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Usury Versus Counterfeiting

December 27, 2012

In previous posts I have deliberately conflated usury (charging interest on a loan) with commercial banks’ license to create money out of thin air, which is counterfeiting. Both are condemned by Vix Pervenit; usury explicitly and counterfeiting as another “dishonest profit”. The operation of counterfeiting, or inflation as it is sometimes known, leads otherwise sincere people to accept usury as a natural (and therefore just) phenomenon. Arguably, counterfeiting is even more immoral than usury. At least we can all see the usury in action, whereas people don’t see how inflation is a conspiracy to steal their savings.

The debt-based money system is now global, even Switzerland has abandoned a partially gold-backed currency. There are a couple of hold-outs without central banks, e.g. Iran & North Korea, but I have every confidence that sometime in the near future, Iranians and North Koreans will be released from their tyrannical rulers, and join the rest of us in having to pay tribute to the central banks (via government debt) or “democracy” as it has come to be known.

As described in the previous post, money (or capital or savings or wealth) is stored labour, and provided that the labourer does not promise more labour than he has to offer, the claim can be redeemed at any point in the labourer’s working life. Therefore, there is no diminution in value over time, so there is no necessity (or justice) in someone seeking to be compensated for waiting.

However, not all participants in the labour exchange have been honest, and for example someone taking out a mortgage of six or more times their annual salary (without the expectation of a significant future increase) knows they are going to default on at least some of the holders of the labour claims.

Money is brought into existence when some entity – a real person, a corporation (a fraudulent legal fiction), or a government – signs a loan document of some type, e.g. a mortgage, a bond indenture or a Gilt-edged security. By promising to repay the loan plus interest, the money is created out of thin air (because the bank offers nothing in exchange for the real labour to be supplied implicit in the loan contract) and it appears in the bank’s computer records. The loan-granting bank has an asset (the loan and its interest payments) and the counterparty bank, the one where the cash deposit is lodged, has a liability, the deposit. The bank that received the deposit is permitted to treat 90% of the cash as its property, although it is a liability, and to lend it to other customers. In this way, one promissory note for say 3 years’ labour becomes the reserve against the creation of another 27 years’ labour. YouTube has many excellent videos on the mechanics of debt-based money; or go to Positive Money’s website, linked on the right.

This multiplication process, erroneously called fractional reserve banking (because there are no reserves in the vault of the lending bank), has created more money out of thin air than there is labour to satisfy all claims. Thus, the value of a paper claim on labour must be worth less than its face value. What’s more, a debt-based money system operates like a Ponzi scheme: as it expands it looks like it works, but it must run out of suckers eventually and then it collapses spectacularly – which is were we are now. In 2008, there were insufficient entities taking out new loans to meet the capital and interest payments due on outstanding loans. When households and corporations stopped borrowing, an action that threatened the whole Ponzi scheme, governments borrowed on taxpayers’ behalf (because government is a junior branch of central banks). At some point in 2013 it will be recognised that the global economy has reached debt-saturation point and that governments cannot borrow more on our behalf, and on behalf of our children and our grandchildren and great grandchildren. The total estimated value of the UK’s outstanding debt (government debt created to bail-out the banks plus contingent liabilities of the anti-Catholic welfare state) amounts to about £316,000 per tax payer plus the interest bill of 1.5% currently. How much of that £316,000 plus interest could you pay down in your working life? What you don’t pay will be paid by your children and what they leave will be paid by your grandchildren etc.

This is why interest looks natural. Every year your money purchases a bit less (sometimes a lot less) and when you lend someone money, you are in justice entitled to the same value back again. Logically, it seems as if you can charge them interest because inflation erodes the purchasing power of your loan. But, the inflation that destroys the time-value of money is not a natural phenomenon. It is the man-made system of debt-based money and its counterfeiting effect. In a properly functioning economy, prices should drift lower every year, as production and distribution become more efficient. But, when new money is created out of thin air every year it dilutes the purchasing power of existing money and prices rise continually.

There is no way out, just a policy of exponential growth. In a debt-based money system, where money is created without reference to the productive hours of the economy, all of us are trying to pass the debt along to someone else. But the debt can never be extinguished. We have to find new suckers to join the Ponzi scheme. Burdening newly minted graduates with debt has already happened and the current trend is to foist debt onto A-level students (high school seniors). Also, the central banks are busy overseas indebting developing countries and if they won’t take the debts, then they may have a “popular” clamour for “democracy”, i.e. the economic hitmen have failed and it is time for the jackals or a military kinetic action, to establish popular rule and a central bank.

Until there is wider appreciation of the destructive effects of counterfeiting, all political and economic solutions will only make the bust worse when it comes. What’s more, counterfeiting gives cover to usury and perpetuates the lie that charging interest is natural and just. Economics is applied morality, and since the moral society no longer exists, the economy and civilization are hell-bound.


From → Chapter 1

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