Why interest on debts should be illegal

Interest on a debt is considered a tariff on the risk assessment that the debt would not be paid back. This concept would make sense if the interest on that debt is given back after it is repaid.

Inflation on currencies justifies the interest on debt, since the lender would always loose money. Interest on debt is the cause of money inflation. A chicken and egg paradox.

Central banks, the institutions in charge of money creation, give loans to banks that give loans to every other institutions. In this debt cycle, money inflation is exponential by design, if the inflation rate is low and constant, for example at 1% per year, than the next year would be at 1.1% with respect the original amount. Whatever small percentage is therefore theoretically and practically unsustainable, since economic growth can not be exponential forever.

To avoid the circle of debt refinanced by more debt, which leads to unsustainable money inflation, interest on debt should be illegal. Prices on goods are inflated and they will natural adjust if fewer institutions lend money.

There are banks that operate without interests on the debt ( Dubai Islamic Bank , Al-Rajhi Bank etc ).

On the topic of lending, if one person ( Alice ) needs money for a good investment, lets say a house that will probably go up in price, than institutions can pay for it, and Alice pays the rent until the price of the house is reached.
The property would stay in the hand of the financing institution, but managed by the Alice for an agreed upon time period. Furthermore, the contract could specify a buy-back option for Alice “a super discount on the property”, which allows her to get ownership of the property after the mandatory rental period, like an optional interest on the debt, with the difference that at that for Alice already repaid the property at that time, so she has no debt when this option is valid.

The proposed lending model pushes financing institutions to be responsible, and to evaluate more carefully the investments, which will lead to a slower and more sustainable growth.

fra93 said:

Interest on a debt is considered a tariff on the risk assessment that the debt would not be paid back. This concept would make sense if the interest on that debt is given back after it is repaid.

Inflation on currencies justifies the interest on debt, since the lender would always loose money. Interest on debt is the cause of money inflation. A chicken and egg paradox.

Central banks, the institutions in charge of money creation, give loans to banks that give loans to every other institutions. In this debt cycle, money inflation is exponential by design, if the inflation rate is low and constant, for example at 1% per year, than the next year would be at 1.1% with respect the original amount. Whatever small percentage is therefore theoretically and practically unsustainable, since economic growth can not be exponential forever.

To avoid the circle of debt refinanced by more debt, which leads to unsustainable money inflation, interest on debt should be illegal. Prices on goods are inflated and they will natural adjust if fewer institutions lend money.

There are banks that operate without interests on the debt ( Dubai Islamic Bank , Al-Rajhi Bank etc ).

On the topic of lending, if one person ( Alice ) needs money for a good investment, lets say a house that will probably go up in price, than institutions can pay for it, and Alice pays the rent until the price of the house is reached.
The property would stay in the hand of the financing institution, but managed by the Alice for an agreed upon time period. Furthermore, the contract could specify a buy-back option for Alice “a super discount on the property”, which allows her to get ownership of the property after the mandatory rental period, like an optional interest on the debt, with the difference that at that for Alice already repaid the property at that time, so she has no debt when this option is valid.

The proposed lending model pushes financing institutions to be responsible, and to evaluate more carefully the investments, which will lead to a slower and more sustainable growth.

Click to expand...

There's a reason why nearly every civilization has limited if not outlawed usury. Loans secured exclusively by assets create less incentive for irresponsible behavior (by either party) than personal recourse loans.

~ There goes the money ...

What I am answering here is if it is right to ask for more money in return of a loan. My answer is no to avoid inflating currency.

Central banks are independent from States. So citizens or they representatives do not decide any monetary policy.

If central banks are independent from States, what are they dependent upon?

fra93 said:

Interest on a debt is considered a tariff on the risk assessment that the debt would not be paid back. This concept would make sense if the interest on that debt is given back after it is repaid.

Click to expand...

Huh?

The lender is compensated for taking a risk. The higher the risk, the more the lender usually demands to be compensated in exchange for that risk.

If you don't compensate the lender, he's just going to find something else to do with her capital that will earn a return. No interest, no loans.

Central banks, the institutions in charge of money creation, give loans to banks that give loans to every other institutions. In this debt cycle, money inflation is exponential by design...

Click to expand...

Or... not. Most central banks try to keep inflation to 2-3%. Growth also ought to be moderate.

There are banks that operate without interests on the debt ( Dubai Islamic Bank , Al-Rajhi Bank etc ).

Click to expand...

Dubai Islamic Bank charges a "profit rate" instead of an "interest rate."

On the topic of lending, if one person ( Alice ) needs money for a good investment, lets say a house that will probably go up in price, than institutions can pay for it, and Alice pays the rent until the price of the house is reached.
The property would stay in the hand of the financing institution, but managed by the Alice for an agreed upon time period. Furthermore, the contract could specify a buy-back option for Alice “a super discount on the property”, which allows her to get ownership of the property after the mandatory rental period, like an optional interest on the debt, with the difference that at that for Alice already repaid the property at that time, so she has no debt when this option is valid.

Click to expand...

Well, that sounds pointless.

Part of the reason to buy a home is that if you choose to sell it, you get the profits. E.g. I buy a home, I take out a 30-year fixed mortgage, and after 5 years I decide to sell. If the value of the home has gone up, I can sell the house, pay off the mortgage, and I get the profits. In your scenario, after 5 years, Alice gets nothing. She might as well just rent an apartment.

This also puts greater risks and costs on the bank. Why would they want that? At a minimum, they'd have to charge more.

Plus, you haven't shown any flaws or problems with mortgages that Alice's situation fixes; or anything that has actually been fixed. All I'm seeing is that you're saying "I don't like debt."

Visbek said:

Huh?

The lender is compensated for taking a risk. The higher the risk, the more the lender usually demands to be compensated in exchange for that risk.

If you don't compensate the lender, he's just going to find something else to do with her capital that will earn a return. No interest, no loans.

Click to expand...

The whole point is to have less risk in the economy. It is either fast and unstable (like it is today) or steady and slow (with less debt). Do not lend money in something you would not invest on your own.

Visbek said:

Or... not. Most central banks try to keep inflation to 2-3%. Growth also ought to be moderate.

Click to expand...

What people consider moderate is relative.

First wrong assumption growth is not forever.
Second, lets do the math, lets say that there is 1000$ at the beginning of time, and there is a moderate 3% growth every year. After 100 years you will get 18059$ in the economy, 20 years after that 33700$, 10 years after 45290$ etc..
So a constant growth rate leads to an exponential growth.

Visbek said:

Dubai Islamic Bank charges a "profit rate" instead of an "interest rate."

Click to expand...

Which you agree with me it is different. And it is possible to have banking institution that do not charge interest on debts.

Visbek said:

Well, that sounds pointless.

Part of the reason to buy a home is that if you choose to sell it, you get the profits. E.g. I buy a home, I take out a 30-year fixed mortgage, and after 5 years I decide to sell. If the value of the home has gone up, I can sell the house, pay off the mortgage, and I get the profits. In your scenario, after 5 years, Alice gets nothing. She might as well just rent an apartment.

This also puts greater risks and costs on the bank. Why would they want that? At a minimum, they'd have to charge more.

Click to expand...

The point of buying the house is to live in it. Yes it is an investment, but the ultimate goal is to have a place to stay without paying the rent. The house price will adjust as well as what the bank charges.
It is a good thing that banks have more risks, which will result in less and more thoughtful investments.
The bank has a house that can profit from, sell afterward for a profit, or rent again.

Visbek said:

Plus, you haven't shown any flaws or problems with mortgages that Alice's situation fixes; or anything that has actually been fixed.

Click to expand...

Alice should pay the rent for a fixed time period, if she wants to leave than somebody else (Bob) should "buy" that rental contract with the supervision of the bank, the property owner. In that case, Alice "sells" the already paid stay and the contract to Bob, and Bob needs to pay the rent for the remaining time.

Visbek said:

All I'm seeing is that you're saying "I don't like debt."

Click to expand...

I do not like interest on the debt, debt is fine.

fra93 said:

The whole point is to have less risk in the economy. It is either fast and unstable (like it is today) or steady and slow (with less debt). Do not lend money in something you would not invest on your own.

Click to expand...

If you reduce risk, then you also reduce rewards.

Oh, and interest often is the vehicle for security. For example, bond markets are very stable, and pay interest to creditors. If corporations and governments did not pay interest on those bonds, people would not buy them, and thus governments could not function.

What people consider moderate is relative.

Click to expand...

2-3% may not be the perfect goal, but there is no rational doubt that it qualifies as moderate inflation.

First wrong assumption growth is not forever.

Click to expand...

That's nice. That doesn't change the fact that ideally, while there is (again) no perfect goal, it is entirely reasonable to prefer GDP to grow rather than fall.

Second, lets do the math, lets say that there is 1000$ at the beginning of time, and there is a moderate 3% growth every year. After 100 years you will get 18059$ in the economy, 20 years after that 33700$, 10 years after 45290$ etc..
So a constant growth rate leads to an exponential growth.

Click to expand...

Oh, good grief.

If inflation is kept to 2-3%, then that is basically a constant rate of change. That means that usually, costs and wages are the same. That means purchasing power stays the same.

And guess what? Inflation and deflation happens with or without interest payments. What a concept. In fact, central banks almost always keep inflation under control, and prevent deflations, which are disastrous for an economy.

Which you agree with me it is different. And it is possible to have banking institution that do not charge interest on debts.

Click to expand...

No, my point is that there is no difference. It's purely semantic.

The point of buying the house is to live in it. Yes it is an investment, but the ultimate goal is to have a place to stay without paying the rent.

Click to expand...

Yes... And that is possible because of debt. I see absolutely no benefit to anyone with your scheme, nor have you described any benefits. Merely saying "there's no interest!" is not describing a benefit, because you haven't actually described any harm from a standard mortgage.

It is a good thing that banks have more risks, which will result in less and more thoughtful investments.

Click to expand...

It also means they will charge more, which is not beneficial in a nation that already has an affordability crisis.

Ultimately, you have presented no argument whatsoever against interest, other than that you just don't like it.

fra93 said:

Interest on a debt is considered a tariff on the risk assessment that the debt would not be paid back. This concept would make sense if the interest on that debt is given back after it is repaid.

Inflation on currencies justifies the interest on debt, since the lender would always loose money. Interest on debt is the cause of money inflation. A chicken and egg paradox.

Central banks, the institutions in charge of money creation, give loans to banks that give loans to every other institutions. In this debt cycle, money inflation is exponential by design, if the inflation rate is low and constant, for example at 1% per year, than the next year would be at 1.1% with respect the original amount. Whatever small percentage is therefore theoretically and practically unsustainable, since economic growth can not be exponential forever.

To avoid the circle of debt refinanced by more debt, which leads to unsustainable money inflation, interest on debt should be illegal. Prices on goods are inflated and they will natural adjust if fewer institutions lend money.

There are banks that operate without interests on the debt ( Dubai Islamic Bank , Al-Rajhi Bank etc ).

On the topic of lending, if one person ( Alice ) needs money for a good investment, lets say a house that will probably go up in price, than institutions can pay for it, and Alice pays the rent until the price of the house is reached.
The property would stay in the hand of the financing institution, but managed by the Alice for an agreed upon time period. Furthermore, the contract could specify a buy-back option for Alice “a super discount on the property”, which allows her to get ownership of the property after the mandatory rental period, like an optional interest on the debt, with the difference that at that for Alice already repaid the property at that time, so she has no debt when this option is valid.

The proposed lending model pushes financing institutions to be responsible, and to evaluate more carefully the investments, which will lead to a slower and more sustainable growth.

Click to expand...

There is a concept called 'usury', a legal limit to how much can be charged for interest.
However, without interest, what incentive do lenders have to lend money? I should think making interest illegal would be like driving 70 miles per hour and slamming on the brakes. It will crash the economy. Credit is the grease for the skids of economic activity.

Sorry to pop your bubble, interest on lended money, nor is higher wages, the cause of inflation.

Inflation and rising prices are not necessarily the same thing. If wages keep up with rising prices, purchasing power is maintained. ( though rising prices tends to accompany decreasing purchasing power, I'm arguing a theoretical point). Inflation is the aggregate erosion of the dollar's purchasing power due to fiat currency injected into the economy faster than production can keep up with it, where we have a "goods chasing money" scenario. There is no 'chicken and egg' dilemna, this is the cause and things like rising prices, higher wages, are a response to inflation, but not the driving cause behind it. Inflation is caused by the government. On this point, Milton Friedman is correct.

Now, there is an argument that the current influx of fiat currency, the stimulous money, will this cause inflation?

Not necessarily, because of declining demand, prices will fall, and the currency will help prevent this deflation. Technically it's inflation, but it's actually deflation prevention, which is not a bad thing, I'd say it's a good thing, so it's a cost/benefit proposition. Some point to QE ( quantitative easing, the economists word for fiat currency injection on a massive scale ) no causing inflation during the 2000s. There are circumstances where QE will not result in inflation, and is considered a legitimate tool by the fed to keep the economy rolling. Mild inflation, slow enough that wages can keep up, is considered acceptable ( though I don't see wages keeping up in all categories, like cost of mortgages, real estate prices ).

Keeping the economy from hitting the skids is a sound idea, that is a Keynesian, and not a Friedman/free market/laissez faire/neoliberal, idea. I think the Free Marketers ( neolibs, libertarians, conservatives) are against this, but to not do it will have a disastrous effect. For example, there is an argument not to take Excedrin to cure a fever, because the body creates a fever to fight a virus. But, what if fever rises so high it kills you? See, then you most certainly do whatever artificial means you have available to bring the fever down. It may very well be true that the conservatives/libertarian's fears will come true, anyway, we just have to wait, pray, and see what the future brings.

See, a price can go up, it can go down, but it's the trend line that is the thing.

fra93 said:

What I am answering here is if it is right to ask for more money in return of a loan. My answer is no to avoid inflating currency.

Central banks are independent from States. So citizens or they representatives do not decide any monetary policy.

If central banks are independent from States, what are they dependent upon?

Click to expand...

What incentive is there for a bank to loan money to you?

The goodness of their heart?

AmNat said:

There's a reason why nearly every civilization has limited if not outlawed usury. Loans secured exclusively by assets create less incentive for irresponsible behavior (by either party) than personal recourse loans.

Click to expand...

There's also a reason why nearly every civilization has some version or a loan shark. They need to make a living, too. Thanks to usury laws, they do.

Fledermaus said:

What incentive is there for a bank to loan money to you?

The goodness of their heart?

Click to expand...

Maybe they can just rename "interest rates" into "profit rates" and it's all good. Problem solved.

fra93 said:

Interest on a debt is considered a tariff on the risk assessment that the debt would not be paid back. This concept would make sense if the interest on that debt is given back after it is repaid.

Inflation on currencies justifies the interest on debt, since the lender would always loose money. Interest on debt is the cause of money inflation. A chicken and egg paradox.

Central banks, the institutions in charge of money creation, give loans to banks that give loans to every other institutions. In this debt cycle, money inflation is exponential by design, if the inflation rate is low and constant, for example at 1% per year, than the next year would be at 1.1% with respect the original amount. Whatever small percentage is therefore theoretically and practically unsustainable, since economic growth can not be exponential forever.

To avoid the circle of debt refinanced by more debt, which leads to unsustainable money inflation, interest on debt should be illegal. Prices on goods are inflated and they will natural adjust if fewer institutions lend money.

There are banks that operate without interests on the debt ( Dubai Islamic Bank , Al-Rajhi Bank etc ).

On the topic of lending, if one person ( Alice ) needs money for a good investment, lets say a house that will probably go up in price, than institutions can pay for it, and Alice pays the rent until the price of the house is reached.
The property would stay in the hand of the financing institution, but managed by the Alice for an agreed upon time period. Furthermore, the contract could specify a buy-back option for Alice “a super discount on the property”, which allows her to get ownership of the property after the mandatory rental period, like an optional interest on the debt, with the difference that at that for Alice already repaid the property at that time, so she has no debt when this option is valid.

The proposed lending model pushes financing institutions to be responsible, and to evaluate more carefully the investments, which will lead to a slower and more sustainable growth.

Click to expand...

If you don't like paying interest (and, this may be kinda crazy) don't borrow money.

Ahlevah said:

There's also a reason why nearly every civilization has some version or a loan shark. They need to make a living, too. Thanks to usury laws, they do.

Click to expand...

Of course. Any legal prohibition makes the prohibited activity nastier in practice, since it exists outside of the law. For example, the sale of organs, to the extent such a thing exists in this country, is undoubtedly much more dangerous than in countries where it's legal. It's also beyond doubt that there would be more organs available if they could legally be sold. That does not mean the organ trade should be legalized.

fra93 said:

What I am answering here is if it is right to ask for more money in return of a loan. My answer is no to avoid inflating currency.

Click to expand...

Holy dividend, batman....that puts a whole lotta hate on the concept of an IPO!

AmNat said:

Of course. Any legal prohibition makes the prohibited activity nastier in practice, since it exists outside of the law. For example, the sale of organs, to the extent such a thing exists in this country, is undoubtedly much more dangerous than in countries where it's legal. It's also beyond doubt that there would be more organs available if they could legally be sold. That does not mean the organ trade should be legalized.

Click to expand...

Sure, but in this case, why would borrowing from a loan shark be preferable to borrowing from a bank? At least with a bank you'd have a regulatory framework and legal recourse if things didn't go as planned, including bankruptcy. In the case of a loan shark, you might lose a finger or worse. Why is forcing that option more moral? Because that's what you're doing with usury laws.

Ahlevah said:

Sure, but in this case, why would borrowing from a loan shark be preferable to borrowing from a bank? At least with a bank you'd have a regulatory framework and legal recourse if things didn't go as planned, including bankruptcy. In the case of a loan shark, you might lose a finger or worse. Why is forcing that option more moral? Because that's what you're doing with usury laws.

Click to expand...

This same argument could be used for any prohibited activity where people have an incentive to engage in it. For a wealthy person with kidney failure, purchasing a new kidney could literally be the difference between life and death. It still should not be allowed.

In any case, if interest on personal recourse loans were banned, capital invested in such loans would be redirected toward asset-based securities. If a person without any assets has an immediate need for money, what he needs is charity, not to effectively take out a mortgage on all of his future labor.

fra93 said:

The whole point is to have less risk in the economy. It is either fast and unstable (like it is today) or steady and slow (with less debt). Do not lend money in something you would not invest on your own.



What people consider moderate is relative.

First wrong assumption growth is not forever.
Second, lets do the math, lets say that there is 1000$ at the beginning of time, and there is a moderate 3% growth every year. After 100 years you will get 18059$ in the economy, 20 years after that 33700$, 10 years after 45290$ etc..
So a constant growth rate leads to an exponential growth.
View attachment 67279472



Which you agree with me it is different. And it is possible to have banking institution that do not charge interest on debts.



The point of buying the house is to live in it. Yes it is an investment, but the ultimate goal is to have a place to stay without paying the rent. The house price will adjust as well as what the bank charges.
It is a good thing that banks have more risks, which will result in less and more thoughtful investments.
The bank has a house that can profit from, sell afterward for a profit, or rent again.




Alice should pay the rent for a fixed time period, if she wants to leave than somebody else (Bob) should "buy" that rental contract with the supervision of the bank, the property owner. In that case, Alice "sells" the already paid stay and the contract to Bob, and Bob needs to pay the rent for the remaining time.



I do not like interest on the debt, debt is fine.

Click to expand...

i do not like that chocolate is fattening
vendors should quit selling chocolate so that i do not have the option to eat it

notice how devoid of logic that ^ is
same is true for your not expecting interest to be incurred on debt

AmNat said:

This same argument could be used for any prohibited activity where people have an incentive to engage in it. For a wealthy person with kidney failure, purchasing a new kidney could literally be the difference between life and death. It still should not be allowed.

Click to expand...

You could use the same argument, but it's not the same circumstance. If you follow the maxim "Your rights stop where mine begin," taking an organ from someone who is poor because you have more money than they do is morally problematic. But if you tell that poor person that his only option to get a loan is through an illegal channel, how is that helping him? If you restrict the market rate of interest for someone who is a poor credit risk, he IS going to have limited options.

AmNat said:

In any case, if interest on personal recourse loans were banned, capital invested in such loans would be redirected toward asset-based securities. If a person without any assets has an immediate need for money, what he needs is charity, not to effectively take out a mortgage on all of his future labor.

Click to expand...

And what if he needs to money but the charity is not there? He's going to go to the loan shark, who can now charge him MORE than he would in a free-market because 1) what he's doing is illegal; and 2) the government's restriction on how much a legal, regulated lender can charge to someone who is a poor credit risk will dry up that source of credit. It's simple supply and demand.

OscarLevant said:

However, without interest, what incentive do lenders have to lend money? I should think making interest illegal would be like driving 70 miles per hour and slamming on the brakes. It will crash the economy. Credit is the grease for the skids of economic activity.

Click to expand...

The idea is that you save until you can afford. There are a lot of ways to finance valuable assets like an house or a company. And I said before there are banks that operate without interest on debt, it is not science-fiction.
If you want a car and you can not afford it than simply you do not have a car, or better you save money until you can afford it.

OscarLevant said:

Sorry to pop your bubble, interest on lended money, nor is higher wages, the cause of inflation.

Inflation and rising prices are not necessarily the same thing. If wages keep up with rising prices, purchasing power is maintained. ( though rising prices tends to accompany decreasing purchasing power, I'm arguing a theoretical point). Inflation is the aggregate erosion of the dollar's purchasing power due to fiat currency injected into the economy faster than production can keep up with it, where we have a "goods chasing money" scenario. There is no 'chicken and egg' dilemna, this is the cause and things like rising prices, higher wages, are a response to inflation, but not the driving cause behind it. Inflation is caused by the government. On this point, Milton Friedman is correct.

Now, there is an argument that the current influx of fiat currency, the stimulous money, will this cause inflation?

Not necessarily, because of declining demand, prices will fall, and the currency will help prevent this deflation. Technically it's inflation, but it's actually deflation prevention, which is not a bad thing, I'd say it's a good thing, so it's a cost/benefit proposition. Some point to QE ( quantitative easing, the economists word for fiat currency injection on a massive scale ) no causing inflation during the 2000s. There are circumstances where QE will not result in inflation, and is considered a legitimate tool by the fed to keep the economy rolling. Mild inflation, slow enough that wages can keep up, is considered acceptable ( though I don't see wages keeping up in all categories, like cost of mortgages, real estate prices ).

Keeping the economy from hitting the skids is a sound idea, that is a Keynesian, and not a Friedman/free market/laissez faire/neoliberal, idea. I think the Free Marketers ( neolibs, libertarians, conservatives) are against this, but to not do it will have a disastrous effect. For example, there is an argument not to take Excedrin to cure a fever, because the body creates a fever to fight a virus. But, what if fever rises so high it kills you? See, then you most certainly do whatever artificial means you have available to bring the fever down. It may very well be true that the conservatives/libertarian's fears will come true, anyway, we just have to wait, pray, and see what the future brings.

See, a price can go up, it can go down, but it's the trend line that is the thing.

Click to expand...

The value of a currency ( inflation and deflation ) is more or less proportional on how many people want your currency, which is more or less proportional on how much a state import/export.
Lets make an example: apples are dollars and a state sells apples. Lets say that you are selling 100 apples for 1$ each. If the demand of apples increases than you can increase the apple production without affecting the price, so you can still sell 120 apples for 1$.

If you constantly increase the number of apples every year, than it is guaranteed that the price of apple will fall. What we do now is to see the price of apples relative to to the price of the oranges, which also fall in value.
But if you fix the system, you see that both decrease in value.

Visbek said:

Maybe they can just rename "interest rates" into "profit rates" and it's all good. Problem solved.

Click to expand...

They are different, it is not semantic.

Profit rates are money you need to give for having profits.
Interest rates are money that you need to give for having a debt.

You are charging for different things.

fra93 said:

The idea is that you save until you can afford. There are a lot of ways to finance valuable assets like an house or a company. And I said before there are banks that operate without interest on debt, it is not science-fiction.
If you want a car and you can not afford it than simply you do not have a car, or better you save money until you can afford it.

Click to expand...

I wasn't commenting on responsibility, just making the blanket statement that credit is the grease for economic activity, especially in the arena of commercial lending

The value of a currency ( inflation and deflation ) is more or less proportional on how many people want your currency, which is more or less proportional on how much a state import/export.
Lets make an example: apples are dollars and a state sells apples. Lets say that you are selling 100 apples for 1$ each. If the demand of apples increases than you can increase the apple production without affecting the price, so you can still sell 120 apples for 1$.

If you constantly increase the number of apples every year, than it is guaranteed that the price of apple will fall. What we do now is to see the price of apples relative to to the price of the oranges, which also fall in value.
But if you fix the system, you see that both decrease in value.

Click to expand...

Supply and demand is NOT inflation nor is it the prime mover of inflation. When fiat currency injected into the economy faster than the rate of production of goods, that's when inflation begins. All other prices rising follow.

A rising price of a particular commodity is not necessarily inflation. A rising price, per se, is not inflation. Supply and demand will cause prices to fluctuate, but inflation is the trend line of prices rising like the water line in a pool. You put a lot of people in a pool, and there will be waves fluctuating, up and down, but the waterline will NOT rise unless you add more water to the pool. the Economy is the same way. Now, there are mechanisms when, when fiat currency is injected, will not result in inflation, or it will not be apparent, such as demand artificially lowering, which will result i lowered prices, unless fiat currency is injected to attempt to prop up prices by artificially slowing the rate of declining demand. This is probably what will happen with the stimulus checks, it will slow the rate of deflation, or stop it altogether.

The best explanation of what inflation is and what causes it is in a somewhat obscure book that came out in '70, it's a book that predicted Nixon's devaluing the dollar (it was pegged to gold until '76) by Harry Browne, entitled 'How To Profit The Coming Devaluation'.

fra93 said:

Interest on a debt is considered a tariff on the risk assessment that the debt would not be paid back. This concept would make sense if the interest on that debt is given back after it is repaid.

Inflation on currencies justifies the interest on debt, since the lender would always loose money. Interest on debt is the cause of money inflation. A chicken and egg paradox.

Central banks, the institutions in charge of money creation, give loans to banks that give loans to every other institutions. In this debt cycle, money inflation is exponential by design, if the inflation rate is low and constant, for example at 1% per year, than the next year would be at 1.1% with respect the original amount. Whatever small percentage is therefore theoretically and practically unsustainable, since economic growth can not be exponential forever.

To avoid the circle of debt refinanced by more debt, which leads to unsustainable money inflation, interest on debt should be illegal. Prices on goods are inflated and they will natural adjust if fewer institutions lend money.

There are banks that operate without interests on the debt ( Dubai Islamic Bank , Al-Rajhi Bank etc ).

On the topic of lending, if one person ( Alice ) needs money for a good investment, lets say a house that will probably go up in price, than institutions can pay for it, and Alice pays the rent until the price of the house is reached.
The property would stay in the hand of the financing institution, but managed by the Alice for an agreed upon time period. Furthermore, the contract could specify a buy-back option for Alice “a super discount on the property”, which allows her to get ownership of the property after the mandatory rental period, like an optional interest on the debt, with the difference that at that for Alice already repaid the property at that time, so she has no debt when this option is valid.

The proposed lending model pushes financing institutions to be responsible, and to evaluate more carefully the investments, which will lead to a slower and more sustainable growth.

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You're forgetting one thing. The federal reserve controls the economy by controlling money supply by adding, or removing, currency from the money supply. The fundamental mechanism by which this is accomplished is by lowering or raising the interest rate they charge banks for money, the rate is called the 'discount rate', The Federal Reserve discount rate is how much the U.S. central bank charges its member banks to borrow from its discount window to maintain the reserve it requires.

There is no way in hell 'interest' is going to be made illegal. for the fed, it is similar to a gas pedal in a car, you can't drive without one. The fed uses the interest rate as a tool to cool an economy that's overheated, or warm it off if it cools down too much.
Moreover, as I"ve stated elsewhere, interest is not the actual cause of inflation, but it is achieved via the lowering and raising of the discount rate which indirectly causes inflation as it is the mechanism by which the fed raises or lower the money supply and it's the raising of the money supply that directly causes inflation ( or vice versa ).

Ahlevah said:

You could use the same argument, but it's not the same circumstance. If you follow the maxim "Your rights stop where mine begin," taking an organ from someone who is poor because you have more money than they do is morally problematic. But if you tell that poor person that his only option to get a loan is through an illegal channel, how is that helping him? If you restrict the market rate of interest for someone who is a poor credit risk, he IS going to have limited options.



And what if he needs to money but the charity is not there? He's going to go to the loan shark, who can now charge him MORE than he would in a free-market because 1) what he's doing is illegal; and 2) the government's restriction on how much a legal, regulated lender can charge to someone who is a poor credit risk will dry up that source of credit. It's simple supply and demand.

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If we agree that consent can be vitiated by necessity, then it's certainly fair to question a desperate person's ability to mortgage his person (which is essentially what a personal recourse loan is). Especially since such an agreement requires state enforcement to work (versus an organ sale which is once and done).

Regardless, the main point of usury prohibitions wasn't to benefit poor credit risks (though like addicts, they would arguably benefit in the long run from being cut off), the main point was to prevent debt from becoming a normal and expected part of ordinary life, as it has since usury was legalized.

Regarding loan sharks, my general opinion on violent criminals is that they should be executed, not given legal competitors to put them out of business, though that might be more efficient if your only concern was reducing violence. The same argument you've made regarding loan sharks would also apply to drug dealers, who are also known for violence and who would also be less violent if their trade were legal.

fra93 said:

They are different, it is not semantic.

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lol... Sorry but no, there is no difference whatsoever.

Scenario 1: I borrow $200,000 from the bank. The bank charges a 3.8% interest rate. I have to pay $931.91 a month for 30 years.

Scenario 2: I borrow $200,000 from the bank. The bank charges a 3.8% profit rate. I have to pay $931.91 a month for 30 years.

Wow. Huge difference!!! lol....

The unspoken truth about banks and lending is that banks do not lend money they have, they lend money the government allows them to create. Its called fractional reserve banking and its an incredible money making machine for all lenders. Think about it. You deposit a million bucks in bank A. Bank A can then lend out another 9 million. They take in a note for the 9 million with interest. They really only have 1 million but they get to make money on an imaginary 9 million. Hell of a deal for the banks aint it?