For or Against Usury

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  • Sun, Jan 31, 2010 - 06:10am

    #21
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    Re: For or Against Usury

[quote=rhare]

There seems to be confusion, there are 3 different things being mashed together that are related but completly different:

  • Usury (interest) – Generaly usury is used to refer to excessive interest.  At any rate, interest is a return paid on borrowed capital.  It could be any type of capital, hard currency, fiat currency, labor (ie. I’ll work 10 hours for you later if you work 9 hours for me now).
  • Fiat Currency – The USD, not backed by anything other than faith, as opposed to a hard currency that is backed by some form of commodity or asset.  Gold and Silver are a hard currency that can be used directly instead of via a paper representation, but you could have a hard currency based on any asset, just maybe not directly usable in a form like a coin.  The reason gold/silver or other metal is desireable because of it’s direct use and inability to counterfit.
  •  Fractional Reserve Banking – A method (fraud in my opinion) where a lender can lend out more than they have on deposit.  Note, this could be done with a hard or fiat currency.  The risk is that if too many people demand their money at one time, then a hard currency will become a fiat currency.

I think it’s important to keep these thing distinguished, as any system that doesn’t involve interest is fantasy and will fail.  Unless you say absolutely no loans for anything, then you can’t have a system without interest, since without interest, you won’t have any market influence controlling the use of capital to insure it is used wisely.   This is pretty much the system we have now since interest is set very low and the reason we have had the housing bubble.   The only way you get interest rates so low is because of a fiat currency in which those that are printing the currency can arbitrarily set the interest rate as opposed to  a hard currency where you have to intice the holder to lend the currency via a promise of reward that out weighs the risk.

[/quote]

Rhare,

Thank you very much for these distinctions! They make complete sense to me, and help to distinguish between problems related to all three.

Also, a question:

[quote=rhare]

Should FRB be allowed, that is should a bank be able to lend out more than they have in deposits.  If you choose no, then I think savings takes on a different feel.  You deposit money and specify how much can be lent.   Lending would be just like you making a loan to a friend.  The money that is lent is no longer available for your use until it is paid back.  Now with a central holder like a bank making the loans they may be able to aggregate loans to reduce individual risk.  That is you allocate a specified amount to be lent and the bank can aggregate it with others to make loans so that any one bad loan doesn’t result in a total loss like you would have if you personally lent money to an individual.

[/quote]

If one combined some comments you made in your first response to this thread (see above, about defining to a bank how much risk you were willing to assume if the bank were to loan out some portion of your deposits in the bank), would this make fractional reserve banking more palatable, or would it make no difference?

 

  • Sun, Jan 31, 2010 - 07:44am

    #22
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    Re: For or Against Usury

ccpetersmd said:

If one combined some comments you made in your first response to this thread (see above, about defining to a bank how much risk you were willing to assume if the bank were to loan out some portion of your deposits in the bank), would this make fractional reserve banking more palatable, or would it make no difference?

I don’t know.  Personally, I think non-FRB banking is the way to go.  That is when you choose to lend out capital, you can’t use it until it is repaid, or in the aggregate until someone else puts enough capital in to allow you to withdrawl your money.  However, I also can see how a FRB system can work if you maintain high enough reserves to outstanding loans.  After all, if interest rates are set by the market and appropriate, then the capital should be aimed at productive resources which means the actual “net worth” in the economy grows, that is the new currency created by the loan is actually back by whatever assets were purchased with it.   However, on the flip side, you end up in the situation we are in now, which seems to indicate the risk is too great to use FRB.

I keep coming back that I think we need to let the market sort it out.  That is allow multiple systems to work simultaneously and see what provides the most benefit.  I like to think that a non-FRB system is probably best, but I can’t be sure.

I also want to add one more comment, for those that say the only beneficiary of FRB is the bankers, I don’t believe this is correct.  Savers who wish to lend money to get interest but want reduced risk, this may be an appropriate solution.  The bankers don’t get all interest in profit, a large portion goes to the operation of the bank (salaries, etc just like all businesses), and a large portion goes to those with deposits in the banks in the form of interest on savings.  That is I don’t think the system we have is all bad, I can see some benefit.  To me the main problems are:

  1. The Fed setting the federal funds rate instead of the market setting rates.
  2. The legal tender laws and tax laws that force everyone to use the cartel of banks. 
  3. Government guarantess for banks.

If we got rid of these issues I could see that a responsible run FRB system might work as long as it was in competition against other entities, non government controlled or manipulated,  and could fail thus allocating risk to the depositors and equity holders in the institution, which in turn helps to set interest rates.

Johnny Oxygen said:

This is lawyer speak. Define your version of ‘hard currency’. Is that FRN? Gold coin?

I think it was actually my comment to which he was referring, and no, it’s not lawyer speak as I’m certainly not a lawyer – hell in another thread I got accused of being a fourth grader. 🙂 

I think “hard currency” is something that is backed by a tangible asset.  It could be land, energy, gold, silver, copper, etc.  In some cases the currency is the “hard asset” like gold/silver/copper coins, or it can be redeemed for a hard asset on demand.

Johnny Oxygen said:

You can transact in gold and you can transact in fiat its just a matter of conversion. My point is that one currency will ‘win out’ over the other eventually.

No you can’t!  if you buy gold, it goes up, you sell it you have to pay capital gains (at least if you don’t want to go to jail).  This means it is not just a matter of conversion.  Why do you think one currency would win out?  We have many competing currencies in the world, in many countries multiple currencies are in use.

Johnny Oxygen said:

It worked for thousands of years until the bankers began the process of usury.

Where? Interest has been around for ever.  If you don’t think you have to have interest, then will you please lend me all your money for nothing?  I’ll send you the address to send me the check.  If you say no then you prove my point. 🙂

Johnny Oxygen said:

Lincoln’s greenback work well

Really?  They were sucessful in only having an 80% inflation rate as opposed to the souths much higher rate.  Just because one currency wasn’t as devalued as the other doesn’t mean it was a success.

My comment:

as opposed to  a hard currency where you have to intice the holder to lend the currency via a promise of reward that out weighs the risk.

Johnny Oxygen said:

More lawyer speak. How is this different from our fiat system? Explain what you mean.

How is this lawyer speak? Perhaps you have been deprived of oxygen? 🙂  To make my point, give me your money I promise I’ll pay it back in full and I promise to do something useful with it.  Again, if you don’t think this is a good deal, then you need to rethink your comments! In order to lend money to someone, you will want something in return on top of your principal for the risk.  That extra part is interest.  The more risk you perceive in lending the money, the higher the reward you expect, which means the higher the interest you expect.  If there is no reward, then why would you lend  money?

  • Sun, Jan 31, 2010 - 12:20pm

    #23
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    Re: For or Against Usury

[quote=Thomas Hedin]

We don’t want banks (or anyone else for that mater) making money out of thin air

Then how do you suggest we have money created?

[/quote]

Like I said earlier.  I don’t think that anyone or any group is smart enough solve this problem alone.  The billions of people that make up the market for goods and services would find a solution.  It might start off with hard money like gold and silver but I would not be surprised if that was only a partial or just a transitional solution.

If you believe that money is a commodity why must it be created by some entity.  Why can’t it be created and have its value be set by market forces like every other commodity?

  • Sun, Jan 31, 2010 - 12:28pm

    #24
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    Re: For or Against Usury

[quote=Thomas Hedin]

If you have a hard currency, then it’s hard to finance welfare/warfare because you have to actually collect taxes to pay for it.  You can’t secretly debase the money supply to secretly pay for it.

This is lawyer speak. Define your version of ‘hard currency’. Is that FRN? Gold coin?

Johnny,

I believe goes211 means Commodity Money when he says hard currency. 

Is this what you mean Goes211?

[/quote]

That is a solution but not necessarily the only one.  I like commodity money because it does not require force to enforce its usage but I can imagine other non-commodity solutions.  My speculation is that non-commodity solutions would have to be very well managed to remain in existence.   In general, competition is good for consumers of that good.

  • Sun, Jan 31, 2010 - 01:02pm

    #26
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    Re: For or Against Usury

[quote=rhare]

ccpetersmd said:

If one combined some comments you made in your first response to this thread (see above, about defining to a bank how much risk you were willing to assume if the bank were to loan out some portion of your deposits in the bank), would this make fractional reserve banking more palatable, or would it make no difference?

I don’t know.  Personally, I think non-FRB banking is the way to go.  That is when you choose to lend out capital, you can’t use it until it is repaid, or in the aggregate until someone else puts enough capital in to allow you to withdrawl your money.  However, I also can see how a FRB system can work if you maintain high enough reserves to outstanding loans.  After all, if interest rates are set by the market and appropriate, then the capital should be aimed at productive resources which means the actual “net worth” in the economy grows, that is the new currency created by the loan is actually back by whatever assets were purchased with it.   However, on the flip side, you end up in the situation we are in now, which seems to indicate the risk is too great to use FRB.

I keep coming back that I think we need to let the market sort it out.  That is allow multiple systems to work simultaneously and see what provides the most benefit.  I like to think that a non-FRB system is probably best, but I can’t be sure.

I also want to add one more comment, for those that say the only beneficiary of FRB is the bankers, I don’t believe this is correct.  Savers who wish to lend money to get interest but want reduced risk, this may be an appropriate solution.  The bankers don’t get all interest in profit, a large portion goes to the operation of the bank (salaries, etc just like all businesses), and a large portion goes to those with deposits in the banks in the form of interest on savings.  That is I don’t think the system we have is all bad, I can see some benefit.  To me the main problems are:

  1. The Fed setting the federal funds rate instead of the market setting rates.
  2. The legal tender laws and tax laws that force everyone to use the cartel of banks. 
  3. Government guarantess for banks.

If we got rid of these issues I could see that a responsible run FRB system might work as long as it was in competition against other entities, non government controlled or manipulated,  and could fail thus allocating risk to the depositors and equity holders in the institution, which in turn helps to set interest rates.

Johnny Oxygen said:

This is lawyer speak. Define your version of ‘hard currency’. Is that FRN? Gold coin?

I think it was actually my comment to which he was referring, and no, it’s not lawyer speak as I’m certainly not a lawyer – hell in another thread I got accused of being a fourth grader. 🙂 

I think “hard currency” is something that is backed by a tangible asset.  It could be land, energy, gold, silver, copper, etc.  In some cases the currency is the “hard asset” like gold/silver/copper coins, or it can be redeemed for a hard asset on demand.

Johnny Oxygen said:

You can transact in gold and you can transact in fiat its just a matter of conversion. My point is that one currency will ‘win out’ over the other eventually.

No you can’t!  if you buy gold, it goes up, you sell it you have to pay capital gains (at least if you don’t want to go to jail).  This means it is not just a matter of conversion.  Why do you think one currency would win out?  We have many competing currencies in the world, in many countries multiple currencies are in use.

Johnny Oxygen said:

It worked for thousands of years until the bankers began the process of usury.

Where? Interest has been around for ever.  If you don’t think you have to have interest, then will you please lend me all your money for nothing?  I’ll send you the address to send me the check.  If you say no then you prove my point. 🙂

Johnny Oxygen said:

Lincoln’s greenback work well

Really?  They were sucessful in only having an 80% inflation rate as opposed to the souths much higher rate.  Just because one currency wasn’t as devalued as the other doesn’t mean it was a success.

My comment:

as opposed to  a hard currency where you have to intice the holder to lend the currency via a promise of reward that out weighs the risk.

Johnny Oxygen said:

More lawyer speak. How is this different from our fiat system? Explain what you mean.

How is this lawyer speak? Perhaps you have been deprived of oxygen? 🙂  To make my point, give me your money I promise I’ll pay it back in full and I promise to do something useful with it.  Again, if you don’t think this is a good deal, then you need to rethink your comments! In order to lend money to someone, you will want something in return on top of your principal for the risk.  That extra part is interest.  The more risk you perceive in lending the money, the higher the reward you expect, which means the higher the interest you expect.  If there is no reward, then why would you lend  money?

[/quote]

I am in total agreement with rhare’s response to Johnny.

  • Sun, Jan 31, 2010 - 01:58pm

    #25
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    Re: For or Against Usury

I thnk we are getting off track so I will try and be a little clearer.

I think that we agree that banks currently make money through interest on money they created for free through loans.  They can also make money by repossessing collateral in deflationary situations which they caused by not loaning enough new money to cover the outstanding debt obligations.  With that being said, still I don’t find interest to be offensive.  It is only offensive right now because someone without any skin in the game is making a return on capital that they don’t deserve. 

  • I still feel that those with capital do require some return on capitial (interest/usury), to compensate for the risk of default.  If you don’t believe this to be the case, please explain why.
  • I also believe that if this interest rate was set by market forces and that money creation was also handled by market forces, we would not have the problems that we have now. 

Because money creation would be handled by market forces, loans would only be made to parties that were going to make productive uses of that capital.  We would not have the problem that more money would always need to be created to cover the outstanding loan obligations or the system would collapse.  The loaned money would either create enough capital to cover its interest debt or would default and therefore add money to the system to pay off other outstanding loans.

Does this make any sense to anyone other than me?

  • Sun, Jan 31, 2010 - 02:14pm

    #27
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    Re: For or Against Usury

goes211

OMG this conversation is getting hysterical! I think we actually agree with each other me and/or we are just missing each other.

  • I still feel that those with capital do require some return on capitial (interest/usury), to compensate for the risk of default.  If you don’t believe this to be the case, please explain why.
  • I also believe that if this interest rate was set by market forces and that money creation was also handled by market forces, we would not have the problems that we have now. 
  • Yes I agree.

    I suppose my point (or way of thinking) was this proposal:

    What if congress issued notes that could not have interest attached to them? I’m not proposing this cures all ills just a thinking exercise. Now the old FRN’s were not removed but the new non usury notes were just added into the economy.

    1.) How would people get their hands on these new notes if they needed a loan? Could government lend the money if it was gauranteed by law that they could never directly profit from it. So why would they do that? Because it would be a boon to the economy, increase velocity of money, allow businesses to grow, etc. But it also brings up the second point.

    2.) If government taxed the end use of these new notes would that be considered usury?

    3.) What would other countries reactions to this usury free note be? Would it instantly become the new carry trade? What would happen when other countries invested in this note and attached interest on it outside of the US?

    I’m sure there are many more question to be added. I completely understand what you are saying its just that I don’t have the faith you do in ‘market forces’ you said: Because money creation would be handled by market forces, loans would only be make to parties that were going to make productive uses of that capital. While I agree with this in theory we can also see how it can be horribly corrupted as it is now being and I suppose that is where my suspicion lies. So I guess what I am proposing is some sort of hedge against the few manipulating the whole.

    I don’t think making correction to the current system will do anything to stop it from being corrupted again. The bankers have this one figured out and all the players in place. Perhaps any system can be corrupted but I think the one we are using now is done in regards to ever being fair and legit.

     

     

    • Sun, Jan 31, 2010 - 04:42pm

      #28
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      Re: For or Against Usury

    I’m struck how well those of us living in a usury machine are trained to debate how to make it work rather than question the existence of it. We’re trained to think it’s necessary, sort of like hamsters in a cage must think their cage is necessary.  Debating how to improve the cage might seem productive to the hamsters, and little Bernanke-hamsters would become experts in how to run the wheels more efficiently (the humans would feed Bernanke more).  They would honor the hamsters who run the fastest and train baby hamsters to do the same.  But the humans keeping them stuck in the cage would laugh that the hamsters don’t just walk out. 

    Of course, hamsters aren’t free to walk out, otherwise they would.  Humans are free to walk out, yet we don’t.  Hmm…not sure about evolution.  Laughing

    The banking establishment has also fooled everyone apparently that usury = return on capital.  I suppose if issuing stuff you don’t have and putting people in bondage to pay it back plus interest = capital production, then you’re correct that usury = return on capital.  But if that’s capital production, then why don’t we just have everyone become bankers?  We could all issue ourselves the money we don’t have if that’s real production. That of course reveals the lie of usury.

    It is not capital production, but rather a casino.  As long as the house keeps throwing more chips on the table, the usury system works, people can get out of bondage.  But as soon as the house pulls their chips off the table or starts pulling yours off with higher interest rates, game over, people lose their houses.  It doesn’t matter how that system is tweaked.  Eventually people lose their houses because rather than declaring jubilee at that time for the greater interest of the people as all religions call for, our government works for the casino. 

     

     

    • Sun, Jan 31, 2010 - 04:48pm

      #29
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      Re: For or Against Usury

    Solid copy Strabes.

    But get ready for some blowback from the pro-usury crowd above. I think my questions merit response in regard to a non-usury note. We’ll see how many people are even interested or if we will just continue talking about how usury SHOULD work.

    • Sun, Jan 31, 2010 - 04:51pm

      #30
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      Re: For or Against Usury

    [quote=Johnny Oxygen]

    goes211

    OMG this conversation is getting hysterical! I think we actually agree with each other me and/or we are just missing each other.

  • I still feel that those with capital do require some return on capitial (interest/usury), to compensate for the risk of default.  If you don’t believe this to be the case, please explain why.
  • I also believe that if this interest rate was set by market forces and that money creation was also handled by market forces, we would not have the problems that we have now. 
  • Yes I agree.

    [/quote]

    Johnny,

    I agree with you about this getting hysterical and would like to thank you for trying to get things back to a productive discussion.  We probably do agree more than you think.

    [quote=Johnny Oxygen]

    I suppose my point (or way of thinking) was this proposal:

    What if congress issued notes that could not have interest attached to them? I’m not proposing this cures all ills just a thinking exercise. Now the old FRN’s were not removed but the new non usury notes were just added into the economy.

    1.) How would people get their hands on these new notes if they needed a loan? Could government lend the money if it was gauranteed by law that they could never directly profit from it. So why would they do that? Because it would be a boon to the economy, increase velocity of money, allow businesses to grow, etc. But it also brings up the second point.

    2.) If government taxed the end use of these new notes would that be considered usury?

    3.) What would other countries reactions to this usury free note be? Would it instantly become the new carry trade? What would happen when other countries invested in this note and attached interest on it outside of the US?

    [/quote]

    As for your points, I don’t completely disagree.  I can definately see some merit to the idea of government creating fiat currency without debt to pay for some of its obligations.   At least that money would be free of the parasitic banking middle men and the people themselves would gain the benefits of money creation.

    I guess where I have a problem with this is that it feels to me like that solution is just trading one set of masters (bankers) for a different set (government bureaucrats).

    [quote=Johnny Oxygen]

    I’m sure there are many more question to be added. I completely understand what you are saying its just that I don’t have the faith you do in ‘market forces’ you said: Because money creation would be handled by market forces, loans would only be make to parties that were going to make productive uses of that capital. While I agree with this in theory we can also see how it can be horribly corrupted as it is now being and I suppose that is where my suspicion lies. So I guess what I am proposing is some sort of hedge against the few manipulating the whole.

    I don’t think making correction to the current system will do anything to stop it from being corrupted again. The bankers have this one figured out and all the players in place. Perhaps any system can be corrupted but I think the one we are using now is done in regards to ever being fair and legit.

     

    [/quote]

    Once again I understand where you are coming from.  You don’t have faith thar market forces will not be corrupted.  I guess I feel is that government will be corrupted.  I will leave you with my favorite passage from Frédéric Bastiat’s “The Law”.

    http://bastiat.org/en/the_law.html#SECTION_G714

    Property and Plunder

    Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.

    But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.

    Now since man is naturally inclined to avoid pain — and since labor is pain in itself — it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.

    When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor.

    It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.

    But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.

    This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.

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