A Forced Return to Ancient Wisdom

[peristaltor.livejournal.com]

“1 At the end of every seven years you shall grant a release of debts. 2 And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord’s release."

Deuteronomy 15: 1-2

I've been lying quietly as a few in this community actually defend the practice of lending money at interest, even at extreme interest. In that linked comment, badlydrawnjeff even went so far as to say, "The system and the banks aren't the problem here." Though he is entitled to his opinion, I still disagree.

As I posted in the above linked article, humanity is no stranger to usury (now euphemisticaly referred to as "interest"). What we modern humans have forgotten is exactly how destructive unchecked usury is (note: not "can be") to the society that employs it. That Biblical law posted above is just one example of laws that seek to stabilize society by occasionally wiping the borrowing slate clean and starting fresh.

Instead of following such ancient wisdom, the moneyed few have for the last hundred years or so championed a world that sought to crystallize the wimbly-wobbly world of economics (called formerly, let us never forget, "political economics") as a science. Sciences, after all, cannot be contradicted by mere political opposition. Why would they do that?

I hate to repeat myself, but I must, it seems. As I've mentioned time and time again, commercial (aka depository) banks in the western world create the western world's money through lending. These banks are not allowed to create an unlimited amount of money, but create they do. A loan's principal is issued (ie. created) to the borrower at the time the final papers are signed. That principal is slowly returned to the issuing bank through payments. The loan's interest is also due with those payments, but let's remember that the interest is not created through the initial loan.

This last point proves perhaps the most important. If the economy as a whole does not create more money, ie. create future lending at a greater rate than present lending, insufficient money will be drifting in the system to give future debtors a chance to repay, leading to inevitable defaults and recession.


Without changing debt levels,
unemployment becomes inevitable.

To further chase this logic, the higher the interest rate on lending, the more future lending the economy will have to generate, meaning so-called "payday lenders" have more impact on the economy than as a mere provider of credit to the poor. Since in the US (according to the movie Maxed Out) payday lenders are mostly subsidiaries of the major commercial banks, the money they lend is created with each loan, giving it far more impact than the extra cash buried deep in a loan shark's pressed trousers. This money not only has the potential to impoverish the lender in a cycle of debt, it could also (along with all the other imprudent lending) lead to a monetary inflation that would hasten a recession.

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What other "imprudent lending" could I be addressing here? Essentially, for a loan to be prudent the investment it funds must lead to either greater future earning capacity or reduced expenditure for the lender. In other words, it should pay for itself. Will a new car be less expensive to maintain and drive? Hopefully. Will the new house mean no more rent pissed into the wind? In the right neighborhood, sure, as long as you are ready to settle down and not move for several more years. Will that college education lead to improved job prospects? Ah, there we are striking questionable ground.


Student loan debt has tripled
in the last eight years alone.

Right now, student loan debt is spiking out of control just as the employment prospects for graduates is as dim as it has ever been in recent memory. This is partly due to "escalator clauses" in state university and college systems that automatically raise tuition every year by a fixed percentage. These small increases have lately hit hockey stick territory; if they are not stopped, no one (save the very, very rich) will be able to afford even state university educations without incurring disastrous debt. This at a time when demographic inevitabilities are reducing the paycheck potential of even formerly lucrative professions.

In the past, students who could not pay down their student debt could always declare bankruptcy; that is no longer the case, meaning that a stint hitting the books with official supervision will probably be a cost that will follow the former student until the end of his or her days.

Education is not the only area of our economy where lending for investments no longer pay enough to incur the loan. Housing? My neighborhood is doing well, but it's in a city at a time when more and more are leaving the exurbs. Autos? With the economy doing as poorly as it is, has anyone asked themselves why gas is still near (or over) $4/gallon? Yet still the new cars get some pretty shitty mileage (by my standards, at least). Therefore most new cars are nothing more than ego boosting purchases. And don't get me started on credit card debt, the very worst and the one that should not be a source of newly created money, even though it certainly is.

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In dire conclusion, this accumulation of debt bodes no one in the Western world a damned bit of good. We have outlawed any bankruptcy escape for millions of our citizens and injected new Federal Reserve money only straight into the vaults (where it is hardly needed). A recent (and admittedly sauced) commenter facetiously asked why people just don't revolt. That's a good question. It turns out that it takes a lot of coordination to actively overthrow even just a corporation, let alone a country. If things get worse (as I'm quite sure they will), both corporations and countries will strengthen the defenses they already have in place to thwart such organization. So don't expect revolutions right around the corner.

In the US at least, interest will probably only lead to revolution . . . later.