Bekijk Volledige Versie : Binnenkort een nieuw financieel systeem
De fundamentele oorzaak van alle financiële instabiliteit is de rente. Silvio Gesell heeft een monetair systeem beschreven dat ook al in gebruik was bij de Egyptenaren in de tijd dat de piramides werden gebouwd. Bernaerd Litaer heeft beschreven in zijn boek "Het geld van de toekomst" dat dit geldsysteem de onvermijdelijke opvolger is van het huidige.
Ik heb jarenlang onderzoek gedaan en heb mijn conclusies zo beknopt mogelijk opgeschreven. Dit nieuwe systeem zal leiden tot maximale welvaart en maximale stabiliteit. Tevens is het vrijwel onmogelijk om de komst van de nieuwe systeem te stoppen.
Het is wel in het Engels (hopelijk heb ik nog tijd voor een NL vertaling).
De complete tekst volgt hierna, maar staat ook op www.naturalmoney.org.
www.naturalmoney.org
Money of the natural economic order
Author: Bart klein Ikink
Problems in the current money system
Do you ask yourself
What money exactly is?
Why experts are so afraid of a major economic depression caused by the banks going bankrupt?
Why businesses, consumers and governments are so deeply in debt, in spite of all our prosperity?
Why, despite all our prosperity, our social problems remain difficult to solve?
Why the rich become richer and the poor become poorer in the developed economies?
Why in the emerging economies it is possible that the poor get richer?
Saving money in the bank does not pay because the inflation is higher than the interest rate?
Why the government is increasingly intervening in markets, while this is not really a good idea?
Why capitalism seems to fail, even though it has brought us so much prosperity?
Why so many people earn their money in activities that serve no purpose, and some even become very rich?
Is there an alternative?
The economic problems we face now, again lead to a discussion of capitalism versus socialism. We have seen that both economic systems have their limitations. Supporters of capitalism will argue that the problems we have, are caused by government intervention in the market. Proponents of socialism will argue that the problems we have, are caused by too little regulation of the market. Both arguments seem reasonable but they conflict. My conclusion is therefore that this is a false debate, and that the real cause lies somewhere else.
In this short text I will try to show that the real cause lies in the nature of our money system. Then I briefly try to explain that another money system is possible, and that it will work far more efficient than the current money system.
To get an understanding of the issue, you can view the documentary "Money as Debt" on our current money system, before continuing to read. This documentary lasts 45 minutes and is viewable via the link below:
Link: Video "Money as Debt"
Money As Debt
You'll be surprised how the system works, and also how utterly ridiculous it is. The documentary can be understood using only common sense. You do not need to know economic theory, which often is not common sense.
Banks create money out of thin air when someone takes out a loan. Banks demand interest on money that did not exist. This interest will, after deducting costs and dividends, be added to the equity of the bank, on which the bank can make new loans, which makes debt grow even further.
How the current money system works
Almost all the money in circulation is created by bank loans. Characteristics of the current money are:
1. Banks create money out of thin air by making a loan. At the moment someone loans money, the money comes into existence.
2. Banks demand interest on the money they lend.
3. All the money in circulation should raise interest for the banks. Because there is not enough money in circulation to pay for the interest, not everybody can fulfill his or her obligations, unless new debts are created.
4. As a result, debts grow exponentially and so do the interest payments.
5. If the economy is growing slowly, serious problems arise. As the Western economies are in the mature phase, economic growth is therefore relatively low, and the problem starts becoming acute. Therefore, it is also true that in emerging economies, this problem has not yet come into play.
How banks create money out of thin air
When you go to the bank to close a loan, the money is made on the spot by closing the loan deal. In economic theory this is the money-creating function of the banking system. The extent to which banks create money out of thin air depends on the reserve ratio. When we start from a reserve ratio of 1:10, the practice is as follows:
1. To start with, a bank needs money that is created by the government in the form of banknotes or a balance at the central bank. When the bank owns € 1000 of this money, and the reserve ratio is 1:10, then the bank can create a € 10,000 loan, even though that money did not exist.
2. A person who borrowed money, can use it for a payment. The recipient of the payment may bring the € 10,000 to his own bank. Since this money has not been created by the government, the bank of the receiver, using a reserve ratio 1:10 may only use 90 percent of the money for a new loan. On the basis of the € 10,000 that is in the bank's account, a new bank loan of € 9,000 can be made.
3. The € 9,000 can be spent by the person who has borrowed it, and the recipient of that money may bring it to his own bank. This bank can create a new loan of € 8100 on the basis of the € 9,000. This process can be repeated endlessly, until the original € 1000 of the government has been used by the banks has been to create approximately € 100,000 out of thin air.
At the moment, reserve ratios of banks are even lower than 1:10, so that banks can create even more money out of thin air with € 1000 of government issued money.
Correction mechanisms in the current money system
Within the current money system, the following correction mechanisms exist:
1. When the economy is slowing, the deficits of governments increase. Because consumers and businesses are reluctant to take on more debt, governments have to do it, because otherwise the economy would be slowing further.
2. When the economy is slow, central banks lower interest rates for consumers and businesses to encourage them to add more debt. If the economy goes well, new debt is created in a faster pace, and central banks raise interest rates to curb debt growth, because otherwise money supply is growing fast, which results in higher inflation.
3. Authorities are trying to regulate the banking system by imposing requirements for equity in relation to outstanding loans and savings. Over the years, these requirements were increasingly stretched, because more debt was needed to keep the financial system functioning.
4. When despite these measures, the financial system fails, government money can be created by running the printing presses, using the following procedure, to mask the real nature of the activity:
- Governments spend money or buy bad loans so government debt is increasing.
- This debt is purchased by banks. If the government buys up bad loans, banks exchange the bad loans for government debt.
- The central bank prints government money and acquires the government debt from the banks. The central bank now holds the government debt and collects interest on the government debt. If the central bank is an agency of the government, this is printing money outright, because government is indebted to itself, so the debt does not really exist. If the central bank is a private enterprise, as is the case in the United States, interest on goverment debt is a tax on the public to benefit of the banks owning the central bank.
- The banks now have more government money on their balance sheets, so using the same reserve ratio, they can lend more money.
The foreign countries are disregarded in this explanation. This would make it far more complicated. The matter is difficult to understand even when ignoring foreign countries.
Problems with free markets in the current money system
If the government did not interfere with the economy and interest rates, markets will correct, but in a rude way with businesses and banks going bankrupt, economic recessions and even economic depressions. In this process, much useful capital is destroyed which could be productive if there was demand. The destruction of capital also results in a destruction of wealth. Since we live a democratic society, this will not be accepted and such issues will automatically lead to a strong call for government intervention and regulation.
Problems with government intervention in the current money system
Government interventions reduce the severity of economic recessions and economic depressions in the short term, but create an ever bigger problem long term, namely increasing debt on which interest must be paid. When this issue was raised, the famous economist Keynes, who was a strong supporter of government intervention, responded: "In the long run we are all dead." In other words, it would not be the problem of his generation. Now we entered a vicious circle of ever larger problems, which require more and more government intervention.
The money system promotes senseless economic activities
The financial sector is a significant portion of our economy. The share of the financial sector in the economy has increased strongly in recent decades. Although the financial sector produces nothing, it is one of the major sectors of the economy. This is because the financial issues regarding interest, create all sorts of complications. Many people are making a living from dealing with those complications.
Because of interest payments and all kinds of unproductive activities that are the result of interest charges, the living standard of many of people in the western world is decreasing. Many companies get into trouble due to financing structures, and have to lay off people. These companies would be viable, when conservatively financed.
Interest rate products, known as derivatives, are called financial weapons of mass destruction by the world famous investor Warren Buffet. If he makes this kind of statement, you can assume that the situation is extremely serious.
To deal with the effects of interest, there are officials who deal with the unemployment of people in times of economic adversity, people trying to manage the economy, subsidizing sustainable investment and curbing unsustainable activities that damage the environment or society.
When less useless activities would take place in the economy, the labour force could be directed to useful production and services and solving problems in society.
The current money system causes many problems
It is clear that the current money system causes many problems because of interest, and that solutions are difficult to find. The cause of economic problems lies in the nature of money. When more and more new debt needed to pay interest on debts, it is clear that the problem is growing out of control.
To solve this problem we should create a new form of money, which automatically arranges the economy in a sustainable way, needing less control of the government. Moreover, much less energy must be put into economic activities related to money. These activities are of no use and are harmful to the economy and society
The money of the natural economic order
A stunning example
In the past, money systems without interest on a small scale existed in various forms, with varying success. They still exist today. The success of natural money will depend heavily on the rules of the system. The most stunning success story is the Wörgl currency, you can view via the link below:
Link: Laboratory readings: Wörgl's Stamp Scrip – The Threat of a Good Example?
http://www.trafoc.com/nm/example.html
Characteristics of the money of the natural economic order
Silvio Gesell is the founder of the theory on the money of the natural order. The naturalness of this money, lies in the fact that it is taking into account human nature. Greed is on the one hand, a motivator for people to perform, but on the other hand it is a force that can lead to deception, destruction of nature, society and economy. The economy should work in a way that these matters are resolved, while achieving a desirable result for individuals, society and nature. The current theory in this document has been derived from the work of Gesell and improved during extensive discussions with many individuals on internet message boards.
Money from the natural order has the following characteristics:
1. The money supply is not growing or decreasing without deliberate action. There is no money creating activity by financial institutions. The value of the money is also constant. Apart from fluctuations in available goods and services, there is basically no inflation or deflation. The money supply can only be changed by the government issuing the money. There is however, no strong incentive to increase money supply, as will be shown further on in this text.
2. Natural money is not a form of debt, but a medium of exchange which may be covered by a basket of goods and services.
3. Money may only be lent without charging interest. Charging of interest in any form is prohibited.
4. A tax is levied by the government on the money in circulation. This is a tax on money, and this money comes back into circulation by government expenditures.
The valuation of the natural money unit
The valuation of the natural money unit is one of the most important topics. The money supply should be constant, but you can never trust the government, so when you lend your money for any period of time, the same value should be paid back. The guarantee of value is essential in a money system without interest. That means that when lending money, additional provisions must be made that guarantee the value of the loan. The loan can be valued in the following ways:
1. As a part of the money supply (for example: 0,00000001% of money supply). Because money supply is known to the public, this could easily be calculated.
2. As a basket of goods and services. This will cover the loan in the case the money system changes. The basket of goods and services should be paid in cash when the loan matures. These baskets should include a wide range of goods and services, in order to prevent price fluctuations of individual goods and services or manipulations of prices of individual goods and services, from affecting the value of the loan.
A natural money with money taxation stabilizes the economy
In a natural money system without interest with money tax, money is not created by financial institutions. The government levies a tax on the money and returns this money into circulation in the form of government spending. Any form of cash, both in accounts and in the form of bank notes, is subject to the tax. All loans that exist are created with existing money that is lent. Even though the money may not be lent at an interest rate, people will still be inclined to lend money, because there is a tax on money and the money keeps its value. This means:
1. There is always money available to be borrowed by creditworthy companies and people. Because no interest may be charged, there is no reward for taking the risk that the loan will not be repaid. There will be no unwise lending and borrowing that may destablize the economy.
2. Should the economy weaken, which is unlikely because no money is withdrawn from circulation by interest payments, the economy may be fueled by raising the money tax. After all, people will be more likely to spend their money. With natural money, higher money taxes are an incentive for the economy. This means that when a government is faced with rising deficits because of a weakening economy, increasing the tax on money reduces the deficit while energizing the economy. This shows that there is no strong incentive for the government to increase money supply.
3. People who are unable to pay back a loan, will not get a loan. Ultimately, this is in their own interest, and in the interest of society. No one benefits from large groups of people that are so deeply in debt that they can never recover.
Natural money promotes sustainable investment choices
When interest on money is charged, money in the future is worth less than money now. This has a major impact on investment choices. Interest promotes investments that are unsustainable and wasteful. If no interest was charged, sustainable investments would be more attractive.
For example: you want to build a house and you have the choice between a house of € 100,000 with a yearly energy cost of € 5,000 or a house of € 200,000 with a yearly energy of € 2,000. When the interest rate is 10 percent, the cost for a cheap house with high energy consumption is as follows: € 10,000 plus interest € 5,000 energy is € 15,000 per year. The expensive house with low energy costs: € 20,000 interest plus € 2,000 energy is € 22,000 per year. If you do not have to pay interest, the expensive house with low energy cost will be cheaper.
Employment
Natural money should lead to full employment. Because money is circulating in the economy constantly, everybody who is ready, able and willing to work, will get a job. If there is unemployment, it is not because of a recession or a depression. Therefore the price of labour would fall until full employment has been reached again. This is much easier to do because expectations about future business and employment are far more constant, so less employers and employees will have to change their expectations.
A stable economy needs less intervention
When the economy is stable, capital is not destroyed by lack of demand for products and services that are useful. Also, everybody is fully employed, eleminating the need for government assistance of people without income. Moreover, if sustainable investment choices are rational economic decisions, the government does not need to encourage them. Wealth is steadily increasing using the maximum potential. Therefore, government does not need to interfere with the economy.
The role of the banks with natural money
With natural money, banks continue to exist. Banks will have to comply to the following rules:
1. Banks may not invest for their own profit and risk money that has been entrusted to them. They may only lend money without charging interest.
2. You can hold your money in the bank in the form of a current account, on which the government tax is levied. You will hold the money you need in the short term in this type of account.
3. You can hold money in the bank in the form of deposits or savings accounts. The bank lends this money without charging interest. Holding such deposits or savings accounts may be attractive because you can avoid the money tax in this way, and the value of the money is not eroded by inflation. It is likely that you pay a fee to the bank for intermediation costs.
4. The bank may only charge intermediation costs to the saver and not to the borrower, since the bank may be enticed by high fees to take on risky loans. This is a very essential feature of natural money.
5. You can participate in the stock market through mutual funds or you can buy stocks. This is an attractive alternative. Since there are less strong economic cycles, and companies are conservatively financed, a diversified portfolio of shares is much less risky than in the current money system. People will invest in shares far more often.
Systems theory perspective
Try to imagine that the economy is a system, just like the human body. All parts of the system need each other to operate properly. Try to imagine that money flowing in the economy is like blood flowing in the body. In this case it would not make sense that a kidney is saying to the liver: This is my blood, you may borrow it with interest. It also does not make sense for parts of the body to hoard blood because there might be no blood flowing in the future. Strangely enough, economists think this makes sense.
Systems theory conflicts with economics. Charging interest makes sense to economists, but interest presses the weakest spots in the economy the hardest. This is because the weakest borrowers have to pay the highest interest rates. If engineers build planes like that, they would fall from the sky. Therefore according to systems theory, the economy could be far more efficient when the weakest spots are not pressed, capital would only be built and not be destroyed, recessions and depressions did not exist and full employment is a constant state of the economy.
The fundamental soundness of natural money
A goverment issuing natural money might be tempted to issue additional currency. But this is not a rational thing to do. First of all, tax income should increase because there is no inflation and money is circulating faster. So there is no rational reason to destroy the system that is bringing wealth. It simply does not make sense. Should the economy slow, and tax income diminish, which probably will not happen, the economy can be revitalised by raising the money tax. This has the same effect as issuing additional currency. Furthermore, if loans are guaranteed as a percentage of money supply, nobody can be harmed. Therefore, from a logical point of view, natural money is the most fundamentally sound money that can exist in the real world.
Natural Money in history
Using the concept of natural money, I will try to explain some historic facts, which puzzled historians for a long time. Some intriguing historic questions are:
1. How could Western Europe become so powerful during the middle ages? They were backwards at the beginning, annihilated by Black Death, and still came out on top.
2. How could the Egyptians build pyramids? This required a great wealth and a great organisation.
3. Why did Rome collapse? They had the greatest civilisation and military organisation at the time.
Although the explanation is speculative, and not proven, there is some logic in it.
The rise of Europe
When the Roman Empire collapsed, Europe fell back into a dark period, called the middle ages. Money ceased to exist, because gold and silver disappeared out of circulation. Europe was very fragmented and in general there was no central power structure. Local lords issued scrip currencies. Those currencies were valid for a limited period of time. After that period, the people holding the currency, had to return it to the ruler and a tax was levied. If you had 10 units, you got 9 new units in return. Those new units were also valid for a limited period of time. The actual value of the unit decreased slowly during the period and was the lowest just before the tax was due. People holding the currency, were inclined to spend it.
If we assume this was a kind of Wörgl situation, we may assume that Europe was building capital at maximum speed using full employment. Europe had to start at a very low level. Also, the local lords waged many wars that were destroying capital. But wealth steadily increased, faster than on any other part of the planet. When the crusades started, there was so much wealth to spend on a useless war, that Europeans could battle the Muslims for centuries on their own ground, keeping long supply lines, while the conquered land was not profitable. After that, Black Death annihilated about one third of the population, but only one century later, the exploration and exploitation of the rest of the world by Europe had begun.
The building of the pyramids
In the bible there is a story about a pharaoh having a bad dream about seven fat cows being eaten by seven lean cows. This dream was explained to the pharaoh. He was told seven good years would come and after that seven bad years would follow. Joseph advised the Egyptians to store food on a large scale. They built storehouses for food. Farmers bringing in the food, got receipts for corn. Bakers who wanted to make bread, brought in the receipts, which could be exchanged for corn. It did not take long before the receipts where generally accepted as money. Because of the degradation of the corn and mice eating it, the value of the receipts was steadily decreasing. This enticed people to spend the money fast.
The grain receipt system lasted for many centuries. It made sense to store food to provide for hard times. If we assume this was a kind of Wörgl situation, we can assume that also Egypt was building capital at maximum speed using full employment. At some point, irrigation systems were in place, houses were built, and there was nothing left to do. Because there was no limit on the ego of pharaohs, and they were worshipped like gods, the pharaohs could use this wealth to build pyramids. The people building the pyramids were probably no slaves but economically free men. The Egyptian civilization lasted for more than 2000 years, far longer than any civilization ever.
The fall of Rome
Rome lasted only 700 years. The money system was based on gold and silver. In the beginning Rome was able to expand, and therefore capital could grow faster than interest charges. But after 400 years the expansion was over, and slowly growing debt was becoming a drag on the economy. The government was permanently short of funds. The value of money was constantly devaluated. The military was also badly funded, and therefore other people could invade Roman lands. Debt was destroying Rome.
Limitations
Natural money without interest with money tax has a number of restrictions. These restrictions are acceptable when we realize that the charging of interest is very harmful for the economy, society and nature.
Some limitations of a natural money system are:
1. The power structures are trying to sustain the current system. Both governments and financial institutions benefit from the current money system. Therefore it may not be easy to reform the money system.
2. The number of funding options is decreasing. There is no compensation for the risk of loans not being repaid. Companies can raise capital by issuing shares or by borrowing money without interest. Only companies that are creditworthy, may qualify for loans. All other companies will need to attract capital by issuing shares until they are creditworthy enough to be able to borrow money without interest.
3. A natural money system without interest does a great appeal to the rationality of human beings. The drive for people to get rich without working is eternal. A purely rational man would never participate in a lottery or a pyramid game. Yet there are many people doing just that.
The greatest danger that always remains, as long as natural money will function, is that interest in some way will be reintroduced, possibly in a disguised way. People will wonder: Why does the borrower not have to pay compensation? Why should the owner of the money pay a fee and not the borrower? Political and business interests will try to use this feeling for their own purposes.
With natural money, you can never insure loans, which are promises to pay, because this introduces a moral hazard. The insurance fee is a form of interest. You can however insure collateral if it is not money in any form.
Various structured products will be invented and financial interests will try to influcence decision makers to allow such products. We must realize that any commission that a borrower pays, is interest. Interest can manifest itself in different forms. If there is no resolute legislation and enforcement, possibilities will be stretched and irresponsible risk taking will come back.
Will it work?
Natural money with money tax and no interest is an uncertain experiment when introduced on a large scale. It may have implications that are difficult to foresee. These consequences can be both favorable as unfavorable. In any case, this is an economic revolution the world has never seen before. Therefore this should be done with a great understanding of the plan, with great care, and also with no compromise whatsoever. When this money system is introduced in a time of crisis, and there is no time for a proper preparation, mistakes will probably be made, and the chance of success will greatly decrease.
From an engineering viewpoint, using systems theory, a natural money economy seems to be the most efficient market economy possible in the real world. If this is true, this has far reaching consequences. Societies implementing this system will not destroy capital but build capital constantly at maximum speed using full employment. Also those societies do not waste resources on financial activity or government intervention. Therefore those societies should be far more wealthy. As a result the military options of those societies also increase, and therefore natural money systems will replace all other money systems, maybe just because they are only natural. If this is true, banking interests will never succeed in preventing natural money systems from being introduced worldwide.
Natural money can be choosen by a group of people deliberately. It can be selected in an unconscious process, like in ancient Egypt. It can be enforced by a rulers, like in Europe in the middle ages. Natural money can be used on a small scale, a large scale, or even worldwide. Natural money can be used in a democracy but it can also be used in a totalitarian state. Natural money assumes only economic freedom but it does not assume political freedom. Even though government intervention in the economy is not needed, it does not require a specific size of government. The extra wealth created by natural money can flow to the citizens, but it can also flow to the state, which may use it for its own purposes. Therefore, natural money is not "good" or "bad" in itself, but only a very powerful concept.
A call to action
If you understand the message and you understand the situation we are in, you see that our society is in great danger. Bankers and governments may ward off collapse, but this comes with a staggering price tag of ever increasing inflation and moral hazard. This will in the end eat away the fabric of our society. Therefore the time for action is now. First of all, the knowledge must be spread. What to do next, is up to you.
Frequently asked questions
Questions about money supply and debt
Question: If the money supply is constant, will it be possible for the economy to grow?
Answer: The value that is created in the economy, is within certain limits not dependent on the money supply. If the economy is doing well, and the money supply does not change, prices may decline. However, a strong increase or decrease the money supply can be harmful to the economy. Because the calculation of inflation rates is subject to manipulation, it is questionable whether there was any economic growth in the mature economies in recent years. Only money supply can be objectively measured.
Question: Why is it that the economy collapses, if debt is not increasing?
Answer: This is because nearly all the money in circulation has been created by banks with the intent to charge interest. If no new debt is added, the money supply will decrease by interest payments, even though the existing debt is not repaid. For example: When a bank money supply of € 1,000,000 is in circulation, and nobody pays of debts and nobody adds new debts, and the interest rate is 10%, there is only € 900,000 in circulation after a year. Another year later, only € 800,000 is in circulation. After 10 years there is still a debt of € 1,000,000, but the money supply is 0. Not all the money will eventually disappear from circulation, because not everybody can repay his debts, because many people and businesses will already have gone bankrupt. Of course in reality the bank has costs, pays interest to depositors and pays dividends, but even then, when no new debts are added, the money supply will decrease.
Question: Is it not wise to proceed on the gold standard, to curb the growth of debt?
Answer: With gold or silver being money, the existence of interest on money cannot be avoided, because coins can be hoarded and stored. Therefore it is not possible to raise a money tax. At that moment there is no incentive to lend money without interest. If we return to the gold standard, and the system of banks charging interest still exists, the money system will evolve into a situation like we have now. People will not accept that banks go bankrupt and that there is a process of creative destruction with strong economic growth alternating with recessions and depressions. They will then ask for government intervention. The gold standard will therefore not lead to a natural order that is stable. Moreover, when the value of money is subject only the value gold, all sorts of manipulation are possible, like we see the gold market. Therefore it is wiser not to base the value of money on gold alone.
Question: Why is it that the problems in the financial system come to light right now?
Answer: If an economy is developing fast, the economy can grow faster than debt, and the leverage will make interest work positively for the development of wealth, because the extra growth above the interest adds to prosperity. That we see in emerging economies, but also in many European countries in middle of the last century. Once the economy turns into a mature phase, the economy is barely growing. Economic growth becomes a mere statistical fiction. The growing debt will eventually be a drag on the economy. In 1971 the the link between gold and money, which over the years had become increasingly detached, was completely deserted. Financial innovations have since then created the possibilities for debt to grow further. This did not seem a problem until debts have become so large, that many people get into financial troubles, and therefore the financial system is at risk.
Question: The banks have lost thousands of billions of euros. Where has all the money gone?
Answer: A small part was paid in the form of profits and bonuses. The profits amounted to tens of billions, but hundreds perhaps thousands of billions of euros have been lost. Because almost all the money in circulation is covered by the balance sheets of banks, much of the money is in danger of annihilation. Economists and bankers call this a "liquidity problem".
Questions about money without interest charges
Question: May capital not earn interest?
Answer: It is only natural for capital to earn interest. Only on money interest should not be charged. Therefore, in a natural money system, money should not be capital.
Question: Is money without interest charges not just money for free?
Answer: The money we have now is money for free, since banks create money out of thin air. Moreover a loan you pay back later will have less value because of inflation. So if you are closing a mortgage with an interest rate of five percent, while the money supply grows at a rate of 15 percent, you actually get money for free when you borrow. Money without interest is not free money, especially if the money supply is constant. The current system penalizes savers if interest rates are low and penalizes borrowers if interest rates are high. Money without interest does not favor anybody.
Question: How does a money system without interest charges eleminate excessive risk taking?
Answer: This is done in the following ways:
1. Since there is no allowance for risk, money will only be lent money to creditworthy people and businesses.
2. Moreover, because there is no interest, interest payments do not erode the creditworthiness of companies and people.
Because the market solves many problems in this way, the government has a smaller task in managing the economy. Less people and companies do go bankrupt.
Question: Is a saver worse off without interest?
Answer: The interest rate the bank pays is usually lower than inflation, and almost always lower than the growth of the money supply. When the value of money is constant, and you will get the same amount of loan money back, you will be better off.
Question: Is a borrower worse off without interest?
Answer: If the interest rate on the loan is lower than inflation a borrower will be worse off without interest. This is usually only the case with mortgages but not with other types of loans.
Question: In Japan, interest rates have been zero percent for years. Is Japan an example of a natural money system?
Answer: Although the interest rate in Japan is very low, this is not a natural money system without interest using money tax. The money system in Japan is similar to the money system in the western world. About 20 years ago, the banking system in Japan had been inflated by increased credit growth. Since then interest rates dropped to around zero percent to prevent a collapse of the system by debt payments and interest charges.
Question: Do islamic countries have a natural money system?
Answer: While charging interest is forbidden in Islam, like it was the case in Christianity, this does not mean that the Islamic world has a natural money system.
Questions about banking in a natural money system
Question: Should the banks be nationalized?
Answer: Banks have a special function in society because they manage the money system. In any case, the banks must not be permited to use money entrusted to them for investing or taking risk. They must use these funds to make loans without interest. They may operate on behalf of the depositors, but may also operate for their own risk, for which banks could get an allowance. A bank should therefore still be a private company.
Question: Are my savings still safe at the bank?
Answer: The economy will be more stable. Bankruptcies and bad debt are a rare phenomenon. When banks operate on behalf of depositors, this means that when certain loans cannot be fully repaid, the depositors loose a part of their money. When banks operate for their own account, the equity of the bank can absorb the losses.
Economic questions
Question: Should the government protect business and employment protection against competition from abroad?
Answer: Competition from abroad is not the cause of the financial crisis. Therefore, to counter competition from abroad is not the solution. Especially when all countries have natural money systems, inbalances of payments between countries are less prevalent. Countries will no longer lend to each other more than can be repaid.
Question: Is it not possible to abolish the money creating by banks, but allow the charging of interest?
Answer: In this case there is a closed-circuit of money, but there are two major disadvantages:
1. In times of economic crisis, people will take their money away from banks and start hoarding money. This will disrupt the economy even further. The citizens will then ask for government intervention, and the money system will gradually develop into the system as we have now.
2. Interest reinforces the contrast between rich and poor. The rich usually have money, while the poor need it. In that case, the poor must borrow at an interest rate. The poorest pay the highest interest rates. Because the supply of money is constant, they become even poorer money wise. If the economy is booming, and many new goods and services are supplied, and prices are falling faster than interest rates, the poor might get richer in terms of goods and services, but this is generally not the case. The result is that interest in overall, make the rich richer and the poor poorer. Social unrest is lurking.
Questions about the transition to a natural money system
Question: When will the transition to the new money system be possible?
Answer: Probably change will come when the problems are seriously enough, and enough people know what the actual cause of the situation is. The stakes are high. Banks will try to create a new system with interest charges.
Question: How should the transition to a new money system take place?
Answer: When a country or region as a whole would like to convert to a natural money system, it could be done as follows:
1. A positive money supply number must be calculated.
2. All balances should be converted into the new positive money supply. The current money supply may be smaller than the debts, so after scoring all positive and negative balances, a negative balance may remain. Many debts in the old system can never be repaid.
Question: How do debts in the old system convert into the new?
Answer: In principle, all debt denominated in fiat currency is not worth more than the currency itself. There is no coverage. You are therefore at the mercy of the authorities issuing the currency, which are the national authorities. In principle, this transition should be regulated by the markets. There could be an auction of these debts, but these debts may be worth nothing at all.
Political questions
Question: Why do economists advise governments to spend money when the economy is not doing well?
Answer: The current system of fractional reserve banking money with interest charges needs increasingly more debt to to operate. When consumers and businesses do not go into debt because they are reluctant to do so, government should do this, because otherwise the fractional reserve money system would collapse.
Question: Why did the government encourage strong growing debts of consumers and businesses?
Answer: Growing government deficits were seen as economic weakness which could undermine confidence in the currency. Therefore governments encouraged that more and more debts were incurred by consumers and businesses. As a result, the government managed to show relatively low deficits. This situation exists in many countries having a housing bubble, including the Netherlands. The United States was the main benefactor of the current monetary system because the dollar was the reserve currency, and it was the United States which had the greatest motivation for continuing this system as long as possible.
Question: Why did economists not see this coming?
Answer: There have been economists, who have seen it coming, but most economists did not expect this to happen. Economics does not take into account that a human is a social being which is very essential for understanding humans. Economics is therefore a complex pseudo-science, with all kinds of irrational assumptions, the most important of which is: the existence of the homo economicus (economical thinking human). On the existence of the homo economicus much of economic theory is based. The homo economicus does not exist, and a lot of economic theory is dubious at best, but actually politically motivated. As economists are mostly paid for by special interests, they rarely manage to have an independent view.
Question: Is a tax on money not a tax on the rich?
Answer: The tax on money is no tax on capital. Stocks, real estate and money lent are not subject to this tax. This tax is aimed at keeping the money in circulation, so the economy will not falter. Its purpose is not to redistribute income.
Question: Is inflation not a money tax?
Answer: Inflation is not the same as a tax on money in the natural money system. Inflation is generally caused by the increase of money supply. The increase in money supply in the current system is needed to keep the economy going, because the debt also continues to grow and interest thereon should be paid. In a natural money system, the money supply does not grow, and there is no inflation.
Question: Why do religions condemn usury, which is the charging of interest on money?
Answer: The Bible states clearly that interest charges on money are forbidden. The Jews wrote this rule down in the Old Testament. This rule is the basis for Christianity and Islam condemning the charging of interest on money. There are people who think this was a message from God, but there is a more profane explanation. The Jews were living with the Egyptians for centuries and were familiar with the corn receipt money. If the money worked very well to the advantage of the Egyptians, the Jews may well have thought this to be the best money system possible.
Question: What is the relationship between interest charges and war?
Answer: Interest charges can cause war. When an economy collapses, because debt and interest can no longer be paid, the following scenarios can unfold:
1. A war can be started to obtain access to new markets so the economy can grow to sustain more debt and interest payments.
2. It is possible that a war will be started to ensure that the collapse of the money system will be attributed to the war, and not to the banking system and interest payments.
3. It is possible that a war is started to obtain a higher inflation which eleminates debt and generates new economic activities.
4. A chain reaction of bankruptcies may emerge as the economy goes into a depression. Many people will then be dissatisfied. It is possible that the leaders of a country may look for an enemy to start a war to draw away the attention of the public from the economic problems.
You may copy this text without limit but please do not alter it. It is part of the public domain and may not be sold.
www.naturalmoney.org
Ron Haleber
11-10-08, 11:57
Kunj jij hier niet in het kort weergeven waar jouw oplossing om draait?
How banks create money out of thin air
When you go to the bank to close a loan, the money is made on the spot by closing the loan deal. In economic theory this is the money-creating function of the banking system. The extent to which banks create money out of thin air depends on the reserve ratio. When we start from a reserve ratio of 1:10, the practice is as follows:
1. To start with, a bank needs money that is created by the government in the form of banknotes or a balance at the central bank. When the bank owns € 1000 of this money, and the reserve ratio is 1:10, then the bank can create a € 10,000 loan, even though that money did not exist.
2. A person who borrowed money, can use it for a payment. The recipient of the payment may bring the € 10,000 to his own bank. Since this money has not been created by the government, the bank of the receiver, using a reserve ratio 1:10 may only use 90 percent of the money for a new loan. On the basis of the € 10,000 that is in the bank's account, a new bank loan of € 9,000 can be made.
3. The € 9,000 can be spent by the person who has borrowed it, and the recipient of that money may bring it to his own bank. This bank can create a new loan of € 8100 on the basis of the € 9,000. This process can be repeated endlessly, until the original € 1000 of the government has been used by the banks has been to create approximately € 100,000 out of thin air.
At the moment, reserve ratios of banks are even lower than 1:10, so that banks can create even more money out of thin air with € 1000 of government issued money.
Ik heb nog niet alles gelezen, maar ik dacht in het andere topic dit eindelijk te hebben begrepen, staat het hier weer anders uitgelegd. Het gaat mij om stap 1. Die ratio van 1:10 is toch het gevolg van dat fractioneel bankieren? Dat houdt dus in dat stap 1 nooit plaats vindt, en dat het pas vanaf stap 2 klopt. Met als gevolg dat van 1000 euro er uiteindelijk 10000 in omloop komt.
Question: Why is it that the economy collapses, if debt is not increasing?
Answer: This is because nearly all the money in circulation has been created by banks with the intent to charge interest. If no new debt is added, the money supply will decrease by interest payments, even though the existing debt is not repaid. For example: When a bank money supply of € 1,000,000 is in circulation, and nobody pays of debts and nobody adds new debts, and the interest rate is 10%, there is only € 900,000 in circulation after a year. Another year later, only € 800,000 is in circulation. After 10 years there is still a debt of € 1,000,000, but the money supply is 0. Not all the money will eventually disappear from circulation, because not everybody can repay his debts, because many people and businesses will already have gone bankrupt. Of course in reality the bank has costs, pays interest to depositors and pays dividends, but even then, when no new debts are added, the money supply will decrease.
Er zijn meer punten waar ik het niet kan volgen, maar om te beginnen met deze. De rente betaald aan een bank, in dit voorbeeld 10%, gaat toch niet uit de circulatie? Al dat geld gaat direct weer terug de economie in. Rente is niets meer de dan een vergoeding voor een service. Een bank moet betalen voor personeel, huisvesting, belasting, energie, telecom, reclame, transport etc etc. Met andere woorden, die rente blijft gewoon in circulatie, en gaat weer terug naar de bedrijven die het geld lenen, doormiddel van de services die zij aanbieden aan de bank (al dan niet via een omweg).
ls bv de Rotshilds of zijn andere elitebendevriendjes dat geld niet in de economie stoppen,de motor gaat vastlopen.
Vooral als men niet eens meer zijn schulden kan aflossen.
Hun doel is dus het hele zooitje overnemen.
Voor een prikje zometeen.
Beste Tamso,
Kan jij bovenstaande feitelijk onderbouwen?
Ik vond het teveel om allemaal te lezen. Maar ik zag ergens 'regels' staan. Regels zijn er om te overtreden, zo zijn mensen en daar komt gelazer van.
Ik zie niet in waarom 'natural money' (ik begrijp het concept al niet) tot volledige werkgelegenheid zou moeten leiden. In het westen begon de grote werkloosheid met het verplaatsen van industriële, en andere activiteiten naar lage lonenlanden. Dat zou je dan moeten verbieden dus.
Ik zie trouwens ook niet in wat er mis is met het huidige systeem. De regels waren te slap, en de controle erop ook. Ietsje aantrekken en het risico wordt al minder.
De zwakte van elk systeem is dat het door mensen moet worden uitgevoerd. Die maken fouten, en proberen zichzelf te verrijken ten koste van anderen en in overtreding van de regels. Wat er nu gebeurde was dat mensen onverantwoorde dingen deden en dachten: na mij de zondvloed. Zoals die ex-baas van de ING gisteren zei: er waren bankdirecteuren die wisten dat het volledige fout was wat de bank verkocht, maar het personeel zei: je kan / mag ons niet onze bonussen afpakken die we verdienen met het verkopen van onverantwoorde producten. In Angelsaksische landen zwichtten directeuren daarvoor.
En wat hij ook zei: elk verstandig mens vraagt zich af hoe de ene bank meer rente kan geven dan de andere. Dat is echt niet omdat ze meer winst met hun klanten willen delen. Meer rente = meer risico, zo werkt de markt. Die subprimers konden zelf ook wel weten welk risico ze namen. Een lening heeft 2 componenten: de hoogte van de rente, en de periode waarvoor die rente vastligt. In een subprimer is dat 1 jaar, of nog minder. Vandaar de lage rente, vandaar het hoge risico. Dat kan een kind bedenken. Eigen schuld dikke bult.
Frankrijk heeft nauwelijks last van dit gedoe omdat de controle beter is en Fransen minder geneigd zijn op krediet te leven. Tis een kwestie van mentaliteit, verder niks.
Frankrijk heeft nauwelijks last van dit gedoe omdat de controle beter is en Fransen minder geneigd zijn op krediet te leven. Tis een kwestie van mentaliteit, verder niks.
Een economisch systeem dat sparen bevordert. Het helpt allemaal niet wanneer je regering honderden miljarden leent van japan en china en oorlogen begint op basis van leugens, dat geeft het verkeerde voorbeeld.
De fundamentele oorzaak van alle financiële instabiliteit is de rente. Silvio Gesell heeft een monetair systeem beschreven dat ook al in gebruik was bij de Egyptenaren in de tijd dat de piramides werden gebouwd. Bernaerd Litaer heeft beschreven in zijn boek "Het geld van de toekomst" dat dit geldsysteem de onvermijdelijke opvolger is van het huidige.
Ik heb jarenlang onderzoek gedaan en heb mijn conclusies zo beknopt mogelijk opgeschreven. Dit nieuwe systeem zal leiden tot maximale welvaart en maximale stabiliteit. Tevens is het vrijwel onmogelijk om de komst van de nieuwe systeem te stoppen.
Het is wel in het Engels (hopelijk heb ik nog tijd voor een NL vertaling).
De complete tekst volgt hierna, maar staat ook op www.naturalmoney.org.
Ik las je discussie op mises.org. Volgens mij is de oplossing vrij simpel, schaf fractioneel bankieren af. Geef de centrale banken in tijden van crisis en enorme groei de ruimte om nieuw geld uit te geven maar laat dit niet over aan de banken. Zo'n besluit moet echter wel genomen worden door elk land. Als een land, een groot land, een ander economisch spel speelt dan kan dat land de andere landen met zich meeslepen.
Ik las je discussie op mises.org. Volgens mij is de oplossing vrij simpel, schaf fractioneel bankieren af. Geef de centrale banken in tijden van crisis en enorme groei de ruimte om nieuw geld uit te geven maar laat dit niet over aan de banken. Zo'n besluit moet echter wel genomen worden door elk land. Als een land, een groot land, een ander economisch spel speelt dan kan dat land de andere landen met zich meeslepen.
Een Centrale Bank is dan een enorme machtsconcentratie. Een soort Sovjetunie dus.
Een Centrale Bank is dan een enorme machtsconcentratie. Een soort Sovjetunie dus.
Dat zijn ze nu in het kwadraat.
Alternatief is het toestaan van concurrerende munten. Dan kunnen mensen hun risico spreiden.
Marsipulami
13-10-08, 12:26
Pleidooi voor islamitische economie
DOHA (RKnieuws.net) - Youssef Al-Qaradaoui, een invloedrijke theoloog uit Qatar, heeft zondag de moslims opgeroepen om te profiteren van de internationale financiële crisis om een economisch systeem uit te bouwen gebaseerd op de voorschriften van de islam.
’Alle rijkdom is de onze. Alle petroleum komt nagenoeg uit islamitische landen en wij hebben een economische filosofie die niemand heeft’, aldus de theoloog. (tb)
Alle petroleum komt nagenoeg uit islamitische landen
Misschien moest ie toch es wat lezen. Petroleum vindt overigens niet zoveel aftrek meer in de wereld. Ik heb nog een lamp die erop loopt.
Op dit moment is 62% van de bewezen oliereserves in het MO te vinden, maar dat produceert maar 32% van de wereldproductie. Afgezien daarvan wordt er elke dag overal olie gevonden, laatstelijk op de Noordpool. Etc. etc.
Theologen kunnen zich echt beter bij hun leest houden.
Theologen kunnen zich echt beter bij hun leest houden.
Of een vak gaan leren.
Of een vak gaan leren.
Dat hadden ze daarvoor ws. al geprobeerd.
Marsipulami
14-10-08, 02:53
Khamenei: "Kredietcrisis einde Amerikaanse hegemonie"
De Iraanse ayatollah Khamenei ziet de val van het westerse kapitalisme.
De financiële crisis in het Westen betekent het einde van de Amerikaanse dominantie in de wereldeconomie. Dat heeft de Iraanse ayatollah Ali Khamenei gezegd. "De valse luchtbel van geld in het Westen is gebroken", zei Khamenei op de staatstelevisie. De ineenstorting betekent de val van het westerse kapitalisme, vervolgde hij.
Iraanse beurs stabiel
Ondanks de verwoestende verliezen die op westerse aandelenbeurzen werden geleden, bleef de Iraanse beurs, voornamelijk door de isolatie van de Iraanse financiële markt, grotendeels stabiel. Het land maakt zich echter wel zorgen over de dalende olieprijzen, de grootste bron van inkomsten voor Iran.
Macht
Khamenei heeft het laatste woord over alle staatszaken in Iran en is daarmee in feite de machtigste man in het land. (novum/kh)
14/10/08 01u25
Rentevrije economie is m.i. superieur, als je het maar op de juiste wijze aanpakt. Dit is de best bekende methode (in praktijk bewezen)...
Iedereen vrij en rijk in 12 stappen
1. Rente op geld moet worden verboden. Dit is het enige verbod. Rendement op kapitaal is een goede zaak, en moet niet worden afgeschaft.
2. Hef een belasting op geld van bijvoorbeeld één procent per maand. Dit is geen belasting op vermogen, dus aandelen, vastgoed en uitgeleend geld vallen daar niet onder.
3. Druk geen geld bij, zodat er ook geen inflatie is.
4. Omdat er een belasting is op geld, zullen mensen het geld snel gebruiken om:
- te investeren;
- te consumeren;
- uit te lenen zonder rente.
5. Omdat over het uitgeleende geld geen rente mag worden gevraagd:
- zal het niet worden uitgeleend aan onbetrouwbare individuen, bedrijven en constructies.
- zal minder geld worden uitgeleend en vooral direct worden geïnvesteerd in aandelen en vastgoed.
- zullen alleen betrouwbare mensen, mensen met een onderpand en goed gefinancierde bedrijven kunnen lenen zonder rente.
6. Daarom zal er nooit meer een economische crisis zijn, want geld wordt direct uitgegeven en er zijn geen slechte leningen.
7. Omdat alle geld gelijk wordt gebruikt voor investeringen of consumptie, is iedereen aan het werk en groeit de economie constant op maximale snelheid.
8. De financiële sector is dan grotendeels overbodig, en dat is gunstig, want deze sector produceert niets en destabiliseert de economie. De mensen hier werkten, krijgen snel ander werk, want de economie groeit constant op maximale snelheid.
9. Ook hoeft de overheid zich veel minder te bemoeien met de economie. De mensen die dit werk deden, krijgen ook snel ander werk.
10. Omdat de economie constant groeit op maximale snelheid, en omdat er niet meer geld bij gedrukt wordt, zullen de prijzen dalen. Daarom zullen leningen met nul procent rente toch een rendement opleveren dat waarschijnlijk hoger is dan de rente die je nu op de bank krijgt. Immers: met hetzelfde geld kun je aan het einde van de looptijd van de lening, meer kopen.
11. Als één land dit doet, zal dit land het kapitaal uit andere landen wegzuigen omdat het rendement van leningen met nul procent rente hoger is dan het rendement van de rente in de andere landen (bizar, maar waar!). Daarom zullen alle landen dit moeten doen, zodra één land ermee is begonnen.
12. Nu is iedereen vrij. Er is altijd werk voor de arbeiders en er zijn altijd klanten voor de bedrijven. Niemand heeft schulden.
Wie denkt dat dit flauwekul is, heeft ongelijk. Het is al uitgeprobeerd en het werkte.
Zie: http://www.newciv.org/nl/newslog.php/_v105/__show_article/_a000105-000002.htm
Dit is waar de bankiers bang voor zijn. Dit hebben ze nooit durven vertellen. Deze beweringen zijn gebaseerd op de theorie van Silvio Gesell. De beroemde econoom Keynes zei dat de ideeën van Gesell langer herinnerd zullen worden dan die van Marx.
www.naturalmoney.org
Money of the natural economic order
Author: Bart klein Ikink
Problems in the current money system
Do you ask yourself
What money exactly is?
Why experts are so afraid of a major economic depression caused by the banks going bankrupt?
Why businesses, consumers and governments are so deeply in debt, in spite of all our prosperity?
Why, despite all our prosperity, our social problems remain difficult to solve?
Why the rich become richer and the poor become poorer in the developed economies?
Why in the emerging economies it is possible that the poor get richer?
Saving money in the bank does not pay because the inflation is higher than the interest rate?
Why the government is increasingly intervening in markets, while this is not really a good idea?
Why capitalism seems to fail, even though it has brought us so much prosperity?
Why so many people earn their money in activities that serve no purpose, and some even become very rich?
Is there an alternative?
The economic problems we face now, again lead to a discussion of capitalism versus socialism. We have seen that both economic systems have their limitations. Supporters of capitalism will argue that the problems we have, are caused by government intervention in the market. Proponents of socialism will argue that the problems we have, are caused by too little regulation of the market. Both arguments seem reasonable but they conflict. My conclusion is therefore that this is a false debate, and that the real cause lies somewhere else.
In this short text I will try to show that the real cause lies in the nature of our money system. Then I briefly try to explain that another money system is possible, and that it will work far more efficient than the current money system.
To get an understanding of the issue, you can view the documentary "Money as Debt" on our current money system, before continuing to read. This documentary lasts 45 minutes and is viewable via the link below:
Link: Video "Money as Debt"
Money As Debt
You'll be surprised how the system works, and also how utterly ridiculous it is. The documentary can be understood using only common sense. You do not need to know economic theory, which often is not common sense.
Banks create money out of thin air when someone takes out a loan. Banks demand interest on money that did not exist. This interest will, after deducting costs and dividends, be added to the equity of the bank, on which the bank can make new loans, which makes debt grow even further.
How the current money system works
Almost all the money in circulation is created by bank loans. Characteristics of the current money are:
1. Banks create money out of thin air by making a loan. At the moment someone loans money, the money comes into existence.
2. Banks demand interest on the money they lend.
3. All the money in circulation should raise interest for the banks. Because there is not enough money in circulation to pay for the interest, not everybody can fulfill his or her obligations, unless new debts are created.
4. As a result, debts grow exponentially and so do the interest payments.
5. If the economy is growing slowly, serious problems arise. As the Western economies are in the mature phase, economic growth is therefore relatively low, and the problem starts becoming acute. Therefore, it is also true that in emerging economies, this problem has not yet come into play.
How banks create money out of thin air
When you go to the bank to close a loan, the money is made on the spot by closing the loan deal. In economic theory this is the money-creating function of the banking system. The extent to which banks create money out of thin air depends on the reserve ratio. When we start from a reserve ratio of 1:10, the practice is as follows:
1. To start with, a bank needs money that is created by the government in the form of banknotes or a balance at the central bank. When the bank owns € 1000 of this money, and the reserve ratio is 1:10, then the bank can create a € 10,000 loan, even though that money did not exist.
2. A person who borrowed money, can use it for a payment. The recipient of the payment may bring the € 10,000 to his own bank. Since this money has not been created by the government, the bank of the receiver, using a reserve ratio 1:10 may only use 90 percent of the money for a new loan. On the basis of the € 10,000 that is in the bank's account, a new bank loan of € 9,000 can be made.
3. The € 9,000 can be spent by the person who has borrowed it, and the recipient of that money may bring it to his own bank. This bank can create a new loan of € 8100 on the basis of the € 9,000. This process can be repeated endlessly, until the original € 1000 of the government has been used by the banks has been to create approximately € 100,000 out of thin air.
At the moment, reserve ratios of banks are even lower than 1:10, so that banks can create even more money out of thin air with € 1000 of government issued money.
Correction mechanisms in the current money system
Within the current money system, the following correction mechanisms exist:
1. When the economy is slowing, the deficits of governments increase. Because consumers and businesses are reluctant to take on more debt, governments have to do it, because otherwise the economy would be slowing further.
2. When the economy is slow, central banks lower interest rates for consumers and businesses to encourage them to add more debt. If the economy goes well, new debt is created in a faster pace, and central banks raise interest rates to curb debt growth, because otherwise money supply is growing fast, which results in higher inflation.
3. Authorities are trying to regulate the banking system by imposing requirements for equity in relation to outstanding loans and savings. Over the years, these requirements were increasingly stretched, because more debt was needed to keep the financial system functioning.
4. When despite these measures, the financial system fails, government money can be created by running the printing presses, using the following procedure, to mask the real nature of the activity:
- Governments spend money or buy bad loans so government debt is increasing.
- This debt is purchased by banks. If the government buys up bad loans, banks exchange the bad loans for government debt.
- The central bank prints government money and acquires the government debt from the banks. The central bank now holds the government debt and collects interest on the government debt. If the central bank is an agency of the government, this is printing money outright, because government is indebted to itself, so the debt does not really exist. If the central bank is a private enterprise, as is the case in the United States, interest on goverment debt is a tax on the public to benefit of the banks owning the central bank.
- The banks now have more government money on their balance sheets, so using the same reserve ratio, they can lend more money.
The foreign countries are disregarded in this explanation. This would make it far more complicated. The matter is difficult to understand even when ignoring foreign countries.
Problems with free markets in the current money system
If the government did not interfere with the economy and interest rates, markets will correct, but in a rude way with businesses and banks going bankrupt, economic recessions and even economic depressions. In this process, much useful capital is destroyed which could be productive if there was demand. The destruction of capital also results in a destruction of wealth. Since we live a democratic society, this will not be accepted and such issues will automatically lead to a strong call for government intervention and regulation.
Problems with government intervention in the current money system
Government interventions reduce the severity of economic recessions and economic depressions in the short term, but create an ever bigger problem long term, namely increasing debt on which interest must be paid. When this issue was raised, the famous economist Keynes, who was a strong supporter of government intervention, responded: "In the long run we are all dead." In other words, it would not be the problem of his generation. Now we entered a vicious circle of ever larger problems, which require more and more government intervention.
The money system promotes senseless economic activities
The financial sector is a significant portion of our economy. The share of the financial sector in the economy has increased strongly in recent decades. Although the financial sector produces nothing, it is one of the major sectors of the economy. This is because the financial issues regarding interest, create all sorts of complications. Many people are making a living from dealing with those complications.
Because of interest payments and all kinds of unproductive activities that are the result of interest charges, the living standard of many of people in the western world is decreasing. Many companies get into trouble due to financing structures, and have to lay off people. These companies would be viable, when conservatively financed.
Interest rate products, known as derivatives, are called financial weapons of mass destruction by the world famous investor Warren Buffet. If he makes this kind of statement, you can assume that the situation is extremely serious.
To deal with the effects of interest, there are officials who deal with the unemployment of people in times of economic adversity, people trying to manage the economy, subsidizing sustainable investment and curbing unsustainable activities that damage the environment or society.
When less useless activities would take place in the economy, the labour force could be directed to useful production and services and solving problems in society.
The current money system causes many problems
It is clear that the current money system causes many problems because of interest, and that solutions are difficult to find. The cause of economic problems lies in the nature of money. When more and more new debt needed to pay interest on debts, it is clear that the problem is growing out of control.
To solve this problem we should create a new form of money, which automatically arranges the economy in a sustainable way, needing less control of the government. Moreover, much less energy must be put into economic activities related to money. These activities are of no use and are harmful to the economy and society
The money of the natural economic order
A stunning example
In the past, money systems without interest on a small scale existed in various forms, with varying success. They still exist today. The success of natural money will depend heavily on the rules of the system. The most stunning success story is the Wörgl currency.
On July 5th 1932, in the middle of the Great Depression, the Austrian town of Wörgl made economic history by introducing a remarkable complimentary currency. Wörgl was in trouble, and was prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job, and 200 families were penniless. The mayor, Michael Unterguggenberger, had a long list of projects he wanted to accomplish, but there was hardly any money with which to carry them out. These included repaving the roads, streetlighting, extending water distribution across the whole town, and planting trees along the streets.
Rather than spending the 40,000 Austrian schillings in the town’s coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a type of complimentary currency known as 'stamp scrip'. This requires a monthly stamp to be stuck on all the circulating notes for them to remain valid, and in Wörgl, the stamp amounted 1% of the each note’s value. The money raised was used to run a soup kitchen that fed 220 families.
Because nobody wanted to pay what was effectively a hoarding fee, everyone receiving the notes would spend them as fast as possible. The 40,000 schilling deposit allowed anyone to exchange scrip for 98 per cent of its value in schillings. This offer was rarely taken up though.
Of all the business in town, only the railway station and the post office refused to accept the local money. When people ran out of spending ideas, they would pay their taxes early using scrip, resulting in a huge increase in town revenues. Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump, and a bridge. The people also used scrip to replant forests, in anticipation of the future cashflow they would receive from the trees.
The key to its success was the fast circulation of scrip within the local economy, 14 times higher than the schilling. This in turn increased trade, creating extra employment. At the time of the project, Wörgl was the only Austrian town to achieve full employment.
Six neighbouring villages copied the system successfully. The French Prime Minister, Eduoard Dalladier, made a special visit to see the 'miracle of Wörgl'. In January 1933, the project was replicated in the neighbouring city of Kirchbuhl, and in June 1933, Unterguggenburger addressed a meeting with representatives from 170 different towns and villages. Two hundred Austrian townships were interested in adopting the idea.
At this point, the central bank panicked, and decided to assert its monopoly rights by banning complimentary currencies. The people unsuccessfully sued the bank, and later lost in the Austrian Supreme Court. It then became a criminal offence to issue 'emergency currency'.
Unterguggenberger was opposed to both communism and fascism, championing instead what he referred to as 'economic freedom'. Therefore, it was deeply ironic that the Wörgl experiment was first branded 'craziness' by the monetary authorities, then a communist idea, and some years later as a fascist one.
The town went back to 30% unemployment. In 1934, social unrest exploded across Austria. In 1938, when Hitler annexed Austria, he was welcomed by many people as their economic and political saviour.
The 1920's had already seen a scrip currency called the 'wara' in the German town of Schwanenkirchen. This saved the town's economy and kept a coal mine operating. It started circulating more widely, and became part of a movement called 'Freiwirtschaft' (Free Economy), based on the ideas of the economist Silvio Gesell.
Central to Gesell's ideas was the use of a hoarding fee of the kind used in Wörgl (technically known as 'demurrage'). The soundness of such an idea was affirmed by John Maynard Keynes in his 1936 work 'General Theory of Employment, Interest and Money'.
The success of the Wörgl currency inspired the well know American economist Irving Fischer to write an article which was published nationwide. Many towns copied the idea. The Americans however used a far higher tax rate (2% a week instead of 1% a month) which undermined the confidence in the stamp scrip currencies. President Roosevelt abandoned the idea completely in the New Deal. It is therefore very important to do this the right way, otherwise it will not be a success.
Perhaps the most groundbreaking feature of demurrage is that it is intrinsically anti-inflationary. Whereas conventional currencies are progressively devalued by interest, anti-inflationary money steadily increases in value. As each monthly stamp is added, the value of the note effectively increases by the stamp amount. This is technically equivalent to a negative interest rate.
The present short-term focus of investments, and the consequent lack of long-term vision are exacerbated by interest-driven currency devaluation that, from a profit perspective, reduces the appeal of longer-timescale projects. The use of a demurrage currency gives an edge to those working for sustainability, because a rate of return is achieved simply by lending out money. When money is repaid (remember these are non-interest currencies), it will have increased in value owing to the money saved by having avoided paying the monthly demurrage fees. This has the potential to enable investment in highly benefical but economically marginal activities such as earth repair.
A recommended book that covers scrip currencies and more fully explains this 'negative interest' principle is Bernard Lietaer's 'The Future of Money' (see Resources).
In case the ending of the Wörgl story was disempowering, I'd like to add that the number of complimentary currencies around the world is undergoing an exponential growth. As of 2000, there were more than 2,500 in operation, and I expect that the number is still fast-growing.
Characteristics of the money of the natural economic order
Silvio Gesell is the founder of the theory on the money of the natural order. The naturalness of this money, lies in the fact that it is taking into account human nature. Greed is on the one hand, a motivator for people to perform, but on the other hand it is a force that can lead to deception, destruction of nature, society and economy. The economy should work in a way that these matters are resolved, while achieving a desirable result for individuals, society and nature. The current theory in this document has been derived from the work of Gesell and improved during extensive discussions with many individuals on internet message boards.
Money from the natural order has the following characteristics:
1. The money supply is not growing or decreasing without deliberate action. There is no money creating activity by financial institutions. The value of the money is also constant. Apart from fluctuations in available goods and services, there is basically no inflation or deflation. The money supply can only be changed by the government issuing the money. There is however, no strong incentive to increase money supply, as will be shown further on in this text.
2. Natural money is not a form of debt, but a medium of exchange which may be covered by a basket of goods and services.
3. Money may only be lent without charging interest. Charging of interest in any form is prohibited.
4. A tax is levied by the government on the money in circulation. This is a tax on money, and this money comes back into circulation by government expenditures.
The valuation of the natural money unit
The valuation of the natural money unit is one of the most important topics. The money supply should be based on a rule that does not change. But you can never trust the government. So when you lend your money for any period of time, the same value should be paid back.
Examples of money supply rules are:
1. Money supply is constant at all times.
2. Money supply is growing or shrinking with population.
3. Money supply is growing or shrinking with coverage (for example: stored food supplies).
Keeping money supply constant at all times is the most simple rule, and therefore probably the best. Never will there be any debate about what money supply should be, and how much it should grow. Debating this is a waste of time because the ecomomy will do well when the money supply is constant. Because there will probably be deflation in a natural money economy, it is probably also better not to cover the money supply with gold or any other commodity. Doing this will force the price of gold or the used commodities in an upward trend, creating an excess reserve of gold or the used commodities.
The guarantee of value is essential in a money system without interest. That means that when lending money, additional provisions must be made that guarantee the value of the loan. The loan can be valued in the following ways:
1. As a part of the money supply (for example: 0,00000001% of money supply). Because money supply is known to the public, this could easily be calculated.
2. As a basket of goods and services. This will cover the loan in the case the money system changes. The basket of goods and services should be paid in cash when the loan matures. These baskets should include a wide range of goods and services, in order to prevent price fluctuations of individual goods and services or manipulations of prices of individual goods and services, from affecting the value of the loan.
The value of the money unit should not be expressed in a traditional money unit, such as the Euro or the Dollar. The exchange rate should be determined by markets alone.
A natural money with money taxation stabilizes the economy
In a natural money system without interest with money tax, money is not created by financial institutions. The government levies a tax on the money and returns this money into circulation in the form of government spending. Any form of cash, both in accounts and in the form of bank notes, is subject to the tax. All loans that exist are created with existing money that is lent. Even though the money may not be lent at an interest rate, people will still be inclined to lend money, because there is a tax on money and the money keeps its value. This means:
1. There is always money available to be borrowed by creditworthy companies and people. Because no interest may be charged, there is no reward for taking the risk that the loan will not be repaid. There will be no unwise lending and borrowing that may destablize the economy.
2. Should the economy weaken, which is unlikely because no money is withdrawn from circulation by interest payments, the economy may be fueled by raising the money tax. After all, people will be more likely to spend their money. With natural money, higher money taxes are an incentive for the economy. This means that when a government is faced with rising deficits because of a weakening economy, increasing the tax on money reduces the deficit while energizing the economy. This shows that there is no strong incentive for the government to increase money supply.
3. People who are unable to pay back a loan, will not get a loan. Ultimately, this is in their own interest, and in the interest of society. No one benefits from large groups of people that are so deeply in debt that they can never recover.
The optimal tax rate is around 1% a month. Lower tax rates may slow the economy and higher tax rates will undermine the confidence in the currency.
Natural money promotes sustainable investment choices
When interest on money is charged, money in the future is worth less than money now. This has a major impact on investment choices. Interest promotes investments that are unsustainable and wasteful. If no interest was charged, sustainable investments would be more attractive.
For example: you want to build a house and you have the choice between a house of € 100,000 with a yearly energy cost of € 5,000 or a house of € 200,000 with a yearly energy of € 2,000. When the interest rate is 10 percent, the cost for a cheap house with high energy consumption is as follows: € 10,000 plus interest € 5,000 energy is € 15,000 per year. The expensive house with low energy costs: € 20,000 interest plus € 2,000 energy is € 22,000 per year. If you do not have to pay interest, the expensive house with low energy cost will be cheaper.
Employment
Natural money should lead to full employment. Because money is circulating in the economy constantly, everybody who is ready, able and willing to work, will get a job. If there is unemployment, it is not because of a recession or a depression. Therefore the price of labour would fall until full employment has been reached again. This is much easier to do because expectations about future business and employment are far more constant, so less employers and employees will have to change their expectations.
A stable economy needs less intervention
When the economy is stable, capital is not destroyed by lack of demand for products and services that are useful. Also, everybody is fully employed, eleminating the need for government assistance of people without income. Moreover, if sustainable investment choices are rational economic decisions, the government does not need to encourage them. Wealth is steadily increasing using the maximum potential. Therefore, government does not need to interfere with the economy.
The role of the banks with natural money
With natural money, banks continue to exist. Banks will have to comply to the following rules:
1. Banks may not invest for their own profit and risk money that has been entrusted to them. They may only lend money without charging interest.
2. You can hold your money in the bank in the form of a current account, on which the government tax is levied. You will hold the money you need in the short term in this type of account.
3. You can hold money in the bank in the form of deposits or savings accounts. The bank lends this money without charging interest. Holding such deposits or savings accounts may be attractive because you can avoid the money tax in this way, and the value of the money is not eroded by inflation. It is likely that you pay a fee to the bank for intermediation costs. Banks may offer different types of savings accounts. The most restrictive accounts do have the lowest fees and offer the highest degree of tax avoidance.
4. The bank may only charge intermediation costs to the saver and not to the borrower, since the bank may be enticed by high fees to take on risky loans. This is a very essential feature of natural money.
5. You can participate in the stock market through mutual funds or you can buy stocks. This is an attractive alternative. Since there are less strong economic cycles, and companies are conservatively financed, a diversified portfolio of shares is much less risky than in the current money system. People will invest in shares far more often.
Systems theory perspective
Try to imagine that the economy is a system, just like the human body. All parts of the system need each other to operate properly. Try to imagine that money flowing in the economy is like blood flowing in the body. In this case it would not make sense that a kidney is saying to the liver: This is my blood, you may borrow it with interest. It also does not make sense for parts of the body to hoard blood because there might be no blood flowing in the future. Strangely enough, economists think this makes sense.
Systems theory conflicts with economics. Charging interest makes sense to economists, but interest presses the weakest spots in the economy the hardest. This is because the weakest borrowers have to pay the highest interest rates. If engineers build planes like that, they would fall from the sky. Therefore according to systems theory, the economy could be far more efficient when the weakest spots are not pressed, capital would only be built and not be destroyed, recessions and depressions did not exist and full employment is a constant state of the economy.
The fundamental soundness of natural money
A goverment issuing natural money might be tempted to issue additional currency. But this is not a rational thing to do. First of all, tax income should increase because there is no inflation and money is circulating faster. So there is no rational reason to destroy the system that is bringing wealth. It simply does not make sense. Should the economy slow, and tax income diminish, which probably will not happen, the economy can be revitalised by raising the money tax. This has the same effect as issuing additional currency. Furthermore, if loans are guaranteed as a percentage of money supply, nobody can be harmed. Therefore, from a logical point of view, natural money is the most fundamentally sound money that can exist in the real world.
If the money supply does not increase or provisions are made to guarantee the value of the loan, the growing wealth will lower the prices of goods and services and therefore the value of the loan will increase in real terms. This is an interest on capital, based on the growth of wealth of the society as a whole. It is therefore highly probable that you get a positive return out of lending money without interest. Because the natural economy will be stronger than a traditional economy with interest on money, the return on money lent will probably be higher in a natural economy without interest than in a traditional economy using interest on money. If traditional economies must compete with natural money economies for capital, they do not stand a chance as soon as the positive return on zero interest is discovered.
Natural Money in history
Using the concept of natural money, I will try to explain some historic facts, which puzzled historians for a long time. Some intriguing historic questions are:
1. How could Western Europe become so powerful during the middle ages? They were backwards at the beginning, annihilated by Black Death, and still came out on top.
2. How could the Egyptians build pyramids? This required a great wealth and a great organisation.
3. Why did Rome collapse? They had the greatest civilisation and military organisation at the time.
Although the explanation is speculative, and not proven, there is some logic in it.
The rise of Europe
When the Roman Empire collapsed, Europe fell back into a dark period, called the middle ages. Money ceased to exist, because gold and silver disappeared out of circulation. Europe was very fragmented and in general there was no central power structure. Local lords issued scrip currencies. Those currencies were valid for a limited period of time. After that period, the people holding the currency, had to return it to the ruler and a tax was levied. If you had 10 units, you got 9 new units in return. Those new units were also valid for a limited period of time. The actual value of the unit decreased slowly during the period and was the lowest just before the tax was due. People holding the currency, were inclined to spend it.
If we assume this was a kind of Wörgl situation, we may assume that Europe was building capital at maximum speed using full employment. Europe had to start at a very low level. Also, the local lords waged many wars that were destroying capital. But wealth steadily increased, faster than on any other part of the planet. When the crusades started, there was so much wealth to spend on a useless war, that Europeans could battle the Muslims for centuries on their own ground, keeping long supply lines, while the conquered land was not profitable. After that, Black Death annihilated about one third of the population, but only one century later, the exploration and exploitation of the rest of the world by Europe had begun.
The building of the pyramids
In the bible there is a story about a pharaoh having a bad dream about seven fat cows being eaten by seven lean cows. This dream was explained to the pharaoh. He was told seven good years would come and after that seven bad years would follow. Joseph advised the Egyptians to store food on a large scale. They built storehouses for food. Farmers bringing in the food, got receipts for corn. Bakers who wanted to make bread, brought in the receipts, which could be exchanged for corn. It did not take long before the receipts where generally accepted as money. Because of the degradation of the corn and mice eating it, the value of the receipts was steadily decreasing. This enticed people to spend the money fast.
The grain receipt system lasted for many centuries. It made sense to store food to provide for hard times. If we assume this was a kind of Wörgl situation, we can assume that also Egypt was building capital at maximum speed using full employment. At some point, irrigation systems were in place, houses were built, and there was nothing left to do. Because there was no limit on the ego of pharaohs, and they were worshipped like gods, the pharaohs could use this wealth to build pyramids. The people building the pyramids were probably no slaves but economically free men. The Egyptian civilisation lasted for more than 2000 years, far longer than any civilisation ever.
The fall of Rome
Rome lasted only 700 years. The money system was based on gold and silver. In the beginning Rome was able to expand, and therefore capital could grow faster than interest charges. But after 400 years the expansion was over, and slowly growing debt was becoming a drag on the economy. The government was permanently short of funds. The value of money was constantly devaluated. The military was also badly funded, and therefore other people could invade Roman lands. Debt was destroying Rome.
Limitations
Natural money without interest with money tax has a number of restrictions. These restrictions are acceptable when we realize that the charging of interest is very harmful for the economy, society and nature.
Some limitations of a natural money system are:
1. The power structures are trying to sustain the current system. Both governments and financial institutions benefit from the current money system. Therefore it may not be easy to reform the money system.
2. The number of funding options is decreasing. There is no compensation for the risk of loans not being repaid. Companies can raise capital by issuing shares or by borrowing money without interest. Only companies that are creditworthy, may qualify for loans. All other companies will need to attract capital by issuing shares until they are creditworthy enough to be able to borrow money without interest.
3. Businesses that need flexible financing, need to allocate capital in advance by issuing shares or borrowing money. This will introduce additional costs because the company has to pay taxes on money. This cost can be passed on to the customers because all companies in the same business should be in the same situation. Those companies may use liquidity pools or use banks to alleviate this problem, but this will not guarantee the availability of all the required capital when needed.
4. A natural money system without interest does a great appeal to the rationality of human beings. The drive for people to get rich without working is eternal. A purely rational man would never participate in a lottery or a pyramid game. Yet there are many people doing just that.
The greatest danger that always remains, as long as natural money will function, is that interest in some way will be reintroduced, possibly in a disguised way. People will wonder: Why does the borrower not have to pay compensation? Why should the owner of the money pay a fee and not the borrower? Political and business interests will try to use this feeling for their own purposes.
With natural money, you can never insure loans, which are promises to pay, because this introduces a moral hazard. The insurance fee is a form of interest. You can however insure collateral if it is not money in any form.
Various structured products will be invented and financial interests will try to influcence decision makers to allow such products. We must realize that any commission that a borrower pays, is interest. Interest can manifest itself in different forms. If there is no resolute legislation and enforcement, possibilities will be stretched and irresponsible risk taking will come back.
Will it work?
Natural money with money tax and no interest is an uncertain experiment when introduced on a large scale. It may have implications that are difficult to foresee. These consequences can be both favorable as unfavorable. In any case, this is an economic revolution the world has never seen before. Therefore this should be done with a great understanding of the plan, with great care, and also with no compromise whatsoever. When this money system is introduced in a time of crisis, and there is no time for a proper preparation, mistakes will probably be made, and the chance of success will greatly decrease. As a general rule, the tax rate should be around 1% a month.
From an engineering viewpoint, using systems theory, a natural money economy seems to be the most efficient market economy possible in the real world. If this is true, this has far reaching consequences. Societies implementing this system will not destroy capital but build capital constantly at maximum speed using full employment. Also those societies do not waste resources on financial activity or government intervention. Therefore those societies should be far more wealthy. As a result those societies become more powerful, and therefore natural money systems will replace all other money systems, maybe just because they are only natural. If this is true, banking interests will never succeed in preventing natural money from being introduced worldwide.
Natural money can be choosen by a group of people deliberately. It can be selected in an unconscious process, like in ancient Egypt. It can be enforced by a rulers, like in Europe in the middle ages. Natural money can be used on a small scale, a large scale, or even worldwide. Natural money can be used in a democracy but it can also be used in a totalitarian state. Natural money assumes only economic freedom but it does not assume political freedom. Even though government intervention in the economy is not needed, it does not require a specific size of government. The extra wealth created by natural money can flow to the citizens, but it can also flow to the state, which may use it for its own purposes. Therefore, natural money is not "good" or "bad" in itself, but only a very powerful concept.
A call to action
If you understand the message and you understand the situation we are in, you see that our society is in great danger. Bankers and governments may ward off collapse, but this comes with a staggering price tag of ever increasing inflation and moral hazard. This will in the end eat away the fabric of our society. Therefore the time for action is now. First of all, the knowledge must be spread. What to do next, is up to you.
Frequently asked questions
Questions about money supply and debt
Question: If the money supply is constant, will it be possible for the economy to grow?
Answer: The value that is created in the economy, is within certain limits not dependent on the money supply. If the economy is doing well, and the money supply does not change, prices may decline. However, a strong increase or decrease the money supply can be harmful to the economy. Because the calculation of inflation rates is subject to manipulation, it is questionable whether there was any economic growth in the mature economies in recent years. Only money supply can be objectively measured.
Question: Why is it that the economy collapses, if debt is not increasing?
Answer: This is because nearly all the money in circulation has been created by banks with the intent to charge interest. If no new debt is added, the money supply will decrease by interest payments, even though the existing debt is not repaid. For example: When a bank money supply of € 1,000,000 is in circulation, and nobody pays of debts and nobody adds new debts, and the interest rate is 10%, there is only € 900,000 in circulation after a year. Another year later, only € 800,000 is in circulation. After 10 years there is still a debt of € 1,000,000, but the money supply is 0. Not all the money will eventually disappear from circulation, because not everybody can repay his debts, because many people and businesses will already have gone bankrupt. Of course in reality the bank has costs, pays interest to depositors and pays dividends, but even then, when no new debts are added, the money supply will decrease.
Question: Is it not wise to proceed on the gold standard, to curb the growth of debt?
Answer: With gold or silver being money, the existence of interest on money cannot be avoided, because coins can be hoarded and stored. Therefore it is not possible to raise a money tax. At that moment there is no incentive to lend money without interest. If we return to the gold standard, and the system of banks charging interest still exists, the money system will evolve into a situation like we have now. People will not accept that banks go bankrupt and that there is a process of creative destruction with strong economic growth alternating with recessions and depressions. They will then ask for government intervention. The gold standard will therefore not lead to a natural order that is stable. Moreover, when the value of money is subject only the value gold, all sorts of manipulation are possible, like we see the gold market. Therefore it is wiser not to base the value of money on gold alone.
Question: Why is it that the problems in the financial system come to light right now?
Answer: If an economy is developing fast, the economy can grow faster than debt, and the leverage will make interest work positively for the development of wealth, because the extra growth above the interest adds to prosperity. That we see in emerging economies, but also in many European countries in middle of the last century. Once the economy turns into a mature phase, the economy is barely growing. Economic growth becomes a mere statistical fiction. The growing debt will eventually be a drag on the economy. In 1971 the link between gold and money, which over the years had become increasingly detached, was completely deserted. Financial innovations have since then created the possibilities for debt to grow further. This did not seem a problem until debts have become so large, that many people get into financial troubles, and therefore the financial system is at risk.
Question: The banks have lost thousands of billions of euros. Where has all the money gone?
Answer: A small part was paid in the form of profits and bonuses. The profits amounted to tens of billions, but hundreds perhaps thousands of billions of euros have been lost. Because almost all the money in circulation is covered by the balance sheets of banks, much of the money is in danger of annihilation. Economists and bankers call this a "liquidity problem".
Questions about money without interest charges
Question: May capital not earn interest?
Answer: It is only natural for capital to earn interest. Only on money interest should not be charged. Therefore, in a natural money system, money should not be capital.
Question: Is money without interest charges not just money for free?
Answer: The money we have now is money for free, since banks create money out of thin air. Moreover a loan you pay back later will have less value because of inflation. So if you are closing a mortgage with an interest rate of five percent, while the money supply grows at a rate of 15 percent, you actually get money for free when you borrow. Money without interest is not free money, especially if the money supply is constant. The current system penalizes savers if interest rates are low and penalizes borrowers if interest rates are high. Money without interest does not favor anybody.
Question: How does a money system without interest charges eleminate excessive risk taking?
Answer: This is done in the following ways:
1. Since there is no allowance for risk, money will only be lent money to creditworthy people and businesses.
2. Moreover, because there is no interest, interest payments do not erode the creditworthiness of companies and people.
Because the market solves many problems in this way, the government has a smaller task in managing the economy. Less people and companies do go bankrupt.
Question: Is a saver worse off without interest?
Answer: The interest rate the bank pays is usually lower than inflation, and almost always lower than the growth of the money supply. When the value of money is constant, and you will get the same amount of loan money back, you will be better off.
Question: Is a borrower worse off without interest?
Answer: If the interest rate on the loan is lower than inflation a borrower will be worse off without interest. This is usually only the case with mortgages but not with other types of loans.
Question: In Japan, interest rates have been zero percent for years. Is Japan an example of a natural money system?
Answer: Although the interest rate in Japan is very low, this is not a natural money system without interest using money tax. The money system in Japan is similar to the money system in the western world. About 20 years ago, the banking system in Japan had been inflated by increased credit growth. Since then interest rates dropped to around zero percent to prevent a collapse of the system by debt payments and interest charges.
Question: Do islamic countries have a natural money system?
Answer: While charging interest is forbidden in Islam, like it was the case in Christianity, this does not mean that the Islamic world has a natural money system.
Questions about banking in a natural money system
Question: Should the banks be nationalized?
Answer: Banks have a special function in society because they manage the money system. In any case, the banks must not be permited to use money entrusted to them for investing or taking risk. They must use these funds to make loans without interest. They must operate for their own risk, for which banks could get an allowance. A bank should therefore still be a private company.
Question: Are my savings still safe at the bank?
Answer: The economy will be more stable. Bankruptcies and bad debt are a rare phenomenon. When banks operate on behalf of depositors, this means that when certain loans cannot be fully repaid, the depositors loose a part of their money. When banks operate for their own account, the equity of the bank can absorb the losses.
Economic questions
Question: Should the government protect business and employment protection against competition from abroad?
Answer: Competition from abroad is not the cause of the financial crisis. Therefore, to counter competition from abroad is not the solution. Especially when all countries have natural money systems, inbalances of payments between countries are less prevalent. Countries will no longer lend to each other more than can be repaid.
Question: Does natural money make international trade more difficult?
Answer: It is more difficult to have deficits or surplusses on the current account for a longer period of time. When a country pays another country in natural money for goods or services, the other country is encouraged to lend out the money or use the money for investment or consumption in the issuing country. If this is not attractive, the other country may buy gold in the issuing country at market prices. This diminishes the gold reserve of the first country so the price of gold will rise in the first country. Therefore products of the first country become more attractive to other countries. This is the natural gold standard. If this is too cumbersome, which it probably is, countries can dispose of their surplus natural currencies using the foreign exchange markets.
Question: Is it not possible to abolish the money creating by banks, but allow the charging of interest?
Answer: In this case there is a closed-circuit of money, but there are two major disadvantages:
1. In times of economic crisis, people will take their money away from banks and start hoarding money. This will disrupt the economy even further. The citizens will then ask for government intervention, and the money system will gradually develop into the system as we have now.
2. Interest reinforces the contrast between rich and poor. The rich usually have money, while the poor need it. In that case, the poor must borrow at an interest rate. The poorest pay the highest interest rates. Because the supply of money is constant, they become even poorer money wise. If the economy is booming, and many new goods and services are supplied, and prices are falling faster than interest rates, the poor might get richer in terms of goods and services, but this is generally not the case. The result is that interest in overall, make the rich richer and the poor poorer. Social unrest is lurking.
Questions about the transition to a natural money system
Question: When will the transition to the new money system be possible?
Answer: Probably change will come when the problems are seriously enough, and enough people know what the actual cause of the situation is. The stakes are high. Banks will try to create a new system with interest charges.
Question: How should the transition to a new money system take place?
Answer: When a country or region as a whole would like to convert to a natural money system, it could be done as follows:
1. A positive money supply number must be calculated.
2. All balances should be converted into the new positive money supply. The current money supply may be smaller than the debts, so after scoring all positive and negative balances, a negative balance may remain. Many debts in the old system can never be repaid.
Question: How do debts in the old system convert into the new?
Answer: In principle, all debt denominated in fiat currency is not worth more than the currency itself. There is no coverage. You are therefore at the mercy of the authorities issuing the currency, which are the national authorities. In principle, this transition should be regulated by the markets. There could be an auction of these debts, but these debts may be worth nothing at all.
Political questions
Question: Why do economists advise governments to spend money when the economy is not doing well?
Answer: The current system of fractional reserve banking money with interest charges needs increasingly more debt to to operate. When consumers and businesses do not go into debt because they are reluctant to do so, government should do this, because otherwise the fractional reserve money system would collapse.
Question: Why did the government encourage strong growing debts of consumers and businesses?
Answer: Growing government deficits were seen as economic weakness which could undermine confidence in the currency. Therefore governments encouraged that more and more debts were incurred by consumers and businesses. As a result, the government managed to show relatively low deficits. This situation exists in many countries having a housing bubble, including the Netherlands. The United States was the main benefactor of the current monetary system because the dollar was the reserve currency, and it was the United States which had the greatest motivation for continuing this system as long as possible.
Question: Why did economists not see this coming?
Answer: There have been economists, who have seen it coming, but most economists did not expect this to happen. Economics does not take into account that a human is a social being which is very essential for understanding humans. Economics is therefore a complex pseudo-science, with all kinds of irrational assumptions, the most important of which is: the existence of the homo economicus (economical thinking human). On the existence of the homo economicus much of economic theory is based. The homo economicus does not exist, and a lot of economic theory is dubious at best, but actually politically motivated. As economists are mostly paid for by special interests, they rarely manage to have an independent view.
Question: Is a tax on money not a tax on the rich?
Answer: The tax on money is no tax on capital. Stocks, real estate and money lent are not subject to this tax. This tax is aimed at keeping the money in circulation, so the economy will not falter. Its purpose is not to redistribute income.
Question: Is inflation not a money tax?
Answer: Inflation is not the same as a tax on money in the natural money system. Inflation is generally caused by the increase of money supply. The increase in money supply in the current system is needed to keep the economy going, because the debt also continues to grow and interest thereon should be paid. In a natural money system, the money supply does not grow, and there is no inflation.
Question: Why do religions condemn usury, which is the charging of interest on money?
Answer: The Bible states clearly that interest charges on money are forbidden. The Jews wrote this rule down in the Old Testament. This rule is the basis for Christianity and Islam condemning the charging of interest on money. There are people who think this was a message from God, but there is another explanation possible. The Jews were living with the Egyptians for centuries and were familiar with the corn receipt money. If the money worked very well to the advantage of the Egyptians, the Jews may well have thought this to be the best money system possible.
Question: What is the relationship between interest charges and war?
Answer: Interest charges can cause war. When an economy collapses, because debt and interest can no longer be paid, the following scenarios can unfold:
1. A war can be started to obtain access to new markets so the economy can grow to sustain more debt and interest payments.
2. It is possible that a war will be started to ensure that the collapse of the money system will be attributed to the war, and not to the banking system and interest payments.
3. It is possible that a war is started to obtain a higher inflation which eleminates debt and generates new economic activities.
4. A chain reaction of bankruptcies may emerge as the economy goes into a depression. Many people will then be dissatisfied. It is possible that the leaders of a country may look for an enemy to start a war to draw away the attention of the public from the economic problems.
You may copy this text without limit but please do not alter it. It is part of the public domain and may not be sold.
Resources
The Natural Economic Order, by Silvio Gesell
http://www.utopie.it/pubblicazioni/gesell.htm
Laboratory readings: Wörgl's Stamp Scrip – The Threat of a Good Example?
http://www.newciv.org/nl/newslog.php/_v105/__show_article/_a000105-000002.htm
www.naturalmoney.org
Prince of light
16-10-08, 20:12
Ach... het is dweilen met de kraan open :
deze "experts" kunnen maar met voorlopige oplossingnen komen, & dan gaat het zeker weer mis :
niet alleen de rente is de kern van de probleem maar de rest ook , in minder of veel mate :
die gek hoeft niet naar oude Egyptenaren te gaan "tijd_reizen" om zijn economisch_financieel heil_advies ta gaan zoeken :
de enige echte rechtvaardig-stabiel ... economisch_financieel kijk op de dingen is die van ....jawel..... Islam :
na de val van communisme, kapitalisme & hopelijk neo_liebralisme is de rest aan de beurt :
hoe lang gaat het nog duren voordat de mensheid gaat beseffen dat alleen Islam de enige echte oplossing zou zijn : is maar DE vraag !!!
P.S.: economisch_financieel crisis leidt ook naar politiek _ideologisch extremisme & is dus een bedreiging voor democratie zelf :
zie de fascinerend artikel daarover van top journalist Chris Hedges op:
www.truthdig.com : je moet wel gaan zoeken : geen tijd om je van die link te voorzien : doe er moeite voor dan !!!
:zwaai:
Ik denk dat de moslims zich niet op de borst hoeven te kloppen. Als ze niet leren uit de lessen van het verleden, zal hun renteloos geldsysteem niet gaan werken. Fouten die je kunt maken zijn bijv:
- geld baseren op goud/zilver
- geen belasting op geld
- te hoge / te lage belasting op geld
- onbetrouwbare overheid
- onduidelijke regels mbt banken
Degene die het goed doet, zal succes hebben, zoals in Wörgl. De rest wordt een mislukking.
Prince of light
16-10-08, 20:40
Khamenei: "Kredietcrisis einde Amerikaanse hegemonie"
De Iraanse ayatollah Khamenei ziet de val van het westerse kapitalisme.
De financiële crisis in het Westen betekent het einde van de Amerikaanse dominantie in de wereldeconomie. Dat heeft de Iraanse ayatollah Ali Khamenei gezegd. "De valse luchtbel van geld in het Westen is gebroken", zei Khamenei op de staatstelevisie. De ineenstorting betekent de val van het westerse kapitalisme, vervolgde hij.
Iraanse beurs stabiel
Ondanks de verwoestende verliezen die op westerse aandelenbeurzen werden geleden, bleef de Iraanse beurs, voornamelijk door de isolatie van de Iraanse financiële markt, grotendeels stabiel. Het land maakt zich echter wel zorgen over de dalende olieprijzen, de grootste bron van inkomsten voor Iran.
Macht
Khamenei heeft het laatste woord over alle staatszaken in Iran en is daarmee in feite de machtigste man in het land. (novum/kh)
14/10/08 01u25
De recente finacieel_economisch ontwikkelingnen geven de man gelijk toch:
hopelijk na de val van kapitalisme (communisme is al verleden tijd !) is nu de beurt aan :
neo_liberalisme & de rest : zelfs zgn liberaal democratie , zgn "eind van de geschiedenis" & secularisme zouden er niet aan kunnen ontsnappen aan deze :
onvermijdelijk ondergang ::huil:
slechts een kwestie van tijd :
luister's dan naar al die westerse klokkenluiders tenminste :
zie het interessant artikel van top journalist : Chris Hedges op :
www.truthdig.com : kort samengevat :
economisch_financieel crisis zou leiden naar politiek_ideologisch extremisme : en zelfs naar de val van die zgn liberaal democratie !!!
zoeken dan op die Amerikkaans site :
de tijd zal het maar leren !
Islam is THE answer , not the rest : that's no cliché or empty slogan :
It's a fact !!!
P.S.: Khamenei heeft niet de absoluut macht :
er heerst er in Iran wat je als volgt kan beschrijven :
heerschappij van Al fakih : maar da's niet 1 persoon : maar wel eeen body van veel personen gekozen door het volk :
soevereniteit van Ummah_volk onder God !
Americans say : one nation under God !!!
why shouldn't muslims say :
one Ummah_big nation under God ????!!!
:zwaai:
Nog even wat oude koeien uit de sloot halen...
Het artikel over natural money is op de Amerikaanse site gold-eagle.com verschenen.
http://www.gold-eagle.com/editorials_08/ikink011509.html
Over oude koeien gesproken: dit geldsysteem is destijds door Josef bij de Egyptenaren geïntroduceerd (droom van de magere en vette koeien).