For or Against Usury

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  • Mon, Feb 01, 2010 - 04:19pm

    #51
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    Re: For or Against Usury

The Political and Economic Agenda for a Real Gold Standard

Mises Daily: Thursday, January 17, 2008 by Ron Paul

“The gold standard as a constitutional restraint on our government was abolished in the United States, not in 1934 nor in 1971, but in 1819 with the US Supreme Court case of McCulloch v. Maryland.[12] With this famous Supreme Court interpretation of the Constitution, the federal government acquired the sovereign power to manipulate the nation’s money, from which the legal tender laws of the Civil War, the central-banking powers of the Federal Reserve System, and the ultimate prohibition on any private use of gold as money in 1934 derived. This link between sovereignty and currency manipulation has been ably argued by Henry Mark Holzer.[13]”

“Cynics dispose of the advocacy of the restitution of the gold standard by calling it Utopian. Yet we have only the choice between two Utopias: the Utopia of a market economy, not paralysed by government sabotage, on the one hand, and the Utopia of totalitarian all-round planning on the other hand. The choice of the first alternative implies the decision in favour of the gold standard.”[14]

http://mises.org/story/2826

  • Mon, Feb 01, 2010 - 04:22pm

    #52
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    Re: For or Against Usury

Thanks for this great thread JK121.  The posts have been excellent and it is very heartening to see such interest (no pun intended) in the usury and fraud that we call our financial system.

Our private debt based money system is a very old scam designed to enslave nations in debt.  This has always been the function of the Federal Reserve system and it’s mother, the Bank of England.  The international banking cartel has been working in the shadows for the past two centuries and it is no coincidence that most of the world is mired in debt servitude.

Gertrude Coogan, Security Analyst for The Northern Trust Company of Chicago, wrote in Money Creators (1935): 

“How long shall we allow our leaders, spiritual and political, to pretend that they see nothing, hear nothing, and know nothing ?  How long shall we tolerate organs of education and information, public and private, commercial and religious, which are drugged?  How much longer shall we silently consent to have the strong kept in a trap, the wise surrounded by fog, and the sincere millions caused to suffer needlessly ?

There can be no Liberty without Economic Freedom — America can have no Economic Freedom without an honest money system — one removed from the controls of the socially irresponsible private Money Creators.

Our home town and city bankers are, with few exceptions, honest men…They and their predecessors inherited a system which, because it is, they believe always was.  If they would look into the origin of the system, and examine its nature, originated sub-rosa and only through centuries of legislative trickery congealed into Law, they would demand that the system be demystified, made non-collapsible, and honest in essence; for they would see that the near-by destiny of the system is ruin for them as well as for others.”

Over seventy years later…the wise are still surrounded by a fog.  Economics and money are a public utility that should be removed from those who treat these subjects as belief systems and turned over to practical engineers who would use mathematical logic to design an honest system. 

For example, there is no fractional lending – it is all created virtually for free, not just a fraction of it as some would lead you to believe.  We continue to debate the irrelevant because that is what we have been taught to do.  In the absence of any salient financial terms, axioms or mathematical facts, we are left to grope through beliefs and misinformation.

Larry

  • Mon, Feb 01, 2010 - 04:28pm

    #53
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    Re: For or Against Usury

Larry

Preach it brother!

I would still like to see some more discussion on how a viable non-usury system could be constructed that would be practical.

  • Mon, Feb 01, 2010 - 04:46pm

    #54
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    Re: For or Against Usury

[quote=Johnny Oxygen]

Larry

Preach it brother!

I would still like to see some more discussion on how a viable non-usury system could be constructed that would be practical.

[/quote]

I also look forward to Larry’s input on this thread.  Although I may disagree with some of his ideas, I usually learn a lot from his posts.

  • Mon, Feb 01, 2010 - 04:50pm

    #55
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    Re: For or Against Usury

 

I agree DrKrbyLuv.  Many great responses.  

I still hold a strong grudge against our current system on it’s inherent ponzi ways.  Not to mention the insane Derivative game.  Warren Buffet Called derivatives “a ticking time bomb”  The entire system is a monetary time bomb.  

Well in November we will have to get a new cast of People in office to maybe change things, and 2012 will be the definitive and very important election to see where we go. 

 

  • Mon, Feb 01, 2010 - 05:55pm

    #56
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    Re: For or Against Usury

Thomas, first time I’ve ever seen a banana metaphor!  It works. 

  • Mon, Feb 01, 2010 - 06:48pm

    #57
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    Re: For or Against Usury

Hello all,

Thanks for the kind words goes211, I greatly enjoy your posts and usually learn something from you.

I think money may be created and issued without usury.  We accept usury by choice, not necessity.  Granted, most don’t see it but I think that is changing. 

Two points that I’d like to add to the usury discussion, first a philosophical perspective, and then some actual mechanics.  Henry Loucks says it much better than I could in a 1916 book:

Money is a public utility, created, or authorized, by the national legislative unit of each independent, sovereign nation, as a medium of exchange, and to pay lawful obligations…Its primary function is to facilitate exchange of labor and labor’s products, a medium of exchange.

Like all other public utilities, it should be administered without private profit, as is our postoffice system.  Any charge for its use, in excess of the cost of administration, is a tax on labor and labor products that must be paid by the producer or consumer, and is the main cause of the present high cost of living.

Congress having reserved to itself the sole power to coin (issue) money, and having prohibited under heavy penalties any individual, combination of individuals, corporations, or states to make or issue money, is in duty bound to issue a sufficient volume to transact the business of the nation on a cash basis.

It becomes the life blood of production, industry and commerce, and to delegate to, or confer, a monopoly of its administration on any one class or business will enable that specially favored class, or business, to control and exploit every other business, or industry ; yes, even the state and federal governments.

Money may be stamped on a metal, or an alloy of several metals, such as iron, brass, copper, nickel, silver, or gold, or on paper.  The value of the thing stamped is immaterial.  It is the fiat of the government making it a full legal tender for all debts, public and private, that gives it the value as a medium of exchange.  It then possesses a community, or legal value, regardless of its commodity value.  – link to online book

I agree that any charges beyond administrative fees in creating money is a tax.  And if it is charged as interest from private banks, it is usury.

If the government were to add interest charges to money they create, it would be a tax and could have some redeeming benefits if wisely spent to serve the people.  Banks charge interest on new money even though it was never theirs.  They dispense new money because they hold a monopoly to do so, not because they earn it. 

Borrowers should collateralize all loans and if it is government doing the borrowing, it must be backed by new tangible assets.  While I would have the Treasury create all new money, I would not allow the Federal government to issue money at their discretion.  I would de-centralize the system by putting private banks and states as the issuers of new money. 

Here are some suggestions that I think would work very well in an alternative system (fire the Fed):

  1. All new money created by the Federal Government through the Treasury
  2. Almost all new money to be issued by private concerns and state government; the Federal Government should issue (spent into the economy debt free) very little money as a percentage
  3. Private banks would continue under a new model that would require that they borrow or buy (issuance fee) all new money from the Treasury (revenue stream to eliminate income and employment taxes)
    • The Treasury could charge banks an issuance fee, and they could profitably lend money based services provided (credit application, collections, etc.)
    • Interest could be charged by the Treasury and passed on to borrowers by private banks – this might be needed to make the transition easier as it is closer to the current model (in the long run I prefer issuance fees shown above)
  4. States would be free to charter banks to provide interest and debt free money for approved infrastructure projects that benefit the people and their commerce (for example, transportation systems or hydro electric power)
  5. State chartered banks could provide interest free money for approved initiatives (for example, decreasing home and building energy use by 50% or providing funding to get people off the electrical grid)

Sorry for such a rough overview, there would of course be more details. 

Larry

  • Mon, Feb 01, 2010 - 08:57pm

    #58
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    Re: For or Against Usury

[quote=goes211] Even in your simple example each of the $5 payments from the bank for bread would have been created though loans to middle men because the bank itself, does not eat.  These loans would need to come up with a total payment of $7.5 to pay back the bank.[/quote]

I don’t understand, change the word bank to Bob’s friend Joe?  Joe eats. Same thing.  A bank is nothing more than any business that has some extra capital (maybe little if reserve rates are low) that they wish to lend.  Notice, in the example I assumed the bank lent money it had, not via fractional reserve banking.  The point of the example was that you don’t have to add money into the system for loans to be repaid.  Money flows in circles between lenders and borrowers.  Lenders need to purchase items just like everyone elese.  In my example I said the bank, while it could directly be the bank (think lunch purchased by the bank) mostly purchases would be done by the employees, shareholders, and depositors who receive money (paycheck, dividends, interest) from the bank.

[quote=goes211] My criticism of debt based money is due to its inherent unfairness where wealth always seems to flow from those on the bottom to those on the top.  If this flow was toward briliant entrepreneur’s that were providing goods and services that everyone wanted, it would be acceptable to me.  Instead the wealth seems to flow to those that have the legal ability to create our means of exchange which just seems wrong to me. [/quote]

This was my point.  I don’t believe the money system is what is responsible for this wealth flow.  It’s the manipulations of the system by politics that causes the wealth flow.  The manipulation of interest rates (FED monetary policy), removal of risk (FDIC,PBGC,Fannie/Freddie/Sallie) that are the problem, not the monetary system itself.  I believe without this manipulation you would see wealth flow “toward briliant entrepreneur’s” and those that are most productive instead of toward those that are the most politicallly connected. Now you can have debates about whether fractional reserve banking should be allowed or what the reserves should be, but that is a complete different discussion.

[quote=Thomas Hedin]As soon as time and interest kick in, the debt has grown but the money supply has not making it impossible for the debt collectively to be paid.[/quote]

This is true only if you look at the flow of money in the most simplistic way.  Say I lend you money and charge you interest.  If you don’t do anything with the money and there is no other interaction, then yes what you say it true.  There is no way you can pay me back.  However, that is not what happens.  You go oud and purchase products, the entities you bought from end up buying something.  The money flows through out the system.  Eventually it may come back to you in the form of wages or soemthing you sale.  It may come back to me and I respend it.  It is entirely possible you could repay me with the same money multiple times.  That is why you don’t have to increase the supply.  This works with FRB or non-FRB the same.

So why you ask do we have a problem.  Because we have been buying far more than we produce.  We are not producing in aggregate enough goods/services  to repay the loans.  That is we borrow more than we can pay back through our labor.  We have far more non-productive purchases (war,welfare,plasma tvs,houses) than we have productive purchases (farms, manufacturing equipment, etc).

[quote=Thomas Hedin] I think by spending you mean borrowing.[/quote]

Yes.  Although generally if you borrow you plan to spend. 🙂

[quote=Thomas Hedin]We really need to start to think about the prinicples under which out monetary system functions.  We can either have a monetary system that is designed to bankrupt a country and transfer all of the real wealth to a very few elite at the top (as we have now) or we can start working to switch our monetary system to one that benifits and enriches the people returning prosperity, private ownership, and all the other benifits of being able to OWE your money instead of having to borrow the money and pay interest on it. [/quote]

I agree with the need to “think about the prinicples under which out monetary system functions”, but I still don’t think the underlying root cause is the money sytem itself.  It’s borrowing and spending more than you produce.  No matter what system we have, if it allows this to occur, we will be in the same state.  Now, hard currency (say gold/silver) prevent that, since money has physical value and you can’t manipulate interest rates without direct force to make an individual lend money below their risk threshold.

[quote=Johnny Oxygen]I would still like to see some more discussion on how a viable non-usury system could be constructed that would be practical.[/quote]

[quote=Thomas Hedin]It’s a sad fact but 100% of the money in our system is created by an extension of credit by a private commercial bank.[/quote]

These two quotes helped me focus on what I’m trying to convey, maybe not very eloquently:

First, I don’t believe we can ever have  a system that doesn’t have interest.  In fact I would go so far as to say, Johnny Oxygen, the system we have to day is exactly what you are asking for.  We have interest rates being set so artifically low that it’s like there is no interest at all.  Interest is the representation of risk.  It’s what keeps the system constrained.  Interest is what encourages people to save, versus spend.  It’s what causes a person/company/government to evaluate whether to borrow or not.  Interest is not the problem, rather it is the solution.

So now on to the second part, “100% of the money in our system is created by an extension of credit”, which is not true.  Now I will give you that the vast majority of money is an extension of credt, originating from the Federal Reserve then via Fractional Reserve banking.  There is some base money in the system that is not credit based, a very small portion equivalent to all the money that was in circulation prior to the founding of the FED, and it was backed by gold and silver.  So how much “base money” that is not credit is out there?  Well if we look that the value of the dollar has declined 98%  (purchasing power), then that would indicate 1/50 of the current money in the system.  However, I suspect that it is a much, much smaller percentage and we just haven’t see the purchasing power drop to a representative valuation due to other factors such as use as the reserve currency.

So now to tie these two together.  How did we get to this point, low artificial interest rates and minimal reserve requirements, caused by the FED and going on for 100 years.  If we didn’t have the FED, we would still have interest, we would still potentially have FRB, but I doubt we would have the issue we have today.  I suspect the dollar would buy you computer and we would have tenth cent or smaller coins.

The whole point of this, is that looking at Usury or the monetary system as the problem is red herring.  I would also disagree with the following:

[quote=DrKrbyLuv]Economics and money are a public utility that should be removed from those who treat these subjects as belief systems and turned over to practical engineers who would use mathematical logic to design an honest system.[/quote]

I believe money is a”private” issue, that must not be entrusted to any one entity.  Central planning of an economy is grounds for disaster (we see that now).  Then we get back to the reason for gold and silver.  They are not manipulated since they can’t be conjured from thin air.  I also still hold that FRB is possibile and not necessarily evil, but market forces via interest and risk aversion must be used to keep it in check thru competition.  Both of which we have removed from the system.

[quote=Thomas Hedin]You’ve brought up a lot of really great points in your posting and I really enjoyed reading it.  I hope my follow up was enjoyable.[/quote]

Yes, I enjoy posts that make me think. 🙂  Over the last couple of years I have been doing a whole lot of thinking about our money system, far more than I ever did before taking the red pill and I worked with banks. 🙂

 

  • Mon, Feb 01, 2010 - 09:04pm

    #59
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    Re: For or Against Usury

Larry,

  1. States would be free to charter banks to provide interest and debt free money for approved infrastructure projects that benefit the people and their commerce (for example, transportation systems or hydro electric power)

I see your passion to End the Fed, but you seem to want to take the power away  from one government sponsored thief and create another government sponsored thief. Why not actually let the free market work.  Why have any government entity in charge of money.  I believe this would result in even more misery for eveyone.  After all now you are saying “those in charge of money” know what is best for everyone.  ICK!

This is just like the rest of our issues, we don’t trust ourselves to do what is best for us!  We have to have someone running our lives, our money, and making decisions for us?  I prefer to have the freedom to make my own choices, including money.

 

  • Mon, Feb 01, 2010 - 10:09pm

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    Re: For or Against Usury

[quote=rhare]This is true only if you look at the flow of money in the most simplistic way.  Say I lend you money and charge you interest.  If you don’t do anything with the money and there is no other interaction, then yes what you say it true.  There is no way you can pay me back.  However, that is not what happens.  You go oud and purchase products, the entities you bought from end up buying something.  The money flows through out the system.  Eventually it may come back to you in the form of wages or soemthing you sale.  It may come back to me and I respend it.  It is entirely possible you could repay me with the same money multiple times.  That is why you don’t have to increase the supply.  This works with FRB or non-FRB the same.[/quote]

Perhaps I shouldn’t interject between rhare and Hedin, but it’s important to realize this is a closed system.  rhare, all the other folks you may get money from and the commerce they’re all engaging in doesn’t change the fact that all money in the system is just principal (P).  Only P is available at any given time.  On a micro level, any individual can pay back interest (I) as long as others don’t need the money to pay it back at the same time.  But on a macro level, more debt must be issued to pay back P+I.  That’s why we’re in for some of the worst economic conditions in history–private people are no longer borrowing, velocity is dropping, banks can no longer issue more P, so system-wide P+I can’t be covered.  Despite the Fed’s attempts to avoid the inevitable result of P < P+I, simple mathematics can’t be ignored forever in economics any more than it can be in physics. 

[quote]Why not actually let the free market work[/quote]

This is religion, faith-based “science” that has allowed a powerful cartel to hijack money around the world.  Once government defense mechanisms protecting their populations from monetary rape were removed, the rapists had free reign.  This theory that emerged from the Chicago School and Friedman, infected Harvard and Summers, controlled the Fed’s Greenspan and Bernanke, ran the last several presidential administrations, dominated all the top business schools, has resulted in the destruction of many countries over the last several decades while the greedy types like Rubin, Paulson, Greenberg, Rockefeller, Soros, made billions.  No doubt folks in Indonesia, Malaysia, Argentina, Mexico, Iceland, etc. regret ever letting the “free market” control their money, i.e. agreeing to let sick parasites like Soros destroy their currency, banks like Chase inflate their debt levels and takeover their natural resources, folks like Jeffrey Sachs and the IMF gut infrastructure for their population in order to pay back the “free market” manipulators who invaded.

Money is a critical unit of measure.  We thankfully don’t let the free market determine the length of a mile or Goldman would figure out a way to manipulate it.  Nor should the free market determine the value of currency.  The free market needs rules of the game.  Letting currency value be determined by profit seekers is like letting football players change the yard lines and goal posts during the game.

 

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