Chapter 41 - Are All Loans Usurious?

The Law of Usury

I say that the correct definition of usury should be:

Usury is the practice of lending money and expecting a greater amount in return such that unpayable debts occur.

or

Usury is the practice of making a loan and demanding a greater amount in return such that unpayable debts occur.

The reason that usury was made a forbidden practice by most religions and various sovereigns was the characteristic of usury to create unpayable debt leading to extremely unpleasant consequences for the debtor. This characteristic should be included in the definition. Usury is not always bad. There are situations where lending does not create unpayable debt. There are also situations where usury has benefits for society. Business is impossible without the availability of money or credit of some kind. It is not that usury is essential to business, but that money or credit is essential to business. Usury is but one way to provide credit to business. Private banks will encourage tax systems that encourage businesses to come to them to borrow bank-credit. So multiple items need to be studied to ensure the welfare of business. Inappropriate business taxation damps and destroys business activity and drives business to moneylenders. It also drives companies to sell off shares to obtain operating money. Thus, those that make money from usury can purchase the part ownership of companies without taking any responsibility for the day to day operation of a company.

To work out whether a loan is usurious, it is necessary to work out whether, for the aggregate of all the loans of that type, the loan repayment total exceeds the money available. If the lending practice creates more debt than money, it is usurious. In Australia, total bank credit equals $1700 billion, but money owing to the banks equals $5400 billion [2015]. Clearly debts exceed the money available and usury has occurred on a large scale. It requires constant new loans to enable payment of interest on past loans. If the citizenry stops borrowing, the government has to borrow more to ensure that the money supply increases. You can see this in the debt graphs. Please look at private debt at about 2009. You can see Private Sector Debt (Citizen's house mortgages and personal loans) falling and government debt taking a big rise. They called the extra government debt: 'Quantitative Easing' but they spent the money in a manner so that people with more-money-than-they-can-spend hoarded the money. The velocity dropped dramatically, putting us closer to a hyperinflation avalanche:

USA graph of debt and money

USA graph of Circulating Money and Hoarded Money

In the above graph, you can see that M1 did not fall but the Circulating Money did fall.

Graph of United Kingdom Money Supply and Debt

Graph of Spain Money Supply and Debt

Bank Accounts

Do not be deceived into thinking that the number written in the bank account is the same as having cash to the same value. The 'balance' is the amount the bank owes you. It is a Credit. It is a 'liability' on the bank balance sheet. You can convert the credit in your bank account to cash currency in small quantities. You can only convert bank-credit to cash currency if someone else is converting cash currency to bank-credit in similar quantities.

Commercial Bank Money is virtual credit that never came from the central bank. You cannot actually see Commercial Bank Money because it only exists in a virtual state as numbers in bank accounts. It is more appropriately called Commercial Bank Credit or bank-credit. A central bank exists to make this system work. The central bank assists with moving the virtual Commercial Bank Credit between participating banks and gives the private bank-credit an air of government legitimacy.

Cash is used mainly in the retail sector. Commercial banks in most countries were prevented from creating their own currency cash notes. They could still create ledgers for each client which are called bank accounts. The cheque system allowed people to transfer credit from one account to another. If the credit adjustments are between customers in different banks, then daily adjustments are made between banks or by adjusting their balances at the central bank. Any shortfall can be borrowed. The concept of reserves allows for imbalances in the withdrawal of cash and for imbalances of transfers between banks. The reserves are generally the deposits of customers and so it is useful for a bank to attract customer deposits. However, these reserves can be borrowed.

When an institution fails to satisfy its reserve requirements, it can make up its deficiency with reserves borrowed either from a Federal Reserve Bank, or from an institution holding reserves in excess of reserve requirements. [Wikipedia https://en.wikipedia.org/wiki/Reserve_requirement]

When a private bank loans money, it places a positive amount in one account and a negative amount in another account using the rules of double entry accounting. The bank's assets increased by the loan amount and the banks' liabilities also increased by the same amount. The money supply of the nation increased by this amount and the volume of debt in the nation increased by the same amount. The freshly generated money does not directly benefit the bank, it benefits the customer. It has made no income or profit from the lending action, although it has incurred some time expenses with its staff. The bank makes income from the interest on the loan but not from the money creation process. With the exponential nature of interest rates, they will usually make more in interest than the original loan amount. This is why inflation does not directly affect the bank's loans. With inflation, the created money loses value and so does the debt, but the bank makes its income on the interest. So even under heavy inflation the bank still makes income. I was actually the beneficiary of this arrangement. I bought my first house in 1984 for $43,000. In only a few years the house was worth $200,000. The same house is now worth almost $1 million. However, the bank did not lose out or suffer from my gain. It lent $43,000 and received interest over many years. The interest bill was greater than $43,000. At one stage the interest rate hit 17.5%, but I survived by renting out rooms. Contrary to popular belief, a bank does not lend out the deposits of its clients. This would leave the bank with no reserves.

A Usurious Loan

Let us say that a bank lends out $1 billion during a year. There will be $1 billion more Commercial Bank Money that can move around between banks as payment and there will be $1 billion more debt. When the bank adds interest, there will still be $1 billion money in the system, but there will be $1 billion plus interest owing to the banks. The aggregate money owing to the banks by customers is greater than the amount of money and thus, the loans are usurious.

A Non-Usurious Loan

Let us say that a government public bank is created and all government monies are paid and spent through this bank. The government is spending money into society through the government public bank and is collecting taxation through the public bank. It is also lending and collecting repayments. So money leaving the bank is either government expenditure or loaned money. Money entering the bank is predominantly loan repayments or taxation. If government expenditure slightly exceeds taxation, debts are payable. Usury has not occurred. With government public banks, a buildup of unpayable interest tends not to occur. Where the government borrows from the government public bank, the government also owes money to itself, so the debt can be considered irrelevant. This is the system that has been used by China to elevate its nation.

One way a nation can avoid the trap of usury is by creating a National Public Bank and creating credit is the same manner as private banks.

Medieval Money

The medieval system in Britain is of interest. The King would delegate churches and archbishops the responsibility of creating currency in the larger population centres. You will notice the magnificent cathedrals in Great Britain that appear to correspond to the location of the local church mints. The church did get exceedingly rich during this time, but much of the money was spent back into society. Magnificent cathedrals were built, but the church also ran many of the functions of the local society now done by armies of bureaucrats in offices. This system ran the possibility of being usurious but the fact that the church was providing many of the services to the populace meant there was an alternative method of putting the money back into circulation.

Rev. Henry Swabey

"The Magna Carta was designed to prevent Tyranny or, in accurate language, Monarchy. In the mints we see Church and State working hand in hand, so that the Monarchy of the Usurer is avoided and prices are kept steady. These are no small achievements." [410]

"In this matter of issuing coins, King and Church worked side by side for many centuries and not only kept out the Usurer but held the price level steady - an achievement that has baffled the modern specialists and experts." [411]

"Egbert was the brother of Eadbert, King of Northumbria, so that this is an early instance of the co-operation of Church and State. There was no scarcity of metal, so the King allowed his brother to issue money for the benefit of his subjects. This showed that the Church's authority in business matters was acknowledged - business was not yet business, but part of a Christian man's life - and the Church's desire was not to make life more difficult but to facilitate the exchange of goods. If Henry VIII's Primate had been a strong brother, the divorce of Church and Business would not have been so complete." [411]

"After 928, dies were issued to subordinate mints from the Tower of London Mint. The Ecclesiastics kept the profits and paid rent. The modern historian would infer that the Ecclesiastics drew large profits from issuing money and that they would have kept it short. But on 1 lb. troy of silver minted the profit was in fact 12d, and there were 450pence in 1 lb. sterling. Of the 12 pence profit, the Ecclesiastic kept 1 pence, and the Mint Master 11 pence. This payment was for the service of issuing money and was in no sense usury on money lent. The money issued did not have to be repaid. ...

The practice of the Archbishops who provided local currency to meet local needs was poles asunder from the declaration of Paterson who founded the Bank of England in 1684 .." [Units Adjusted] [411]

Paterson openly declared:

"The Bank hath benefit of the interest on all the money that it creates out of nothing."

Asset Strip

The current system where Private Banking Corporations create unpayable debt, allows the private banks to asset strip the populace and the nation. The banks are the source of 95% of the money supply.

Influence of New Money

Where these banks lend this freshly created money, influences the economic development of the nation. The banks finish up with the power to make or break any business, organisation, company, corporation, politician or individual.

My Law of Usury
Usury is the practice of making a loan and demanding a greater amount in return than was lent such that repayment is impossible.

Only when there are alternative movements of money between the lender and the borrower will the loan be able to avoid usury. If a private lender or a group of lenders creates their own form of money-tokens and has a monopoly on their issue, unpayable debt will certainly occur. This private practice of usury will be accompanied by asset seizure, foreclosure, and a general movement of assets and real wealth towards the creditors. The lenders will become the creditor class who will become the masters and controllers and rulers of all assets, including land, property, machinery, factories, utilities, media, public opinion, government and all aspects of human life.

Share issues are the mechanism by which the creditors gain control of companies and taxation is set-up so as to push citizens and businesses in the direction of moneylenders.

A Public Bank avoids the build-up of unpayable debt with its accompanying asset stripping and impoverishment. A Public Bank is operated by the government on behalf of the people. The public bank handles all income and expenditure of the government including taxation receipts. The public bank is able to balance the difference between loans and loan repayments with the difference between government spending and taxation. Although this may be badly administered, it has some major advantages over private banks with their inevitable unpayable debt and asset appropriation. With Public Banks:

Asset stripping does not occur.

Unpayable debt does not occur.

The national debt is owed to itself.

Speculation is restricted.

Business can have access to credit for start-ups and expansion.

If a private organisation creates its own money tokens and lends it to individuals in society or to the government, taxation becomes a money harvesting operation for the benefit of the private moneylenders and causes a never-ending increase in unpayable debt to the private organisation.

Unpayable Debt to Private Banks

This can be seen in the figures for Australia for 2015:

Total cash currency issued by the Reserve Bank of Australia equals $67 billion.

Total so-called deposits in bank accounts by businesses and individuals equals $1760 billion dollars.

The debt figures for Australia are simply astounding:

The total owing by government, businesses and individuals equals $5400 billion.

So what is this money in bank accounts? It is the same value as a dollar. You can buy things with it and that fits the definition of money. This money, which is called Commercial Bank Money, clearly did not originate from the central bank. This money derives its value from the government issued currency. It is fully convertible into cash currency provided someone else is depositing cash currency at the same time.

So money is created on an as-needs basis by Private Banking Corporations so that bank-credit is available when needed. This sounds very benevolent, however, there are some downsides.

The government loses out on Seigniorage. Seigniorage is the benefit the government makes when it creates money. If the government creates $1 billion and spends it into society, the government gains the benefit of spending a billion dollars. When sovereigns or governments allow Private Banking Corporations to create money, the taxes on the people increase.

When new money is created by a private bank, it is accompanied by the creation of $1 million of debt. Thus, 97% of the money supply in the nation was created when loans were created. So there will be debt equivalent to 97% of the money supply. When private banks create loans, a nation's debt will be greater than its money supply.

It is not possible to pay back the debt because doing so would destroy the money supply.

There is a major problem that eclipses the previous minor problems. The system becomes more and more prone to collapse. If the private banks fail, the whole money system collapses and the cities starve.

James Steuart 1767

Europe was possessed by our ancestors free from taxes; our fathers saw them imposed, and we now see how fast they become mortgaged for our debts.


[410] Usury and the Church of England by Rev. Henry Swabey http://cesc.net/scholarweb/swabey/swabey.pdf]

[411] Church Mints by Henry Swabey Mid-May Draft 2008