For or Against Usury

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  • Sun, Jan 31, 2010 - 05:03pm

    #31
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    Re: For or Against Usury

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.

Now that is something we definately agree on!

What is your opinion of my 3 questions on non-usury notes?

  • Sun, Jan 31, 2010 - 05:33pm

    #32
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    Re: For or Against Usury

[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]

Like I said, I think non-debt currency has some merits.  I just don’t think that it is the whole solution.

1) Do you really want a government bureaucrat to decide who should and should not get loans?  I would fear that the loans would would end up going to those that are politically connected as opposed to those with the best ideas for productive use of capital.  One other issue I have with non-debt currency is that how does it ever get destroyed?  One saving grace of the current system is that as loans are paid back, the underlying currency is destroyed.  This causes a deflationary effect that counter balances the inflationary effect of the initial money creation.  When a government loan was paid back do you think the government would destroy that money?  I think it would just continually spend money, devaluing all the existing money until we were left with worthless pieces of paper.

2) I don’t know and I am not sure if it matters to me because I like I have said earlier, I don’t have a problem with interest.  I have a problem with interest going to someone that did not take a risk because they created the money out of thin air.  If the government was leanding out real productive capital it, like everyone else, should be compensated for taking on a risk of default.

3) I am not sure how they would react but I am sure that foreign central banks would not like it and would fight it with all their collective might.  They would probably dump all their dollars in what I would assume would be successful attempt to destroy our currency.

  • Sun, Jan 31, 2010 - 05:47pm

    #33
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    Re: For or Against Usury

I have an issue with banks creating money out of thin air and making money off of it.

However I think with 10 banks closing this year already and 140 going out last year

to say they have no risk is incorrect. Their risk is actually getting swallowed up by  larger fish.

As J D Rockefella said ” Competition is sin” What we are witnessing is the consolidation

of the banking industry in the hands of very few. This also occurred during the first depression.

It is all just a happy coincidence for JP Morgan , Goldman etal.

  • Sun, Jan 31, 2010 - 08:15pm

    #34
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    Re: For or Against Usury

[quote=Johnny Oxygen]

Solid copy Strabes.

But get ready for some blowback from the pro-usury crowd above.

[/quote]

Yes.  I want everyone to be a debt slave. 

It would be easier to continue this discussion if you would not demonize those that disagree with you.

  • Sun, Jan 31, 2010 - 09:18pm

    #35
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    Re: For or Against Usury

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’m not sure I can actually agree with this. Sorry. 🙂

Let’s look at a bank in what I would think is a more ideal world:

Banks don’t actually make free money.   When they create money they have to be reasonably sure that the loans will be paid back.  They have expenses for employees, interest to pay depositors, infrastructure, energy costs, etc.  So “most” banks have to be well run businesses.  If they run poorly (make too many bad loans) they go under, the assets sold off, equity shareholders and depositors loose there investments, etc.  I also don’t believe repossessions are a money making arrangement for a bank.  After all if they have to reposses they now have added expenses to deal with the repossesion (particularly if it’s lost value – most do).   They have also already paid investors and depositors interest they were counting on from the loan, so they are out that money as well. At least that is how it should work.

Now let’s look at why it doesn’t work this way:

FDIC – Depositors who are earning interest with their money in the bank have no risk.  That is if the bank makes poor loans and goes under they suffer no ill consequences.  So savers are some of those who “have no skin in the game” but receive benefit.

FED – They actually create money from thin air.  Because of this they can bail out banks by lending them money or buying assets from them at inflated values.  So now the individual banks with friends at the FED have a much reduced risk as well.

My point is I can’t 100% say FRB is bad.  It may work well if not for the severe market distortions caused by the FED and FDIC and others.  I agree with the rest of your statments on capital/interest and free market interest rates.  But I think we are making a mistake by villifying all banks and bankers.  I think they provide a useful service and what we need to do is understand how the government and it’s programs to save people (the FED was originally put in place to save the people) cause the problems and benefit those most closely connected to the government.  I certainly know most community oriented banks and credit unions don’t seem to be evil.

There is another part of all this that I have been thinking a lot about lately.  In the Crash Course, Dr. Martenson says that the money system requires exponential growth because of interest.  I’m still not convinced this is true.  I certainly agree that the way we currently run the sytem with all the manipulations this appears to be true enough. 

When a bank makes a loan and the money is invested in a productive asset.  That is something that when labor is added produces more value that the original inputs, then the value of the entire system is raised.  When the loan is paid back, it is removed.  The interest is actually created by the asset and labor though an increase in value of the money circulated. Also, if you look at the system statically it looks like you have to have more money injected into the system to cover the interest, but the system is very dynamic. The interest is paid by directing the flow of money temporarily to the bank to cover the interest, but in the long run, no extra money is required in the system.

I have been trying to come up with a simple example to explain what I mean without much success, but here is a first stab:

Bob takes a loan out from a bank and builds a bakery. Bob, invests the money to make bread and pays it out to contractors and suppliers.  To keep things simple, all the contractors and suppliers return the money to Bob for bread he produces. Bob also makes payments to the bank.  The bank pays interest to the depositors and to their employees and shareholders, who in turn buy bread from Bob, who sends the money back to the bank.  So the interest is really just a representation of the labor Bob is putting into the bakery and temporarily (for the life of the loan) is diverted to the bank.  In this case no additional money need be created to cover the interest.  

Does this make sense to anyone else?

 

  • Sun, Jan 31, 2010 - 10:30pm

    #36
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    Re: For or Against Usury

[quote=rhare]

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’m not sure I can actually agree with this. Sorry. 🙂

Let’s look at a bank in what I would think is a more ideal world:

Banks don’t actually make free money.   When they create money they have to be reasonably sure that the loans will be paid back.  They have expenses for employees, interest to pay depositors, infrastructure, energy costs, etc.  So “most” banks have to be well run businesses.  If they run poorly (make too many bad loans) they go under, the assets sold off, equity shareholders and depositors loose there investments, etc.  I also don’t believe repossessions are a money making arrangement for a bank.  After all if they have to reposses they now have added expenses to deal with the repossesion (particularly if it’s lost value – most do).   They have also already paid investors and depositors interest they were counting on from the loan, so they are out that money as well. At least that is how it should work.

 [/quote]

Sorry.  I was probably being a little too simplistic.  What I was trying to say is that banks can create money for free and charge interest for this service. Yes they do take some risk that the creditor may not pay back in full but it still seems to me that they get a very large return for what at least appears to me to be a very small risk.  After all if the creditor defaults, the worst thing that happens to the bank is they can go bankrupt.  All the money they created remains in the system which devalues everyone elses money which does not seem very fair.

As for making money in defaults, I guess it depends upon how big and connected you are.  If you are a small local bank and you make a lot of bad loans it will certainly not work out well for you.  However if you look at the banking system as a whole, especially TBTF institutions or the FED, it seems they can contract the money supply ( or at least not grow the money supply enough to cover outstanding interest payments) and sit back and watch as creditors default due to a crisis which they created.  If they are not wiped out, which the TBTF by definition won’t be, they can use these expansions / contractions to their own favor.

Maybe I am wrong about this and I am open to correcting any misunderstanding that I have.

[quote=rhare]

Now let’s look at why it doesn’t work this way:

FDIC – Depositors who are earning interest with their money in the bank have no risk.  That is if the bank makes poor loans and goes under they suffer no ill consequences.  So savers are some of those who “have no skin in the game” but receive benefit.

FED – They actually create money from thin air.  Because of this they can bail out banks by lending them money or buying assets from them at inflated values.  So now the individual banks with friends at the FED have a much reduced risk as well.

My point is I can’t 100% say FRB is bad.  It may work well if not for the severe market distortions caused by the FED and FDIC and others.  I agree with the rest of your statments on capital/interest and free market interest rates.  But I think we are making a mistake by villifying all banks and bankers.  I think they provide a useful service and what we need to do is understand how the government and it’s programs to save people (the FED was originally put in place to save the people) cause the problems and benefit those most closely connected to the government.  I certainly know most community oriented banks and credit unions don’t seem to be evil.

There is another part of all this that I have been thinking a lot about lately.  In the Crash Course, Dr. Martenson says that the money system requires exponential growth because of interest.  I’m still not convinced this is true.  I certainly agree that the way we currently run the sytem with all the manipulations this appears to be true enough. 

When a bank makes a loan and the money is invested in a productive asset.  That is something that when labor is added produces more value that the original inputs, then the value of the entire system is raised.  When the loan is paid back, it is removed.  The interest is actually created by the asset and labor though an increase in value of the money circulated. Also, if you look at the system statically it looks like you have to have more money injected into the system to cover the interest, but the system is very dynamic. The interest is paid by directing the flow of money temporarily to the bank to cover the interest, but in the long run, no extra money is required in the system.

[/quote]

FDIC insurance is tough.  I certainly don’t want to see grandmothers life savings destroyed by a bank run or bank fraud.  However it does create a moral hazzard by taking away market discipline from banking institutions.

I hope I am not  villifying all banks and bankers.  Most of my neighbors work at the biggest US bank and I actually spent a couple of years at a bank that did not survive the current crisis.  Luckily I had an opportunity to get out well before the crisis started or things could have been much worse for me.

My critcism of the current banking industry is not due to prejudice, but more of a moral objection.  I am FINRA registered and have worked in the finanical industry since the early 90’s.  I am sure that I have a lot more to loose from changes in the current system than most people around here but for my children’s sake, I don’t want to see the current system to end in a collapse or the rise of a totalitarian system.

[quote=rhare]

I have been trying to come up with a simple example to explain what I mean without much success, but here is a first stab:

Bob takes a loan out from a bank and builds a bakery. Bob, invests the money to make bread and pays it out to contractors and suppliers.  To keep things simple, all the contractors and suppliers return the money to Bob for bread he produces. Bob also makes payments to the bank.  The bank pays interest to the depositors and to their employees and shareholders, who in turn buy bread from Bob, who sends the money back to the bank.  So the interest is really just a representation of the labor Bob is putting into the bakery and temporarily (for the life of the loan) is diverted to the bank.  In this case no additional money need be created to cover the interest.  

Does this make sense to anyone else?

[/quote]

I don’t think I get it.  The interest paid to depositors (especially now with rates near 0%) is much smaller than the interest recieved on the leveraged loan book.  In your example I don’t see how no additional money needs to be created.

I think in a closed system like your example, additional debt will always need to be created or there will be no way for the baker to pay back his loan.

  • Mon, Feb 01, 2010 - 01:24am

    #37
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    Re: For or Against Usury

I think in a closed system like your example, additional debt will always need to be created or there will be no way for the baker to pay back his loan.

Okay, this is going to be overly simple, but I think it still works in larger systems with multiple players involved.

I’m a baker and I get a $10 loan from bank with 50% interest.

Baker Bank Action
0 20 Starting Balances
10 10 Get $10 loan from bank, Bakers loan balance $15 (Principal+interest)
0 10 Spend loan on supplies and equipment
5  5 Bank buys some bread
0 10 Make $5 payment to bank, (loan balance $10)
5  5 Bank buys some bread
0 10 Make $5 payment to bank, (loan balance $5)
5 5 Bank buys some bread
0 10 Make $5 payment to bank, (loan balance $0)

 

So I believe this works in a larger model. So where did the money go? The loan was paid off, the bank is happy  and the supplier to the baker is happy, and yet no money was added to the system.   The net money in the system is the orignal $20 ($10 bank, $10 supplier). The labor of the baker through making and selling bread paid off the banker.  Obviously you have many banks, lenders, suppliers, consumers all involved and the bank not really buying bread but paying interest to savers who buy the bread from the baker, etc., but I think this is still reasonable example of how you can pay off a loan without money ever being added to the system.  In the example I used non FRB, but it works the same if the bank creates the money using FRB just the same.

See anything wrong with this?

 

  • Mon, Feb 01, 2010 - 01:58am

    #38
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    Re: For or Against Usury

[quote=goes211]

[quote=Johnny Oxygen]

Solid copy Strabes.

But get ready for some blowback from the pro-usury crowd above.

[/quote]

Yes.  I want everyone to be a debt slave. 

It would be easier to continue this discussion if you would not demonize those that disagree with you.

[/quote]

Whoa! Slow down tiger. I’m not demonizing anyone I just agree with strabes.

After reading the responses its clear, to me at any rate, that the conversation revolves around the way usury should be. So it seems to be self evident that it has been abused and corrupted. Which means it can be abused and corrupted. So what is the argument to continue on with this system?

 I’m seeing a kind of ‘can’t-see-the-forest-for-the-trees’ logic here.

 

  • Mon, Feb 01, 2010 - 04:10am

    #39
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    Re: For or Against Usury

I think that we agree that banks currently make money through interest on money they created for free through loans.

Goes211,

Banks “make” money every time they issue a new loan.  The interest is never created in that process, only the principle.  Please correct me if I’m wrong but don’t you only get that which you borrow (principle) and you’re required to pay back the principle plus more than what was created in that process (interest)?

  • Mon, Feb 01, 2010 - 04:14am

    #40
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    Re: For or Against Usury

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.

Because the banks have no risk because they do not loan you anything and they end up getting all the stuff of real value for mearly loaning a promise to pay.

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