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Funny money: Interest-free and debt-free money

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PostPosted: Sat Jul 30, 2005 9:01 pm    Post subject: Funny money: Interest-free and debt-free money Reply with quote

Source: Program "Perspective" - ABC Radio National (producer Sue Clark)
Date of broadcast: Tuesday, 19 July, 2005 (5.55pm)
Author: Geoff Davies (ANU)

This excellently-crafted 5-minute program in the Perspective series
introduced Radio National listeners to a subject which is usually
completely ignored by the mass media -- namely, the virtues and
benefits of a 100%-reserve financial system. Many of the subtleties
and important aspects of the alternative system were - of necessity
because of the time constraint - simply glossed over. -- JH

Interest-free and debt-free money
Broadcast title: Funny money
by Geoff Davies


Why is there so much inequality in the world and why does the rat race
of life just seem to get worse? Why can?t we reduce unemployment and
why do economies go through boom-and-bust cycles?

Did you know that virtually all of our money carries a burden of debt?
If you get a loan from a bank, some of the money loaned to you is
created out of thin air. Furthermore, even though it cost the bank
essentially nothing, the bank still charges interest on this new money.
It?s like a private GST, payable to bank shareholders.

The original Bank of England Charter put it with admirable directness
back in 1698: ?The Bank hath benefit of the interest on all monies
which it creates out of nothing.?

I should be clear, I?m not talking about printing notes or minting
coins, I?m talking about introducing new money into circulation, even
if that money is in the form of numbers in computers.

This creation of new money comes about in a slightly complicated way
through another quirky practice with the imposing name of the
fractional reserve system. Banks only have to have in reserve a
fraction of the money they loan out, typically ten percent or so. The
other ninety percent can be created ?out of nothing?.

Fractional reserves create their own problems: they make the money
supply unstable, which may have a lot to do with recessions and
depressions. If someone defaults on their loan, the money supply drops
by more than the amount defaulted, and that can trigger a tailspin of
decreasing money supply, bankruptcies, more defaults, and increasing

Charging interest on new money also means there?s never enough currency
to cover our debts to banks. This is because the debt increases
steadily, because of the interest charged, but the amount of currency
stays the same. When it comes time to pay the loan back, there won?t be
enough currency. The only resort is for you or someone to take out
another, bigger, loan, so the first one can be paid back. Sound crazy?

It gets crazier. The amount of debt increases inexorably, and it drags
us all along behind it, scrambling ever harder to pay off the mounting

Have you ever wondered why we can?t have an ?enough? economy? Why does
it always have to grow? We?re pretty rich already, at least materially,
and many of us would actually prefer to slow down and have more time
with our families.

Back to my story. If there?s never enough currency, then people can?t
do all the things they need to do. This may mean some people get left
out entirely: in other words they?re unemployed. You could reduce the
imbalance between currency and debt by reducing interest rates, and
this would reduce unemployment, but it might cause inflation. Sound

A much better solution would be not to charge interest on the new money
in the first place. That way the debt would never exceed the amount of
currency and there wouldn?t be any unemployment. What did I just say?

There really are monetary systems in which interest is not charged on
new money. A fee is charged for the service of providing currency, but
that can be done in a way that doesn?t unbalance currency and debt. Nor
do they have fractional reserves, so the whole economy would be more

Such systems can be run much like any banking system. No, they?re not a
licence to print limitless money, in fact it?s much easier to control
the amount of money in circulation. This means inflation would be far
easier to control, and there wouldn?t be a price of unemployment to pay.

Perhaps it?s time we looked into this alternative kind of money that
doesn?t carry a burden of debt.


Further information:
Producer: Sue Clark
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Joined: 24 Nov 2005
Posts: 2863
Location: Scandinavia

PostPosted: Sun Jul 31, 2005 4:26 pm    Post subject: Reply with quote

Fantastic! Absolutely wonderful when this issue is aired more broadly. PO survival is all about the monetary systems, and we simply must go interest-free in order to survive. Funny that this is one thing the muslims got right by sticking to. Christianity and judaism have the same prohibitions, but it seem to have become forgotten...

A good book on the issue: The Future of Money by Bernard Lietaer.
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Joined: 24 Nov 2005
Posts: 859
Location: Sheffield

PostPosted: Tue Aug 02, 2005 12:55 pm    Post subject: Reply with quote

A complex and heavyweight subject condensed into 5mins, very well done.

It would be nice to hear it go out on Radio 4.....
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