Noting the article comments, it looks as though it's not as easy as I thought to offer a short cut out of tackling von Mises or Creature From Jekyll Island.

Let me see if I can get to the point quicker...

Once you allow a banker to charge interest on money, I am suggesting that there are only four ways to cover up the fallout from this concession:

1. The banker has to make sure the net effect of his money lending activity (or the net activity of others he is not involved with) produces an increase in available goods and services in the economy which justifies some regimen for increasing the money supply.


2. The banker chooses to spend all his interest receipts back into the economy rather than loan them back into the economy.


3. The money for the interest is paid by transferring other money already in circulation in the economy to the banker


4. New money is created out of thin air "by fiat" to pay the banker his interest.

In option #1 any such new money that might be created in this process could go to cover the banker's interest charges.  The banker has to be a saint and avoid the temptation of making dicey loans.  Other players in the system who are creating real wealth have to be willing to allow the transfer of their wealth to the banker to cover what in the main are the banker's paper profits.

In option #2, a banker has to resist both the temptation in #1 and the temptation to roll over interest payments in to yet more loans. Even if he can resist these temptations, the scale is tipped in favor of the banker eventually acquiring ownership of all the assets in the system.

In option #3, to the extent that the banker does not spend all his interest collections right back into the economy, the economy has to adjust to the effects of this deflation (contraction of the money supply). Money becomes scarce, yet the banker still has to be paid. This is why deflation, like we have for the moment, quickly exposes the problem of paying off bankers by pulling money out of circulation.

Option #4 only works longterm if the new money created is not itself created as debt based money, that is, new money with its own interest bearing obligations attached to it. Since our current federal reserve notes are created with interest attached to them, any attempt to this option alone must fail eventually.

What the FED would have us believe is that what it has been doing these last years has been relying on its "good management" of the economy to keep goods and services expanding fast enough to keep up with the money growth required to keep interest payments up as suggested under option #1.  However, what it really has been doing is colluding with other central banks around the world in the near sole reliance on option #4.

Therefore, we run up against the mathematical absolute that compounded interest rate growth eventually goes exponential. No real world economy can keep up. The interest bearing contracts and loans must be defaulted on (debt forgiveness/liquidation), or new fiat money must be created in ever greater astronomical quantities required to keep making payments on the ballooning debt payments - think Zimbabwe or Weimar Germany.  All the credit default swap schemes in the world never produced any new real wealth.

This interest conundrum is why even the greats like Adam Smith thought that real interest rates needed to be capped to something like 5%. Something manageable that a human economy could keep up with. Those allowed to charge interest (the oligarchs) might get the upper hand in the economy, but at least the system would not collapse under its own debt repayment obligations.

Another far more radical alternative is not even on the table for the Western world and its Asian banking partners.  It is the financial system favored by those crazy Muslim clerics - no interest allowed!

Under real Sharia Law (not the schemes cooked up by Western bankers to provide cover among the faithful for their puppet sheiks) there can be no banks as we know them. There could be entities that store money in safekeeping - at a cost to the depositor. Or, there could be entities that pool the money of small "depositors" in order to "invest" it at 100% risk into business ventures that the investment company hopes turn a profit (a real increase in goods and services to the community).  

If the net result of an investment company's actions is a real increase in wealth in the community, then the investment company would be able to transfer all or part of this wealth back to its depositors, who are really investors now.  If the investment company invested poorly and lost money, then its depositor/investors would lose an equivalent amount of money.  Such a system is based on risk and the knowledge that success will only come from satisfying other market players, or, as the clerics would put it, if Allah so wills it.

This writer does not think it is a coincidence that Sharia Law and Islam are being packaged as the enemy of our freedom just as the grand fraud that has become our banking and financial system is having to reveal itself as the criminal conspiracy that it is.

The greatest danger faced by this criminal conspiracy is that a free and educated people call for an economic solution that strips this conspiracy of its ability to create money out of thin air -  both by fiat money schemes and fiat interest schemes.

Further reading...

For those who want help with the math on how allowing interest in the system ultimately causes economic collapses I suggest this review.  The writer, a financial pro, correctly describes the mathematical problem created by charging interest.  However, in an effort to justify preserving his personal access to capital without having to give up ownership, he concludes that default and defraud are inherent elements to the capitalist system that just have to be accepted.

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Dave B said:

New World Order moves forward Simple: Move trillions off shore to countries the NWO controls. No audits, no taxes. Let the US governmnent and monetary system crumble. Come riding in on the "White Horse" with the Amero to save the day. Change government to the NAU. The Banking Elite will save the day. As Aaron Russo accurately said: They want full control, and everyone chipped. If you object. They turn off the chip. By the way, their chip will say KMA (Kiss My A..) Get ready for the big one. Don't give in as our founding fathers did not give in.

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February 19, 2009
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MarkGlen said:

The article needs more editing How does the business person know how much inflated money there is in the market? If he doesn’t know then he doesn’t know when to go up on prices. Question: If bankers do not use fractional measures then would a banker out of the goodness of his heart take care of your money? Wouldn’t the Federal Government have to manage our monetary system if bankers don’t? Jim Capo needs to shorten his article and simplify it more. Instead of using 4 syllable words use 2 two syllable words. Someone needs to hire a person that would be able to simplify. Jim is talking over the head of the average person on the street. How does a TV advertisement explain a complicated subject?

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February 19, 2009 | url
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MarkGlen said:

	Feed them with an eyedropper We must realize that the average person only reads at about a 5th grade level. It will be almost inpossible to teach them.
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February 19, 2009 | url
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Vermonter said:

	I really want to get this, but my brain won't function Jim, I would have to agree with MarkGlen - please see if you can simplify this a bit more. I have a college education, and I understand all the 4-syllable words, but I still have a really hard time wrapping my head around mathematical and economic concepts. It's very frustrating! Must have been the fluoride :P
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February 22, 2009
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capo said:

	... Feedback noted. I've given it one more go as an update at the end of the article. However complex it seems I'm making it, it's got to be easier than soaking up Mises or Creature From Jekyll Island.
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February 23, 2009 | url
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