Back to our example, having repaid his debt, the bank takes a $10 fee – its profit – and the other $40 is credited to the customer’s regular account.
The big question is, if the banks can practise this sleight-of-hand for profit, why can’t our governments do so for the public good? The short answer is there are too many people on the take. Think Deep State, Dan, then you will understand.
An inevitable result of this process is that the governments of the world, indeed all of us, go progressively in hoc to the banking system. There is a simple solution to this: what is created out of nothing can be returned to nothing, ditto bank debts. This does not mean that every single debt owed to every bank in the world should be cancelled out of existence, but there is no reason much of this debt cannot simply be written off.
True, a few people will have to take a haircut, but the banks have written off massive sums before in the past, including under pressure from governments, and there is no reason they can’t be compelled to do so in the future.
Another thing that bothers Dan is negative interest rates. The big question is not should there be positive or negative interest rates but why is interest paid at all?
Traditionally, a bank has two functions: the strongroom function and the bookkeeping function. People deposit their money in the bank because it is safer than keeping it under the mattress. When paying other people for goods and services, it is often more convenient to do so by cheque traditionally, or nowadays by bank card. As the banks provide these two services, it is only right they should be remunerated for them. So rather than the banks paying investors interest, they should charge reasonable sums for these services.
What then about lending money? There is no reason a bank cannot lend REAL money, its own, for which it can charge a fee – not interest – or engage in profit-sharing under the Islamic principle of musharakah. But a bank has no right to charge interest on money conjured up out of thin air, nor does anyone else. Usury should be banned, pure and simple.
There are today many ways entrepreneurs and ordinary people can borrow money, the former especially, through direct lending/borrowing of one sort or another. Meanwhile, the central bank or better still Congress/Parliament should create all the money it needs for public works, and spend it into circulation debt-free.
With regard to the current crisis, the American Government has guaranteed finance of up to $6 trillion dollars. That is money that need not be (re)paid because it was created to serve the people, though to prevent excessive inflation, some of it can if necessary be recouped through taxation then cancelled out of existence, something that need not affect ordinary people, certainly not those near the bottom of the food chain.
One other thing concerning our hypothetical example. The customer who borrowed $1,000 for his project was succesful and made a handsome profit, but what if he hadn’t been? He would have lost his house! The bank created this new money out of thin air then sold it to him at interest. He took all the risk; the bank took no risk at all.
A few suggestions for further reading;
Banking Without Interest by Muhammad Nejatullah Siddiqi
Honest Money by John Tomlinson
The Absurdity Of The National Debt by the Duke of Bedford.
Back to Part 1.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.