Interest Prohibition

[TBG]

AoA,

I was reading a book on prohibitions and i came across Riba.

The book says:

One may easily discern the extent of devastation, at the individual and the international level, caused by dealing with riba - such as bankruptcy, recession, economic stagnation, inability to repay loans, high unemployment, collapse of many companies and institutions, etc. Daily toil has become a never-ending struggle to pay off interest on loans and societies have become class-ridden structures in which huge wealth in concentrated in the hands of a few. Perhaps all this is a manifestation of the war threatened by Allaah to those who deal in riba.
(Prohibitions that are taken too lightly, Sheikh Muhammed Salih Al-Munajjid)

I was just wondering that if lets say that was no interest in any financial system in the world today, would that ensure that we never get to place that leads to the fall of financial institutions, recessions, unemployment etc.

I do understand the basis on which Islam prohibits the use of interest, but I would like to hear views from the other brothers on how much interest alone affect the issues at hand in the financial world given its a complex piece to handle.

Appreciate any views or comments.

Thank You

[ozmujaheed]

Hi TBG this is an interesting topic which affects logical and practical reasoning.

Interest in modern day is not the same as interest 1400 years ago and the Quranic rules and application needs to be applied within 21st Century context such that interest is not used for abuse of less fortunate such as loan sharks. Off-course there will be cases where extremes misuse of interest can lead to loss and sins. But is like anything eg codeine is good for cough but in large quantities can also be drug.

Interest as wiki defines is quite straight forward

Interest is compensation to the lender , and for forgoing other useful investments that could have been made with the loaned asset. These forgone investments are known as the opportunity cost. Instead of the lender using the assets directly, they are advanced to the borrower. The borrower then enjoys the benefit of using the assets ahead of the effort required to obtain them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege.

It is convenient to buy expensive assets rather than saving up for years only to find out the asset has also appreciated and unattainable eg residential housing.

Interest encourages people from not hoarding cash thus allowing an economy to function and people take risks. Without risks many our modern day conveniences would not have been invented or developed. Governments invest in hospitals and schols on borrowed funds based on tax revenue projections.

Interest is also used to control inflation which if was not available we would have global chaos..just ask those who have lived in failed states like Zimbabwe and Congo..cost of bread would rocket between am and pm.

Interesting debate and discussion !

[porus]

Interest! An interesting (no pun intended) and a confounding issue. It has been discussed many times on this board.

There is a view taught by Prophets Muhammad and Jesus, which is part of Muslim and Christian teaching. The view is that 'interest' is evil. Muslims are conscious of it mainly because they are being constantly reminded by their 'religious' leaders. Christians, for most practical purposes are barely aware of it.

Interest is considered as normal as the statement that 'sun rises in the east' by all of us. It is considered to be lifeblood of modern financial systems and hardly anyone questions it. It is the strait jacket in which the humanity is trapped.

There is no difference in the way interest is being viewed by legitimate bankers and by loan sharks, only the 'apparent' degree of regulation governing restraint on the size of interest. Either way, the riskier you are viewed, the more you will pay in interest.

To understand the strait jacket, one needs to understand the origin of money.

Money is not created by governments. They are created by privately owned Central Bankers. These Bankers create money by loaning it to Governments which puts money into circulation. The bankers charge interest on money. So, there is in-built inflation in the process of creation of money.

Say, The Federal Reserve, the USA central bank, prints 1 billion at the request of the government. The government puts money into circulation. But it must repay Federal Reserve 10% interest. But where does the extra mo0ney come from? You guessed it. Government goes back to FedRes and gets more money and so it goes. So, since government is supposed to be owned by people, people get into more and more debt to a few Central Bankers.

People, finally, will not be able to pay and must resort to what the Central Bankers want. They must divest themselves of historical assets and enrich the Central Bankers. A few become powerful and that is how all developed nations work.

Central bankers devise many ways to to make the people poor. One major way is to launch wars against defenseless people by accusing them of 'terrorism' to steal their resources. In this, they appeal to their indebted fellow citizens' sense of patriotism and by cultivating hysteria in them against foreigners.

So, 'creation of money' = debt is the root of all evil. Its fundamental lever is 'interest'. Both Jesus and Muhammad knew this and warned against it. Short of global revolution, we are all stuck!

[The recent movie 'Avatar' dramatically illustrates this. We do not see any 'money' on the planet Pandora. There may have been a reason behind it.]

[ozmujaheed]

Central bankers devise many ways to to make the people poor. One major way is to launch wars against defenseless people by accusing them of 'terrorism' to steal their resources. In this, they appeal to their indebted fellow citizens' sense of patriotism and by cultivating hysteria in them against foreigners.

Porus Central Bankers do not like poor people..the capitalist principle is the richer the people the more they will purchase and the richer the business men will get the more tax they will pay and the cycle goes along. Banks like people getting wealthy because as they get wealthy they will borrow more.

Look at China after communism they have realized if they make their public richer materially they will feel "happy" and they will make others richer by employing maids, paying VAT, tax, buying goods and stay away from politics.

It is narrow minded to think banks want to trap you to destroy you, or west want to still resources..the people stealing are the Kings and loacla politicians who are denying wealth to spread unlike some modern nations like Canada, Oz and Norway.

[porus]

Yes, we have all heard of the 'divine' rational hand that guides 'free' markets in capitalist economies which, as the main dogma, underpins the faith that every one gets richer.

This totally ignores fundamental irrational forces that underlie much of human behavior, its major facet being greed and avarice. The latter, like the derivatives being freely traded, are packaged as post-modern, post-christian panacea for all.

Corrupt leaders of poor people sitting on resources, being dazzled by riches the greedy offer them, participate in keeping their people poor.

Do you even know who the central bankers are? Their likes and dislikes do not matter. They just want to satisfy their greed. They will easily sell the US to China in the hope that it will convince Americans in the end to go to war against China in the future making the military-industrial complex even richer at the expense of poor Americans. Conspiracy Theory? Ozmujahid, please read 'Confessions of an economic hit man' by John Perkins.

[rania]

Interest in modern day is not the same as interest 1400 years ago and the Quranic rules and application needs to be applied within 21st Century context such that interest is not used for abuse of less fortunate such as loan sharks. Off-course there will be cases where extremes misuse of interest can lead to loss and sins. But is like anything eg codeine is good for cough but in large quantities can also be drug.

Are you justifying the use of Interest in small issues with texts in Koran ? Or have you put your own spin on it ?

[porus]

A good summary of the 'Confessions of an economic hit man.

http://www.wanttoknow.info/johnperkinseconomichitman

[porus]

Badiuzzamaan Said Nursi on 'interest'. Quoted by Ali Unal in his translation of the Quran.

The cause of all revolutions and social corruption, and the root of all moral failings, are these two attitudes:

First: I do not care if others die of hunger so long as my own stomach is full. •
second: You must bear the costs of my ease – you must work so that I may eat. •

The cure for the first attitude is the obligation of the Zakâh , the Purifying Alms prescribed by the Qur’ân.

The cure for the second attitude is the prohibition of all interest transactions. The justice of the Qur’ân stands at the door of the world and turns away interest, proclaiming: “No! You have no right to enter.” Humankind did not heed this prohibition and have suffered terrible blows in consequence. Let them heed it now to avoid still greater
suffering

Qur’ân is extremely strict on interest, so much so that regarding it as lawful amounts to persistence in unbelief and sin, and still taking interest while regarding it as unlawful because of God’s prohibition of it amounts to warring with God and His Messenger.

Interest is the principal mechanism for the concentration of wealth, for making the rich richer and the poor poorer. The present state of the world, where the poor countries are crushed under the burden of loans to the rich ones, and the rich people live off the poor, is an example of this. Interest is the means for the maintenance of oppression both on a world scale and within a country. In addition to the corruption it causes in the economy, by its very nature, interest breeds meanness, selfishness, apathy and cruelty towards others. It leads to the worship of money, to the valuing of it for its own sake, and it destroys fellow-feeling and the spirit of altruistic cooperation among people. Thus, it is ruinous for
humankind from both an economic and a moral viewpoint.

[anajmi]

porus,

Thank you for this information. I just ordered this book and another "hoodwinked" by the same author from amazon. These will give me confirmation about a lot of the things that I believed all along and something that I have been fighting over, with the asian oreos on this board for almost a decade.

[TBG]

Dear Brothers,

thank you very much for your thoughts and sharing your knowledge on the topic.

My next question, based on your discussion is that in todays climate how can we work in a system that provides the necessary means to keep the economy rolling at the same time provides for human needs (taking into account wealth accumulation, greed to a certain extent and man's lust to materials which i do believe we cannot get rid away for good).

Is islamic banking the answer to this evil? A friend of mine told me once who works for an islamic bank that while islamic bank conforms to the rules within the shariah there are still many questions unanswered within the system. I dont have much knowledge on this issue therefore appreciate your thoughts on this.

Another question that comes to my mind is that if ( and i hope so ) that in the near future islamic banking is implemented in all the muslim countries how would that affect the financial balance in the world i.e islamic vs convential banking and the affects of this?

JazakAllah

[ozmujaheed]

Those poor who get poorer do so because they do not know how to manage finances not because of interest !

Do not blame the banks if you borrow too much and get greedy.

Rania yes the Quranic interpretation have to be applied in 21st Century context otherwise Muslims will always be in a standoff position with other faiths and beliefs..as Muslim I am aware that 5 billion others do not have to adjust to us and our Sharia but we have to adjust and co-exist with 5 billion others

I would like to here Economic graduates who are Islamic scholars and experts to debate interest rather than typical MullaSahebs

[rania]

Those poor who get poorer do so because they do not know how to manage finances not because of interest !

Do not blame the banks if you borrow too much and get greedy.

Rania yes the Quranic interpretation have to be applied in 21st Century context otherwise Muslims will always be in a standoff position with other faiths and beliefs..as Muslim I am aware that 5 billion others do not have to adjust to us and our Sharia but we have to adjust and co-exist with 5 billion others

I would like to here Economic graduates who are Islamic scholars and experts to debate interest rather than typical MullaSahebs

You must be one of those who support the Islamic Terrorists as they have also interpreted Koran in the context of 21st century and who use the shield of Islam to commit crimes against humanity !

It is clear to any Muslim that Interest is forbidden in Islam in 21st century or otherwise.People like you don't have a spine to stay true to Islam and want to twist it to suit your own agenda.Now I am not asking you to change your belief that whether Interest is good for you or bad.You are responsible for your own actions and your life.But please don't be spineless as to say that Islam allows that just because you happen to be born in 21st century and want to adjust with the other 5 billion who you believe won't be getting into Heaven with you !

You really need to grow a spine and say ok Interest in forbidden in Islam but so what.. It is good for me and I am going against the teachings of Mohammed ( pbuh ).

Now I am clearly getting a picture as to why you asked others to take me down.

[porus]

Those poor who get poorer do so because they do not know how to manage finances not because of interest !

Is that accurate?

Let us take an example. A person, P, would like to invest $A expecting he would make at least 7% return, in addition to providing jobs and services to his community.

At the same time, Government raises interest rates so that Banks now offer 10%. P decides it is more profitable to invest his $A in the bank and stops creating jobs and services.

The Bank lends $A that P invests to person, B at 12%. B invests $A but must make at least 19% return for his 7% and Bank's 12%. He cuts corners, reduces services and offers them at higher prices.

Net result is that the whole society has become poor. No new jobs, increased prices etc.

Multiply the scenario and extend it nationally and globally and the result is global poverty. Needless to say, poverty is not uniformly spread across all the peoples. Those who control the economic levers, mainly the rich nations, make sure that their countries are spared the worst effect of this lunacy. And they can back their intentions with instruments of state terror against defenseless peoples.

This brief analysis shows that interest skews development of humanity and does not allow full benefits of technological developments, mainly responsible for increased wealth, to materialize.

[anajmi]

Those poor who get poorer do so because they do not know how to manage finances not because of interest !

You come up with this and still want us to believe that you know anything about finance?

[porus]

Those poor who get poorer do so because they do not know how to manage finances not because of interest !

Do not blame the banks if you borrow too much and get greedy.

Let me extend my analysis a bit further.

In the example I gave above, you will notice that the Bank did not contribute to any productive work. The system that Bank has created is complex and everyone is in thrall of it. However, it is simply a concentrator/distributor of cash. Why should that function not be carried out by a people's government. The government can uniformly tax people and businesses for that function. (Does that remind you of zakaat?)

Banks really do not much care if the people they lend to at interest succeed or fail in their business. They just want their interest and damn the people. If someone cannot pay the interest because of loss, they call in loans, slap penalties and further depress the economy. When loans go bad and massive defaults occur, Bank, being too big to fail, is bailed out by the Government. Government simply taxes people so that Bank can go on being greedy and start the same process all over again. Now, you have seen this occur recently. Remember the 2008 global financial meltdown!

Solution stares us in the face. Nationalize the banks and let the government be the bank. Alas, this will not happen.

Why? Because the Bank, owned privately, has accumulated too much power and can make and break governments. They were given the permission to create money as if by fiat and the rest is history. These parasites have long tentacles and they have tied everyone around them.

Federal Reserve is a private company, not owned by Government, as is Bank of England and all central banks in Western Industrialized countries.

[porus]

Those poor who get poorer do so because they do not know how to manage finances not because of interest !

Do not blame the banks if you borrow too much and get greedy.

In my example above, both A, the investor and B, the borrower acted rationally and could not be accused of mismanaging their finances.

The most important category of those who mismanage their finances are those who live beyond their means. Let us ignore for the moment those who get into difficulty with their debt due to unforeseen natural and economic calamities.

Living beyond means is massively encouraged by the Bank. They exhort you to apply for credit cards, store cards, leasing contracts, mortgages etc. Bank knows that they can profit by making anyone they can find to become their debt slave for life. Bank's existence depends on debt slavery. And they spend massively promoting credit.

Banks charge credit card holders up to 35% interest rate which is usury. This is agreed by the government due to pressure by the Bank.

To satisfy their greed they offer a carrot. You can get a mortgage at a 'reasonable' rate, which can be effectively reduced by tax incentive at the behest of the Government which the Bank controls. They encourage borrowing the largest amount they can get so that not much else is left for other expenses after the mortgage payments. To make up for this deficit, Bank offers equity loans and credit cards. They set their debt slaves up to lose their major asset if things turn sour. The result is that the society becomes poor and the Bank gets richer. If Bank loses massively , then it will be rescued. The guys who lose their homes will not be rescued. (Obama has some program going to mitigate this. If you read financial press, it is not very effective)

If you get down to fundamentals, interest appears to be squarely implicated as the prime cause of poverty.

To be sure, people who are not technologically adept and are out of global financial system somehow get by. But heaven help them if they are sitting on resources that Bank wants. They would then be brought squarely into the financial system and cheated out of their resources while making their corrupt leaders rich.

[Fatwa Banker]

There has been a lot of misinformation and misinterpretation (or lack of understanding) of basic economic facts being posted on this thread.

Money is not created by governments. They are created by privately owned Central Bankers. These Bankers create money by loaning it to Governments which puts money into circulation. The bankers charge interest on money. So, there is in-built inflation in the process of creation of money.
If this were true then North Korea, Cuba and the ex-Soviet Union would not have a currency as they don't have privately owned central bankers.

Say, The Federal Reserve, the USA central bank, prints 1 billion at the request of the government. The government puts money into circulation. But it must repay Federal Reserve 10% interest.
Again, untrue. This is not how the money supply is created

Let us take an example. A person, P, would like to invest $A expecting he would make at least 7% return, in addition to providing jobs and services to his community. At the same time, Government raises interest rates so that Banks now offer 10%. P decides it is more profitable to invest his $A in the bank and stops creating jobs and services. The Bank lends $A that P invests to person, B at 12%. B invests $A but must make at least 19% return for his 7% and Bank's 12%. He cuts corners, reduces services and offers them at higher prices. Net result is that the whole society has become poor. No new jobs, increased prices etc.
This example is devoid of basic economic principles and makes false assumptions. It does not take into account the marketplace that ultimately determines the price of goods and services. Porus has created P who wants to create new jobs and serve the community, and B who cuts corners and does not add jobs, to make a point about interest rates ! In reality if such a scenario were to exist, the market prices would adjust accordingly by increasing margins beyond the 7% which were in place prior to the rate hike, and B would go out of business for cutting corners and reducing services. This would happen independent of the interest rates and has no bearing on anything.

Living beyond means is massively encouraged by the Bank. They exhort you to apply for credit cards, store cards, leasing contracts, mortgages etc. Bank knows that they can profit by making anyone they can find to become their debt slave for life. Bank's existence depends on debt slavery. And they spend massively promoting credit.

True, but when you drive down a street with pimps peddling hookers and dealers peddling drugs not everyone ends up in a motel room rented by the hour, snorting coke.

Interest is a cost of money, and what gets individuals in trouble is not the interest rate but spending more than they can afford. A basic understanding of debt to income and equity ratios would go far. Furthermore, the major cause of poverty in poor countries is corruption and not interest rates.

[porus]

FB,

I will respond to you later.

porus,

Thank you for this information. I just ordered this book and another "hoodwinked" by the same author from amazon. These will give me confirmation about a lot of the things that I believed all along and something that I have been fighting over, with the asian oreos on this board for almost a decade.

anajmi,

I missed your post earlier.

You will find Unal's translation very instructive. It is one of the better translations, and not only because its English is much better. However, its main attraction is the annotations which read almost like a tafseer. The tafseer of Surat al-Fatiha is the best I have ever read. In fact, it is a gem.

The Said Nursi quote appears as Note # 160 to ayat 2:275.

Unal uses fairly straightforward translation unlike Asad. His introduction may be off-putting to some as his eulogy of the Quran appears excessively extravagant, and would have been better pushed towards the end as an epilogue.

If I were to rate the various translations I am familiar with on a scale of 1 to 10, here is how they would rank.

Yusufali, Shakir and Pickthall - 5
Arberry - 6
Unal - 7
Asad - 9

I think that Asad and Unal translations make a good complementary pair.

[anajmi]

porus,

I have Asad and Arberry. I will order the Unal translation as well. Is the full name of the author Ali Unal? Can you confirm if this refers to the correct author?

http://www.amazon.com/Quran-Annotated-I ... ap_title_0

[anajmi]

True, but when you drive down a street with pimps peddling hookers and dealers peddling drugs not everyone ends up in a motel room rented by the hour, snorting coke.

An analogy which is way off the mark (or right on the mark). Most people consider hookers and drugs to be bad and the governments actively prohibit both and punish the offenders. However, that is not how credit cards and bankers are treated by the government. These are actively marketed and if I remember right, Bush wanted people to go spend more money during the big crisis after 9/11. So if you are driving down the street with bankers peddling credit cards most people will end up with a debt. If only bankers peddling credit cards were treated like pimps and drug dealers!!

[porus]

Is the full name of the author Ali Unal? Can you confirm if this refers to the correct author?

http://www.amazon.com/Quran-Annotated-I ... ap_title_0

Yes, that's the one.

[porus]

.. Most people consider hookers and drugs to be bad ... If only bankers peddling credit cards were treated like pimps and drug dealers!!

In fact, borrowing and lending at interest, along with prostitution, is one of the oldest professions and prevalent in every corner of the globe. And equally, they are both universally despised. Yet, no one is prepared to do anything about either of them. One wonders

[anajmi]

porus,

Islam makes them both haraam and punishable to the highest degree. Atleast, muslims are making an effort to condemn both.

[Fatwa Banker]

Islam also speaks of Yellow Cows, beating wives, polygamy, and a flat Earth. I wouldn't bet your finances based on Islam, let alone mine !

[anajmi]

No point in discussing Islam with you. Let us get back to how we were comparing bankers to pimps and drug dealers.

[porus]

There has been a lot of misinformation and misinterpretation (or lack of understanding) of basic economic facts being posted on this thread.

I am putting forward an unorthodox view which may conflict with money paradigm that is current around the globe. I am aware of what the textbooks on finance and economics say. Mine is just a different view.

If this were true then North Korea, Cuba and the ex-Soviet Union would not have a currency as they don't have privately owned central bankers.

I am not denying the usefulness of money. It is possible for Governments to create money and that is what I am advocating. It would be interesting and instructive to find out how money operated during the reign of the first 4 Muslim Khalifas, when interest was prohibited.

Again, untrue. This is not how the money supply is created

Money is created by fiat. FedRes plays God with money. It says to money “Be” and it is. It is magic. It operates through what is known as Fractional Reserve System. It creates a non-existent ‘Reserve’ which is supposed to guarantee the amount on your bank note, not what the amount will actually buy.

If that is not the way it is created, how is it created?

This example is devoid of basic economic principles and makes false assumptions. It does not take into account the marketplace that ultimately determines the price of goods and services. Porus has created P who wants to create new jobs and serve the community, and B who cuts corners and does not add jobs, to make a point about interest rates ! In reality if such a scenario were to exist, the market prices would adjust accordingly by increasing margins beyond the 7% which were in place prior to the rate hike, and B would go out of business for cutting corners and reducing services. This would happen independent of the interest rates and has no bearing on anything.

Marketplace indeed determines the price. I did create the example to make a point. B will not go out of business immediately because his self-esteem is invested in his business. He will try to survive as long as possible. Eventually B will fail and his assets will be stripped by the bank.
Everyone knows that interest rate has enormous bearing on what B must charge for his services. To pretend otherwise is to ignore the fact. You should talk to people with ARM mortgages.

True, but when you drive down a street with pimps peddling hookers and dealers peddling drugs not everyone ends up in a motel room rented by the hour, snorting coke.

It became apparent during the 2008 financial meltdown that the vast majority of mortgagees, including those with ARM Mortgages, paid their dues on time. The proportion of defaulters was small but, coupled with Fractional Reserve System, they were able to disproportionately influence the events.

Interest is a cost of money, and what gets individuals in trouble is not the interest rate but spending more than they can afford. A basic understanding of debt to income and equity ratios would go far.

What is the cost of money? Are you referring to opportunity cost? If you have money lying idle and put in the bank, what opportunity are you missing? Banks have your money to lend to a sucker. Is the Bank losing an opportunity? No. It is just that Bank wants a debt-slave.

Is it time-value of money? Bank has your deposit. Ignore interest for a moment. The value does not change. It changes when a sucker comes along and the Bank suddenly slaps a time-value on it. And everyone thinks that time-value is intrinsic property of money. Not so.

Let us not deal with jargon of ratios and cut to the chase. Once interest is in place, varying it only decreases or increases the pain. It is interest itself, not its rate, that is the root problem.

Furthermore, the major cause of poverty in poor countries is corruption and not interest rates.

True enough. Corruption arises when leaders of the poor countries borrow from rich countries. In return rich countries build infrastructures to steal away resources. They give massive crumbs to the leader and a smaller crumb to others. The poor think their country is developing. Benefits are nowhere to be seen and interest is paid to Bankers. That is the prime cause of poverty

[Fatwa Banker]

Porus,

I respect your opinion as long as it does not change facts.

I am not denying the usefulness of money. It is possible for Governments to create money and that is what I am advocating.

Now we are in agreement although earlier you had said “Money is not created by governments". that is what I was responding to.

Money is created by fiat. FedRes plays God with money. It says to money “Be” and it is. It is magic. It operates through what is known as Fractional Reserve System.

I have read that quote before. Well of course money is created by fiat, ever since the abandonment of the gold standard, but that is beyond the scope of this discussion. The Federal Reserve however does not operate though the Fractional Reserve System, the private banks do and it is not “non-existent”. The banking system has to maintain this reserve in liquid assets, whether it is an adequate ratio is open to debate.

It creates a non-existent ‘Reserve’ which is supposed to guarantee the amount on your bank note, not what the amount will actually buy.

The Fractional Reserve System has absolutely nothing to do with that. It controls how much a bank can lend in relation to its deposits.

. I did create the example to make a point. B will not go out of business immediately because his self-esteem is invested in his business. He will try to survive as long as possible. Eventually B will fail and his assets will be stripped by the bank.

Again what does this have to do with interest rates ? If B started this with his own money he would still fail if “He cuts corners, reduces services and offers them at higher prices”

It became apparent during the 2008 financial meltdown that the vast majority of mortgagees, including those with ARM Mortgages, paid their dues on time. The proportion of defaulters was small but, coupled with Fractional Reserve System, they were able to disproportionately influence the events.

Please document the correlation you are referring to between ARM’s and FRS for me to comment on that.

What is the cost of money? Are you referring to opportunity cost? If you have money lying idle and put in the bank, what opportunity are you missing? Banks have your money to lend to a sucker. Is the Bank losing an opportunity? No. It is just that Bank wants a debt-slave. Is it time-value of money? Bank has your deposit. Ignore interest for a moment. The value does not change. It changes when a sucker comes along and the Bank suddenly slaps a time-value on it. And everyone thinks that time-value is intrinsic property of money. Not so. .

What I am referring to is much more basic than that. It is a cost to the borrower of borrowing an asset that he needs that someone else has, much like renting a car, he is renting money and there is a cost associated with it.

Let us not deal with jargon of ratios and cut to the chase. Once interest is in place, varying it only decreases or increases the pain. It is interest itself, not its rate, that is the root problem.

It would be if people were forced to borrow at gun point. The process of borrowing is voluntary, if you don’t like interest rates, don’t borrow and it will cease to be a problem.

True enough. Corruption arises when leaders of the poor countries borrow from rich countries. In return rich countries build infrastructures to steal away resources. They give massive crumbs to the leader and a smaller crumb to others. The poor think their country is developing. Benefits are nowhere to be seen and interest is paid to Bankers. That is the prime cause of poverty

Surely you are not that naive. Are you saying that corruption would not exist but for leaders of poor countries borrowing from the rich and paying interest? Would these same leaders behave differently if these loans were interest free ?

[porus]

Now we are in agreement although earlier you had said “Money is not created by governments". that is what I was responding to.

Money in the USA is not created by Governments. That was not the intention of the Founding Fathers. Article I Section 8, Clause 5, of the US Constitution states “that Congress shall have the power to coin money and regulate the value thereof and of any foreign coins.” This has been perverted by the creation of the Federal Reserve. Government decides how much money it needs and borrows it at interest from FedRes. FedRes does not create the additional money required to pay the interest. So, inherently, there is no supply of money than is needed to service the debt. Have a look at treasurydirect.gov and the current US national debt stands at staggering $13 trillion, which is about $43,000 per person. This will go on increasing until something snaps.

Why does not the Government create money itself so that people are not burdened by interest debt?

Well of course money is created by fiat, ever since the abandonment of the gold standard, but that is beyond the scope of this discussion. The Federal Reserve however does not operate though the Fractional Reserve System, the private banks do and it is not “non-existent”. The banking system has to maintain this reserve in liquid assets, whether it is an adequate ratio is open to debate.

No. FedRes was created in 1913 and the Gold Standard was finally abandoned in 1971. Federal Reserve operates exactly as any other bank through the Fractional Reserve System. Until recently, it too was required to have loans to reserve ratio of 16:1. This has now been abandoned for all practical purposes.

Again what does this have to do with interest rates ? If B started this with his own money he would still fail if “He cuts corners, reduces services and offers them at higher prices”

No. If B started with his own money he would then become A and he will not have to cut corners, reduce services and offer them at higher prices.

Please document the correlation you are referring to between ARM’s and FRS for me to comment on that.

By ARM, I meant mainly the sub-prime mortgages. I am afraid I do not have the time to collect evidence. The point is that FRS encourages developments of the instruments like CDOs and other derivatives. Again, no money is in circulation to service the debt because it has not been created but still required.

What I am referring to is much more basic than that. It is a cost to the borrower of borrowing an asset that he needs that someone else has, much like renting a car, he is renting money and there is a cost associated with it.

I do not buy that. Money is not like goods you purchase. If it were so, you would pay for your car hire with a little bit of the car, say, a steering wheel or a spare tire. That is silly, I know.

You compensate the owner of the car for providing a service. Assume it is B. He had money to buy the car and now gives a service and gets compensation. If it was A, he would not get the car but lend at interest to C. C would buy the car and pay for the car and pay interest too. A has not really done anything productive.

It would be if people were forced to borrow at gun point. The process of borrowing is voluntary, if you don’t like interest rates, don’t borrow and it will cease to be a problem.

I agree. In that case, we will need to look at how our society takes care of people when no interest is involved..

Surely you are not that naive. Are you saying that corruption would not exist but for leaders of poor countries borrowing from the rich and paying interest? Would these same leaders behave differently if these loans were interest free ?

Why would they need loan in the first place?

[Fatwa Banker]

Money in the USA is not created by Governments. That was not the intention of the Founding Fathers. Article I Section 8, Clause 5, of the US Constitution states “that Congress shall have the power to coin money and regulate the value thereof and of any foreign coins.”

You are splitting hairs now, the Congress is part of the US Government.

This has been perverted by the creation of the Federal Reserve. Government decides how much money it needs and borrows it at interest from FedRes. FedRes does not create the additional money required to pay the interest. So, inherently, there is no supply of money than is needed to service the debt. Have a look at treasurydirect.gov and the current US national debt stands at staggering $13 trillion, which is about $43,000 per person. This will go on increasing until something snaps.

Again, this is not how the system works. Government does not borrow money from the Federal Reserve at 10%, it is simply factually incorrect. Government issues debt in the form of securities that you and I can purchase. The Federal Reserve will also buy or sell this Government debt to control liquidity and interest rates in either direction. By the way, US Treasury is separate from the Federal Reserve. You will not get an argument from me in favour of the National Debt, I believe in a smaller government and balanced budgets, but we digress.

Fatwa Banker wrote:Again what does this have to do with interest rates ? If B started this with his own money he would still fail if “He cuts corners, reduces services and offers them at higher prices”

No. If B started with his own money he would then become A and he will not have to cut corners, reduce services and offer them at higher prices.

Again, that makes no business sense whatsoever for me to comment unless you can elaborate further as to the point you are trying to make. Of course A will keep his money in the bank drawing a 7% yield if his business will produce less than 7% and so will B in the same scenario!

By ARM, I meant mainly the sub-prime mortgages. I am afraid I do not have the time to collect evidence. The point is that FRS encourages developments of the instruments like CDOs and other derivatives. Again, no money is in circulation to service the debt because it has not been created but still required. .

I am not asking you to collect evidence, just explain the correlation you are attempting to make.

I do not buy that. Money is not like goods you purchase. If it were so, you would pay for your car hire with a little bit of the car, say, a steering wheel or a spare tire. That is silly, I know.

Yes it is. Currency is legal tender, your steering wheel is not.

Why does not the Government create money itself so that people are not burdened by interest debt?

This would devalue the currency to the point of it being worthless as legal tender, not to mention hyper inflation. You will indeed need your spare tire to buy rice then !

You compensate the owner of the car for providing a service. Assume it is B. He had money to buy the car and now gives a service and gets compensation. If it was A, he would not get the car but lend at interest to C. C would buy the car and pay for the car and pay interest too. A has not really done anything productive.

A just enabled C to buy a car, which he could not otherwise purchase. This is turn created a sale for the car company added to their profit, created value for its shareholders, and increased their ability to create jobs. Your point is ?

Why would they [poor countries] need loan in the first place?

You tell me...no one is forcing them to. My guess is because they are poor !

[ozmujaheed]

Rania I hunt extremists for my day job interesting why have you brought the terror word up from no where are you hiding something..what is it hatred for secularism, west, democracy, liberal views, are you one of the brain washed jamia or sabaq deviants the 2 cocktails are potent. aqs, hades or sam did not bring this up so you are here to play hard ball and think that you will sass the opponents out by throwing mischiefs and traps around..interesting ..I will watch and study your responses. Admin please keep ranias profile and alias email safe we may have landed something here ..gotcha

anajmi eureka I am not an economist but know enough to know interest is not the cause of poverty and all you rest except fatwa banker let me know where your theories and logic work where life without interest is possible and who will buy bonds and debt if there is no interest or yield

And fr die hard Abdes can you stop using public services, hospitals, send money as wajebaat and najwas in forex as this are all rated and tainted through interest