HOW THE CHARGING OF INTEREST DESTROYS THE ECONOMY

We cannot rebuild our economy until we treat the cancer that is killing it. That cancer is called the money and banking system.

The system was designed, not for the greater good - that is to create money as a medium of exchange and store of future value – but as a means to profit at our expense.

Nowadays banks create money electronically, literally out of thin air, by using debit and credit entries on computer screens. Money is created as loans (debt), but the interest charged is not created, so there is only ever enough money in circulation to repay the loan capital – not the interest.

This forces borrowers to compete for money to repay the interest on their loans. But it is impossible for everyone to repay the interest as the money to cover it was never created in the first place. So borrowers’, who default, may forfeit their possessions, giving banks real assets in return for money created out of nothing.

What is worse is the ‘fractional reserve’ lending aspect of this system, which permits banks to multiply their profits by lending up to nine times more than they receive in deposits. This plays havoc with the money supply because more (and sometimes less) money is created than is needed to buy the goods and services produced. The following example explains how this ‘profit multiplier’ works:

You would think that if banks charge 5% on loans and pay 3% to depositors their profit would be 2% but it’s not, its 42%. This is because for every £100 deposited, the bank only keeps £10 in reserve to cover their customer’s cash needs. The remaining £90 is lent out. The borrower takes their £90 loan and deposits it in a bank. The bank holds back 10% (£9) and lends the balance of £81. This process is repeated until the original £100 deposit has multiplied into £900 worth of loans generating £45 of interest. The bank paid out £3 interest on the original £100 deposit so their profit is £42 (42%).

This system destabilises the economy and makes it impossible to control. All our financial problems stem from it. Historically the charging of interest was illegal. Only when it is made so again can the real recovery begin.

(c) Copyright 2009 Kim Andrew Lincoln

For a comprehensive explanation of the history and operation of  the money, banking and  'fractional reserve' lending system please go to: http://www.larryhannigan.com/TheEarthPlus5.htm