects focus on the development and maintenance of facilities and systems such as power, energy, gas and water supplies, waste management, education, public transportation, health care, sports development, safety of the environment, etc.

To maintain good turnover, commercial banks are providing consumer loans that will be used to pay off the production loans. The first borrower is the middle entity that manufactures the goods, and the second borrower is the final consumer. Through this process after the production loan is paid off, the first borrower can start a new production cycle. However, the turnover slows down in the event of purchasing expensive goods as the end consumer’s financial resources are often limited: a vast part of the population simply can not afford a mortgage and most of the regional institutions are not able to borrow money from commercial banks without receiving government subsidies. That leads to a low rate of economic and social development in the country.

The author has found a solution to this problem. The final consumer needs to have access to non-inflationary financial resources, which with a balance of supply and demand will reduce the price of the purchased object. If we know the exact number of consumers and the amount of material and financial resources (the amount of the first loan provided by a commercial bank4 [4] to meet the planned estimated demand), the second loan given to the end user by the same commercial bank not only does not cause inflation, but also accelerates the turnover of capital and ensures dynamic expansion of production. Interesting to note that money from the second loan only appears fleetingly on the market designating a new borrower. Technically, they first appear at the commercial bank (CB) that has managed the process of the first loan with the Central Bank (FRS), then they travel to the second borrower who is buying the expensive goods (assets or property). The money is only present on the paper of a loan agreement as a pledged asset to the product that already serves as collateral for the first loan. After that money of the second loan is transferred to the first borrower to pay off his production loan and to provide the expensive goods to the final buyer. All mutual obligations are described in a Tri-party agreement: between commercial bank and Borrower l., commercial bank and Borrower ll. and Borrower l. and Borrower ll. After all the parties sign the contract and the tri-party agreement becomes effective, Loan ll. money lended to commercial bank by the Central bank as a part of the financing process comes back to the Central bank as a payment for Loan l. This scheme of capital turnover in financing and credit systems is shown below.

Loan l. (production credit):

FRS _______ CB _______ Borrower I. ________ Contractors.

Loan ll. (consumer credit):

FRS _______ CB _______ Borrower II._______ Borrower I. ____ CB ____

FRS. FRS _______ CB _______ Borrower I. – money of Loan l. flows into the sphere of production.

Borrower I. ________ Contractors – money of Loan l. that is spent on the raw materials, supplies and labor to produce the object.

FRS _______ CB _______ Borrower II. – money that the final consumer borrows from the bank to purchase the object (Loan l.).

Borrower II._______ Borrower I. – money of Loan ll. that is used to pay for the object.

Borrower I. ____ CB ____ FRS – money of Loan ll. flows back as a repayment of the Loan l.

It is important to point out that money from Loan l. remains in the production sphere for a considerable amount of time to achieve turnover. Part of the money that is used to pay employees’ compensation, usually not more than 10% of the product manufacturing cost5 [5], does not return to the Central Bank right away. Turnover rate depends on the kind of the company that produces the final product. The potential inflation based on employees’ wages during the production cycle is completely covered by the produced goods value that are a part of the final project.

Thus, the money from Loan l. that circulates in the sphere of material production does not stimulate inflation and reduces currency depreciation on both industrial and personal consumption markets; the cost of the produced goods is 10 times higher than the amount of money that entered the personal consumption sphere. This statement is confirmed daily by the capital turnover practices.

Loan ll. money also does not cause inflation if demand meets supply: the quantity of the end products is defined by the amount of Loan l. and Loan ll. A surplus or shortage inevitably leads to an increase or decrease of the final product price. The balance between supply and demand is easily calculated by the digital intersectoral balance software.

Another important moment in the described turnover of capital is the repayment of Loan ll. as it extends over a long time and the payments are so small that if they were completely withdrawn from the market, it would not cause inflation. Money from Loan ll. is only present briefly in the consumption market as it is being used as a part of the payment. Since this turnover of capital does not cause inflation, the amount of new potential projects can be significantly increased satisfying more end consumers. Trust management institution as well as the Central Bank – lender of last resort – allows Central Bank bonds to be reused multiple times: after they complete one circuit and come back to the Central Bank, they can be used again as a part of payment for a new project upon the balance of supply and demand on the market. Involvement of a trust management institution is absolutely necessary because the Central bank is usually limited by law in providing industrial and commercial enterprises with loans. At the same time, an investment company is not a lender of last resort and therefore can not issue its own bonds for the repayment of Loan l, as it will lead to its bankruptcy. Managing the estimates of required resources and attracting a commercial bank by the guaranteed sale and the opportunity to use Central bank bonds of accelerated capital turnover, the investment company provides the complete turnover of the money with enhanced customer satisfaction.

When municipal institutions do not have enough funds to increase the dynamics of their development, using Central bank bonds of accelerated turnover of capital as a part of Loan ll. payment substantially expands their opportunities.

The process of financing with the Central bank bonds of accelerated capital turnover starts with the estimates of all resources required for the construction/manufacturing of a particular object. Those estimates are provided by the digital intersectoral balance software. Regions might need schools, hospital buildings, roads or other infrastructure objects for their continuous development. Resource estimation is based on the cost of the similar projects that have been built recently or in the past, considering all standards and safety regulations for that particular project.

When it is established that there are enough resources to complete the project, the investment company provides the final consumer (Borrower ll.) with the Central Bank bonds of accelerated capital turnover following the terms of a Tri-party agreement. Bonds of accelerated capital turnover are also a justification for the Borrower l. to take a production loan (Loan l.) in the commercial bank, and for the commercial bank to borrow Loan l. money in the Central Bank. After the project has been completed and is ready to be handed over to the final consumer (municipal institution or region), the commercial bank lends them Loan ll. to pay for it, part of which is covered by the Central Bank bonds of accelerated turnover of capital. According to the research, the value of the bonds of accelerated turnover of capital can reach up to 79.7% of the final product price.

In some countries, there are legal lending limits for regions that depend on the level of importance of required projects in the regional development. However, those restrictions will not have a significant impact on the frequency of the loans as expanded production will ensure additional tax revenue in the regional budget which will help to pay off the loans faster. Some of the social development construction projects could be commercial which will also contribute towards a faster repayment of the loan.

Let’s look at the turnover of capital in the tax system with its common value added tax (VAT). Value added tax amount is determined by the present market conditions. As an example, we take conditional data for a project that took one year to complete so the 5% interest rate is based on one year period. Loan l. and Loan ll. form the capital turnover.

Central Bank _________________ 9000 +450 = 9450 (m)

Commercial Bank ____________ 9000 +450 = 9450 (m)

The circuit of capital begins when the Central Bank lends Loan l. in the amount of 9000 with the annual interest of 450 to the commercial bank, then money flows to the sphere of production covering the estimated manufacturing cost of the project based on current prices of the materials and labor. It is the estimated manufacturing cost in current prices that determines the value of the bonds of accelerated turnover of capital and the amount of the Loan l.

Commercial Bank _____________ 9000 +900 = 9900 (m)

Borrower I. ____________________ 9000 +900 = 9900 (m)

The value of the bonds of accelerated turnover of capital (ATC), that are transferred to the trust management of an authorized investment company which ensures the balance of demand and supply according to the law, will be 9900.

Central Bank (investment company) __________ 9900 (ATC)

Borrower II. ____________________________________9900 (ATC)

Loan l. is distributed between payroll cost (PC), which on average is 10% of the manufacturing cost – 900; payroll taxes (PT) – 30.2% or 272; and supplies and raw materials costs (SM) that already include their own value added tax – 7828 (6523 +1305 VAT).

Loan l. is enough to produce the required object, pay for the materials, pay contractors and subcontractors, and payroll taxes – 272 where 13% or 117 is a personal income tax. It is also necessary to add a trade margin to the price of the object in order to cover all additional costs and taxes. So manufacturing cost – 9000 plus Loan l. 10% interest of 900 equals 9900. If the trade margin of 9900 is 5% or 495, the price of the project increases to 10395 (9900 +495).

To calculate the value added tax of this particular object payable to the government budget, we need to subtract VAT of supplies and raw materials costs 1305 from a 20% final consumption VAT – 2079. In the current situation VAT will be 774 (2079 – 1305). Final consumption VAT increases the project sale price to 12474 (10395 +2079), which brings pre-tax profit to 1800 (12474 – 9900 – 774) and after-tax profit to 1440 (1800 – 360 or 20%).

Final sales price of the object ___________________ 12474

Loan l. ____________________________________________ 9000

Loan l. interest __________________________________ __ 900

Value added tax __________________________________ _ 774

Profit tax ________________________________________ __ 360

After-tax profit Borrower l. gets ___________________1440

All of the above determines the amount of Loan ll. which would be the difference between the final sales price 12474 and the value of the issued bonds of accelerated turnover of capital 9900. The value of those bonds equals the estimated manufacturing cost of the project based on current prices of the materials and labor or the amount of Loan l. Therefore, the amount of Loan ll. will be 2574 (12474 – 9900).