"Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds.
When money is borrowed, interest is typically paid to the lender as a percentage of the principal, the amount owed to the lender. The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year) is called the interest rate. A bank deposit will earn interest because the bank is paying for the use of the deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories infinance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money."
Source: http://en.wikipedia.org/wiki/Interest
"Compound interest arises when interest is added to the principal of a deposit or loan, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding. A bank account, for example, may have its interest compounded every year: in this case, an account with $1000 initial principal and 20% interest per year would have a balance of $1200 at the end of the first year, $1440 at the end of the second year, $1728 at the end of the third year, and so on."
Source: http://en.wikipedia.org/wiki/Compound_interest
The first issue with the interest-system is that it causes a redistribution from the working people to the rich people. Let's use an example to clarify: Somebody inherits a million dollar from his deceased father. He puts the money on his bank account which has an interest rate of a mere percent. That means that he has an income of 10.000$ [+ further interest in the coming months as well as compound interest] on a monthly basis. There are two closely related problems with this course of action. First, he has obtained a good chunk money without any EVA [economic value added]. Second, he obtains the same chunk of money without EVER having to add economic value. There is no net product added to the economy by having a million dollar stored on a bank account yet for some reason that man gets no less than 10.000$ for it ... in the first month! Of course, everybody who concerns himself with economy a tiny bit should know that the overall amount of money circulating in the system always has to be equivalent to the amount of 'value' of the real economy. In other words: the 'new' 10.000$ on that man's bank account need to be worked for by somebody, yet it's not the man himself who has to do so. Whether you want to call that feudalism or slavery is up to everybody's own discredtion but in any case, this example shows us that the system of interest completely contradicts the merit principle of capitalism and liberalism twice: the rich person gains an increasing amount of money without any effort whatsoever. First contradiction. The average working person makes his consistent contributions to the real economy but has to fund the rich people through interest payment. Second contradiction. As we can see here, anybody who praises the principles of effort and labor - which is the very essence of capitalism and liberalism - should be expected to take issue with the system of interest and compound interest.
The second issue is the fact that the establishment of the interest-system also inevitably establishes an irreversible downward spiral of dept with it. Money is always produced as the result of a raised credit. Yet due to the system of interest, the amount of money you have to pay back in order to 'nullify' the debt is higher than the amount of money you've originally borrowed. That means that the only way to pay back depts is to create new debts somewhere else but due to the payment of interests all depts - new or old - will continue to increase until the point of bankrupcy [of private households, business and eventually the state itself]. EVA can keep the balance of that system working for some time as it substantiates the existing money with 'actual value' but unless the real economy sector of a country is just as big as the financial sector it only prolongues the inevitable process of insolvency. It will go faster in a de-industrialized country like the USA [who are to all intents and purposes already bankrupt] and slower in an industry-nation like China.
But even if we assumed that countries managed to somehow keep the EVA on par with all the faux-values of the financial sector they'd still run into a problem eventually. Let us indeed assume that each country were able to produce a consistent economic growth that allows them to substantiate their financial assets with 'real' values. In a world of ever increasing population that would lead to a struggle over the planet's ressources sooner rather than later. If we want to keep our current system of economy stable, we have to consume 4 times as many commodities in five to ten years from now. In 20 years time it will have to be 16 times as much. That means: eat 16 times as much food as we do today, consume 16 times as much water as we do to day, process and buy 16 times as much primary material and use 16 times as much energy as we do today. This is, simply put, not reconcilable with the fact that the earthly resources are finite and bound to run out one day.
Abolishing the system of interest and compound interest is the only way to put an end to the dictature of economical growth, which serves almost no purpose anymore other than to sustain itself.
When money is borrowed, interest is typically paid to the lender as a percentage of the principal, the amount owed to the lender. The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year) is called the interest rate. A bank deposit will earn interest because the bank is paying for the use of the deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories infinance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money."
Source: http://en.wikipedia.org/wiki/Interest
"Compound interest arises when interest is added to the principal of a deposit or loan, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding. A bank account, for example, may have its interest compounded every year: in this case, an account with $1000 initial principal and 20% interest per year would have a balance of $1200 at the end of the first year, $1440 at the end of the second year, $1728 at the end of the third year, and so on."
Source: http://en.wikipedia.org/wiki/Compound_interest
---
The system of interest and compound interest is an integral part in the world's economy. While it is completely dysfunctional and contradictory to any ideal of liberalism or other 'modern' ideology, it is rarely ever actually questioned and criticised in an obective, sophisticated discourse. This is a problem because the system of interest and compound interest is not only a modern equivalent of feudalism [the rich are the feudal lords who gain money for being rich, the working and middle class fund them via interest payment] but it also inevitably leads to a crash of the world's economy.
The first issue with the interest-system is that it causes a redistribution from the working people to the rich people. Let's use an example to clarify: Somebody inherits a million dollar from his deceased father. He puts the money on his bank account which has an interest rate of a mere percent. That means that he has an income of 10.000$ [+ further interest in the coming months as well as compound interest] on a monthly basis. There are two closely related problems with this course of action. First, he has obtained a good chunk money without any EVA [economic value added]. Second, he obtains the same chunk of money without EVER having to add economic value. There is no net product added to the economy by having a million dollar stored on a bank account yet for some reason that man gets no less than 10.000$ for it ... in the first month! Of course, everybody who concerns himself with economy a tiny bit should know that the overall amount of money circulating in the system always has to be equivalent to the amount of 'value' of the real economy. In other words: the 'new' 10.000$ on that man's bank account need to be worked for by somebody, yet it's not the man himself who has to do so. Whether you want to call that feudalism or slavery is up to everybody's own discredtion but in any case, this example shows us that the system of interest completely contradicts the merit principle of capitalism and liberalism twice: the rich person gains an increasing amount of money without any effort whatsoever. First contradiction. The average working person makes his consistent contributions to the real economy but has to fund the rich people through interest payment. Second contradiction. As we can see here, anybody who praises the principles of effort and labor - which is the very essence of capitalism and liberalism - should be expected to take issue with the system of interest and compound interest.
The second issue is the fact that the establishment of the interest-system also inevitably establishes an irreversible downward spiral of dept with it. Money is always produced as the result of a raised credit. Yet due to the system of interest, the amount of money you have to pay back in order to 'nullify' the debt is higher than the amount of money you've originally borrowed. That means that the only way to pay back depts is to create new debts somewhere else but due to the payment of interests all depts - new or old - will continue to increase until the point of bankrupcy [of private households, business and eventually the state itself]. EVA can keep the balance of that system working for some time as it substantiates the existing money with 'actual value' but unless the real economy sector of a country is just as big as the financial sector it only prolongues the inevitable process of insolvency. It will go faster in a de-industrialized country like the USA [who are to all intents and purposes already bankrupt] and slower in an industry-nation like China.
But even if we assumed that countries managed to somehow keep the EVA on par with all the faux-values of the financial sector they'd still run into a problem eventually. Let us indeed assume that each country were able to produce a consistent economic growth that allows them to substantiate their financial assets with 'real' values. In a world of ever increasing population that would lead to a struggle over the planet's ressources sooner rather than later. If we want to keep our current system of economy stable, we have to consume 4 times as many commodities in five to ten years from now. In 20 years time it will have to be 16 times as much. That means: eat 16 times as much food as we do today, consume 16 times as much water as we do to day, process and buy 16 times as much primary material and use 16 times as much energy as we do today. This is, simply put, not reconcilable with the fact that the earthly resources are finite and bound to run out one day.
Abolishing the system of interest and compound interest is the only way to put an end to the dictature of economical growth, which serves almost no purpose anymore other than to sustain itself.
Last edited:
