7. USURY LAWS: A PRODUCTIVE REASON
Two reasons can explain the high interest rates and decapitalistic banking behind economic disintegration: greed and usury. Of the two, one can be more easily restricted than the other; in fact, many past attempts to curb usury can be found in both secular and spiritual laws. Many religions have strictures or sanctions against usury, e.g., Judaism and Islam. And, until the early 1980's, most states as well as the federal government had statutes against usury.
Usury occurs if one charges a use fee (interest) when lending his wealth to another in addition to repayment of the principal. Examples of usury include not only the loan interest that banks charge borrowers but, importantly, include the interest on savings that depositors demand and include legalized interest on checking.
A complete understanding of the harmful effects of usury requires the recognition that savers are actually the basic lenders of economy who lend money to the commercial bankers in the form of savings and checking. Individual savers are the initial source of all usury which banks pass on to borrowers, adding more usury and service charges. The common lending nature of the basic and commercial lenders should not be minimized merely because one is called a saver and the other a banker or minimized because one lends money as a sideline while the other does it for a living.
Elimination of usury requires emphasizing the economic impact of savers and bankers which is grounded in the lending nature of both. Any attempt to deal with the production stifling interest on loans must address the issue of high interest on savings, for a bank cannot lend money below the interest rate paid to borrow money from individuals in the form of savings.
During the early 1980's, many theories have been postulated for why loan interest rates have remained high, e.g., the restrictive policies of the Federal Reserve or the Federal Deficit., None of the reviewed listings cited the role of the interest on savings. Yet, one can realize that if interest rates on savings were not lowered, interest rates on loans would never come down even if the budget were balanced or the Fed increased the money supply.
Suppose there were no federal deficits and that the Federal Reserve lent money to commercial banks at 2% while banks paid savers 13% on savings: Could a bank lend money at less than 13%? If it did, savers would borrow the money for putting in the savings account, wouldn't you?
Without mandatory restrictions on interest on savings, no money will end up in the economy, no matter whether the budget is balanced or whether the Fed gives money to banks. If nothing is done to curb the usury nature of the basic lenders of America--savers--then high interest rates on loans will never come down. Commercial banks cannot relend the money of the basic lenders below the interest rates paid on saving.
Basic lenders--you and I--are the ultimate source of high inter est rates; this recognition is a step toward a financial system free of loan rates which stifle economic recovery. An additional step requires a reappraisal of lending one's principal for interest. In principle, it may not in the best interest to charge or accept usury rates on their savings. If not in one's total interest, usury on savings would be a case of being pennywise but pound foolish.
Both principal and principle come from the same root: princip. The principle of saving some of one's earning is to prepare for either rainy days or sunny retirement, days when one cannot produce. In principle, one saves so as to secure a better future. Wouldn't one be foolish to lend his savings to someone who would destroy either his present job or future retirement? Such a foolish person would be ignoring the principle of saving in the first place; he would not be acting in his best interest.
A seemingly trite expression has profound implication on whether production thrives or dives: Interest on checking and savings is not in our best interest. As usury rates increase beyond the principal of the loan, lenders tend is to ignore the principle behind the loaning of one's wealth. The principle of lending money to others, whether to banks as savings or friends as loans, is to improve one's world for oneself. Does it happen when one accepts a usury fee in disregard to what the principal is used for?
As usury rates increase, people are diverted from seeing the principle effects of their lending practices, whether on a personal basis or through commercial lenders. The higher the interest rates, the less questioning the lender is of the borrower. Commercially, this occurs when finance companies, e.g., Household Finance or Beneficial, charge interest rates several times higher than regular banks because they lend to customers with less secured records. More extreme is the loan shark who asks only for your name and address; what you do with the money is your business.
On the personal level, the high usury rates on savings in the symbols of time (currency) may blind a person to how he may be cheapening the substance of his real time. A prime example would be the home builder's wife who complains about the lack of construction jobs while praising the high interest that the bank was paying on their savings even though they were withdrawing money because of reduced employment. This example has everyday counterparts; a survey revealed that sixty-eight percent of unemployed--in a recession blamed on high interest rates--had depleted their savings.
If a study was done on the relationship between levels of inter est rates and personal income, one would find that as interest rates on savings increase, personal income would drop because of the production constricting effects of the resulting high interest on loans. Furthermore, it would no doubt be found that each additional point of interest on savings translated into a geometric decline of income, that is, the lost jobs and income would be greater with each dollar of higher interest. For instance, one might find that an increase from six to seven percent meant that each additional dollar of interest meant a loss of $100 in income while the increase from seven to eight might mean each additional dollar means a loss of $150 dollars in income.
One need not cite established religions or plausible conjectures as a means to enlighten people to needed action. Besides, our political leaders say that religions are too moral for the practicality of everyday existence, e.g., we need "SOBs" in government, or, the U.S. shouldn't be "moral guardians." Instead, one can review some instances of usury in history for its pragmatic consequences and political responses.
Few cultures did not suffer violent upheaval due to usury; the cultures include both Western and Eastern cultures, before and after the birth of Christ. In 594 B.C., the Athenian Greeks elected Solon to remedy economic distress "caused by the introduction of coined money and high rates of interest (usually 18 per cent)." Rome had recurrent crises involving usury every 50 to 100 years. On the other side of the world, China had periods of economic reform. One period involved restriction of loan rates to "3 per cent a month or 10 percent a year for productive purposes" during the period of 923A.D.
The declining economic conditions today, due in part to counter productive usury rates by basic and commercial bankers, are living proof that those who do not learn the lessons of the past are doomed to repeat them. And the lesson is simple and practical ... if one takes the time to think about how usury blinds the eyes of the basic lender and whets the appetite of commercial bankers.
America is presently in between two kinds of lending practices and headed for the worse of the two. One extreme is the parent who readily lends interest-free money to an offspring who satisfies the parent that money will be used to increase the worth of the offspring to himself, his parents and his world. No responsible parent lends money to a child at any interest rate if the parent knows the child will only hurt himself and his world.
The loan shark is the opposite of the parent who willingly shares excess capital with a productive individual. What is a loan shark but someone who lends his money to the highest bidder without regard to the general consequence. The loan shark readily lends money to the gambling father, adulterous spouse, or imbalanced offspring without regard to how the money has counterproductive effects on the family or the community. With his high loan rates, the loan shark can buy himself a home away from or a vacation away from the economic turmoil which he generates with his irresponsible lending activities.
Don't bankers lend for the highest return in money without concern for the local system of production? The participation of American banks in a $3.2 billion acquisition loan to Seagram of Canada was not in the interest of a better America. Or, consider the impact on the town of Houston, Missouri, as its financial institutions have increased the amount of money they send to distant money-changers. Don't bankers live away from the communities from which the savings are drained and diverted? Don't bankers have nice conventions in far distant, exotic places? Qualitatively, bankers are different from the traditional loan shark only in degree, not kind.
Like the loan shark, do bankers have more reasons to raise or to lower interest rates? In assessing their probable choice, will they recognize and consider how they had their greatest income during the recessions of 1980 and 1981 when interest rates were at their highest levels?, Furthermore, consider the position taken by some bankers that the spread between the savings interest and loan interest is not enough. An indication of their desires and inclination was their role in what has been called the "Loan Shark Revitalization Act" in which the "federal government, primarily at the urging of large banks ... has begun deregulating interest rates." In some states, the legislation on interest rates is directly controlled by bankers, e.g., in Virginia, where more than half of the legislators come from banking backgrounds.
More important than legal loan sharks is whether you are a lender mimicking bankers? Do you bounce your funds back and forth between institutions in pursuit of the highest rates on passbook savings or certificates of deposit? Are you merely looking for the highest return in dollars and ignoring the counterproductiveness of what is done with your money? Are you under-capitalizing your local economy by sending your money off to some money fund in New York? Are you one of the people who complain about federal deficits but naively allow your banker or broker to use your savings to buy the Treasury notes that fund deficits? If you are, you will pay the price in higher inflation, unemployment, taxation and crime.
Your pursuit of a better world in only the symbols of time will eventually cheapen your actual time. Greedily, you think you can get something for nothing, that is, consume without producing. In practice and semantics--greed comes from the Gothic word for "hunger"- -greed emphasizes consumption rather than production, "an insatiable desire to possess or acquire something to an amount inordinately beyond what one needs or deserves." In seeking wealth through unlimited interest rates on savings, you do not heed the implications for your total interests. Greed is the reason for usury.
The greed of today is not without precedence in nature or effect. The onset of the Depression was ascribed to greed, said Franklin D. Roosevelt, "We have always know that heedless self-interest was bad morals; we know now that it is bad economics." In the late twenties, greed was rampant in stock speculation while contemporary speculation centers on record interest rates on savings. A greedy economy self-destructs as it pursues income from consumption rather than production as greed implies.
There are good reasons for eliminating usury charges on all loans, especially in the case of savings. The simplest reason is that people will be more careful in lending their money. People will consider their total interest and lend on principle. Presently, people look at dollar interest beyond dollar principal. When people are paid a high interest rate on lending their capital to others, they are not likely to look at the consequences.
Some examples have been cited on how people's pursuit of high interest on savings leads to reduced production. The account of Houston, Missouri, described how a whole community was suffering high unemployment because the local financial institutions were shipping their money to distant banks for higher interest rates. On a corporate basis, one can consider the actions of the Sohio which, like many oil companies, was awash in cash after the deregulation of oil prices. A published interview with the chairman of Sohio revealed how his company finds its short-term, high-yielding bank deposits so lucrative that they are hesitant to develop its coal holdings because the income will not be as great. Fast. greedy paper income instead of long-term production profits.
The action of Sohio, typical of many cash-rich companies, shows two counterproductive facets of high interest rates. As interest rates increase, the profitability of placing one's excess capital into raising production and productivity decreases--Sohio is avoiding energy development, putting money in bank deposits than in hydrocarbon deposits. The earnings from banking instruments are so great that Sohio will actually lose money when carrying out previously scheduled expansion plans.
A second counterproductive facet of higher interest rates is how interest-seeking oil companies encounter a decreased demand for petroleum products as more people suffer loss of jobs and disposable income. If Sohio does not use its cash to stimulate production, fewer people will buy Sohio gas. The oil glut of 1982 was not founded in conservation so much as in lost disposable income due to production recession.
Was Sohio foolish for ignoring how banks use cash for acquiring, streamlining and vivisecting production? In the short-term, the interest on banking deposits might seem appealing, but the long-run interests of Sohio will not be served. Not only will the customer demand for petroleum decrease, but some of the jobless, inflationary sufferers will blame the oil companies for much of the economic mess.
Is the stupidity of usury going to continue, or will the politicians provide the productive leadership in righting this unprincipled use of money? Can the American people expect any help from the likes of someone like Ronald Reagan? Like Sohio, he has had a lot of money tied up in "short-term, high-yield" bank notes. Reagan is probably enamored with the glamor of high dollar interest on his savings even though it is not in the best interest of his Presidency. In 1981, about 40% of his total income of $418,000 came from interest charges.
Reagan received $150,000 for the use of his savings. Will he, as a basic lender in America, ever do anything to reduce usury charges considering how he personally benefits from high interest rates? One has to realize that Reagan's personal well-being has to play a factor when his administration pledges "the safety of savings and loan deposits, regardless of the cost to government while regulators legalized two additional ways to earn higher interest on their money." The latter usury action defeats any pledges of safety in savings, for the higher interest rates will destroy the production that makes money worth something. While the politicians can promise that your money will be backed up by the money presses, their actions guarantee that the money will be worth fewer products, i.e., needed goods and services.
Politicians in Congress have a record of believing that increased interest rates on savings will help people fight inflation and help the formation of capital. The aforementioned action of politicians, pressured by banking interests, deregulating interest rates, is one example. Another is the removal of interest rate ceilings on retirement accounts, supposedly to help the elderly. The reader should be aware that such will not be the case. The politicians are legalizing loan sharking by the individual to his long-term detriment.
The Banking Deregulation Law allows interest on checking and allows a removal of interest rates on savings. It will have America full of symbols that have less product or production worth. The higher the simple money return on either governmental bonds or banking instruments, the lower the system of production will go. People will increasingly ignore long-term production investment in pursuit of short-term liquid gains.
While the full role and ramification of the involved usury is not appreciated, the shift in the use of savings is recognized by the central bank of the United States--the Federal Reserve--even though they apparently cannot do anything about it. Banks have been increasingly tying up money in the takeover and vivisection of production with the consent of the Reagan Administration. If it isn't stopped, the economy will necrose and stop.
Have we become a nation of money-changers? Of loan sharks? Has history ever seen such a well-organized effort to decapitalize and collapse a system of production?
Each time you hear that interest rates went up for either govern mental or private financial notes, realize that more money is going to leave production and end up merely multiplying the number of symbols. Recognize that the system of production cannot last merely on symbols; it takes substance. Take no joy in receiving interest on your checking; the money will be worth less buying power and fewer products than when you received no interest. Take no joy in CDs (certificates of deposits) that have double-digit returns; the returns are in symbols that represent fewer products (goods and services).
A interest rates go up, some business make it and some don't; the ones that don't are the production profit industries. While some industries may be inherently weak because of the times, e.g., buggy whips, many have been weakened by the politically sponsored usury practices.
Usury should be outlawed. Usury rates dull people's consideration of the principle behind lending some wealth to another. One should lend wealth only when it increases his wealth, that is, when the other person will provide him goods or services that he cannot provide himself. Lending money merely for more money defeats the purpose of lending one's principle.
The elimination of usury laws will not come from the incumbent politicians nor the commercial bankers. Walter Wriston, as head of Citibank and a regular interviewee in U.S. News and World Report, consistently ballyhooed the benefits to the small saver from "sophisticated" banking., Nor can one expect the voice of the vested financial community to urge enactment of usury laws, for the Wall Street Journal has editorialized on the need to repeal interest rate ceilings. Similarly, a columnist for Newsweek and reporter for CBS television network (Jane Bryan Quinn) echoes the beauty of usury. Likewise, the well-fixed saver will not do anything to reduce interest on savings and checking.
The well-fixed saver has enough money in savings to live off the interest without touching the principal. When the political battle erupts on the issue of lowering the ceiling on savings interest rates, the well-fixed saver will be in the forefront arguing for increased savings as the way to beat inflation. Fool! The well-fixed saver does not recognize the counterproductiveness of high interest rates as they apply to the well-fixed. As unemployment rises, social and economic stability decreases. Unstopped, the well-fixed will lose all his principal at a certain point in time.
If production is to be revitalized and wealth producing jobs recreated, the basic lenders of America must bite the bullet. When enough people realize that high interest rates on savings merely give a few more dollars of income while destroying more and more jobs that pay numerous dollars, then the savers of America will act. That day of action probably will require greater unemployment and depletion of savings than is presently occurring. But, that day will come, for America will continue to repeat the usury mistake that is found in many past cultures and that is banned by major religions.
In summary, the counterproductive high interest rates on loans will come down when enough people recognize a few simple financial principles. First of all, regardless of what the necronomists call savers, savers are the basic lenders of America. Secondly, if the savers' principal is divorced from the principle of saving for a rainy or retired day, then one's total interests are not served, regardless of the usury interest rate.
If savers foolishly pressure politicians for no ceilings on savings and if they lend their money to bankers at high interest rates, they should expect counterproductive loans that will eventually put them out of work. Once out of work, the average saver will lose in a month or less all the additional dollars that came from the higher interest rates on savings. The basic lender of America thinks he can beat inflation by inflating the money he receives for saving with a bank. Wrong. No one beats inflation with inflation, especially the average guy. To think you can is to follow a necrotic law.
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