The Fed and the European Central bank have been printing credit as hard as they can – lending extra money as fast as borrowers will take it.
The idea is to replace the liquidity that the markets are destroying…and prevent the free market from working. That is, the feds try to artificially increase the supply of cash and credit…so as to avoid correcting mistakes.
Fact, it’s almost impossible for an economy to correct mistakes when the price of money is going down. Instead, mistakes are typically made worse. Already, the feds have practically sunk the entire economy with too much debt; now they’re trying to put more debt into the system.
The worst is yet to come for the global banking system, which faces potential losses of more than half-trillion dollars from investments in toxic sub-prime US mortgage debt. The problems in the financial sector have spread on a global scale never seen before 1929. A painful adjustment faces the global banking sector over the next few months as losses are revealed and new capital is raised to repair bank balance sheets.
To defuse the crisis, the Fed, the European Central Bank, and the Bank of England are pumping enormous sums of money into the banking system, at below market interest rates, to prevent a “credit crunch” from triggering a global stock market meltdown. Central banks are working together to forestall any sharp tightening in credit conditions that might lead to a downturn around the world.
There is a Battle in the financial markets : Inflation vs. Deflation; Markets vs. Market Manipulators.
The equity markets clearly want to go down, they want to correct the mistakes of the past 25 years. Credit card defaults are alarmingly high, and U.S. job data give rise to the fear of recession.
As the crisis develop politicians are going to prescribe more regulations, more government programs, more central planning and meddling. And the public– who never seem to have a clue – are going to go for it. They’re going to believe that capitalism has failed, that capitalists are greedy and that we’d be better off having apparatchiks and hacks running the economy.
Tuesday, December 25, 2007
Sunday, December 23, 2007
Buy Gold Young Man
Federal Reserve Chairman Ben Bernanke has gone on record stating that, if the need arose, the Fed would print dollars by the helicopter load to smooth over a collapse in the 25-year borrow-and-spend bubble, a collapse that is now underway.
Putting Bernanke’s words into action, since early August of 2007, the Fed has stepped up to the plate with tens of billions of dollars. On November 15 alone, the Fed injected almost $50 billion into the banking system, the largest single-day cash infusion since 9/11.
Then, on December 12, the Fed announced that it would open the spigots by providing lending $28 billion created out of nowhere to the nation’s banks in exchange for a “wide variety of collateral.'
In other words, the Fed will accept as collateral even the very same toxic waste paper now bedeviling the financial system.
And that’s just one of many ways that the government is scrambling to keep the house of cards from falling.
Faced with the very real threat of a deep recession caused by a freeze-up in credit, falling home values and soaring loan defaults, the Fed is left with a rock-and-a-hard-place decision. Hold tight and let the economy fall… hard. Or, open the money spigots wide in an attempt to maintain liquidity in the markets, sacrificing the dollar in the process.
Given two untenable choices, it is my view that the government will continue on the path of a loose monetary policy, the implications of which disastrous for the well being of all people.
Sticking with the helicopter metaphor for a moment longer, creating billions of new dollars out of thin air to smooth over a litany of problems caused by decades of irresponsible debt creation is analogous to a helicopter trying to put out a raging forest fire by dropping tank loads of gasoline.
In other words, the “solution” is more of the same. It is only making the situation worse.
The result is simply this: as more and more dollars are created and injected into the economy, the purchasing power of all the dollars in circulation comes under pressure. It’s called inflation.
In times of inflation, people turn to gold, the only real currency. Viewed in that context, it is perfectly understandable why gold has been moving higher. Moreso, in 1987 prices gold should trade at $1500 per ounce.
The younger generation of money managers know little about gold. They know about structured investments such as those that are now failing left and right, but they don’t know about gold.
While gold doesn’t go up in a straight line – no investment does – it has been considered real money since about 4,000 B.C. Compare that track record against that of government-issued paper currencies. Actually, there is no comparison.
Given the historical record, it’s hard to argue with the adage that all paper money continually falls in value, just at varying rates of speed.
For the last 6 years, gold has been a better investment than paper currencies. I expect this trend to continue and to accelerate.
But why is it that gold is still considered a store of value after all these millennia? Why is it that record numbers of investors – private and institutional – are beginning to turn to more modern forms of gold, including gold ETFs and, of course, the shares of established gold mining companies?
For the answer to that question, I defer to none other than Aristotle who, in the fourth century BC, explained why gold is money…
To serve well as money, an object must be:
durable, which is why we don’t use strawberries as money;
divisible, which is why artwork isn’t practical;
convenient, which is why lead isn’t very good;
consistent, which rules out real estate;
and useful in itself, which is why paper is such a weak choice.
Of all the 92 naturally occurring elements, none fits the requirements better than gold. No one ordained that it should be money; it grew into that role through the practical decisions of millions of people over thousands of years. Not to pick a fight with Aristotle, there’s another essential characteristic I’ll add to the list. For an object to serve well as money, it must be difficult to produce – otherwise, a growing supply of the object will undermine its value. Gold is again the standout. Adding to gold reserves requires a massive expenditure of labor and capital to find it and dig the stuff out of the ground.
So difficult is it to produce, all the gold ever mined would fit into a cube roughly 25 meters on a side -- and that’s something no politician or banker can ever change. How different from paper money, and even more different from the deposits the Federal Reserve regularly creates just by running electrons (there are plenty of them, and they don’t cost much) through a computer.
Key for gold is how little supply is added in a year -- only about 80 million ounces ($62 billion worth at today’s prices). That amounts to a gross “inflation” rate for gold of 1.6% per year, compared to the existing supply of approximately 5 billion ounces. And gold’s net inflation rate is actually a little less than that, since some amount of metal disappears every year in uses that are not fully recoverable. Competing forms of money – the U.S. dollar, for example – typically increase at an annual rate of 15% . In the final analysis, if you have not yet bought gold , it is high time now to protect your savings with gold.
Putting Bernanke’s words into action, since early August of 2007, the Fed has stepped up to the plate with tens of billions of dollars. On November 15 alone, the Fed injected almost $50 billion into the banking system, the largest single-day cash infusion since 9/11.
Then, on December 12, the Fed announced that it would open the spigots by providing lending $28 billion created out of nowhere to the nation’s banks in exchange for a “wide variety of collateral.'
In other words, the Fed will accept as collateral even the very same toxic waste paper now bedeviling the financial system.
And that’s just one of many ways that the government is scrambling to keep the house of cards from falling.
Faced with the very real threat of a deep recession caused by a freeze-up in credit, falling home values and soaring loan defaults, the Fed is left with a rock-and-a-hard-place decision. Hold tight and let the economy fall… hard. Or, open the money spigots wide in an attempt to maintain liquidity in the markets, sacrificing the dollar in the process.
Given two untenable choices, it is my view that the government will continue on the path of a loose monetary policy, the implications of which disastrous for the well being of all people.
Sticking with the helicopter metaphor for a moment longer, creating billions of new dollars out of thin air to smooth over a litany of problems caused by decades of irresponsible debt creation is analogous to a helicopter trying to put out a raging forest fire by dropping tank loads of gasoline.
In other words, the “solution” is more of the same. It is only making the situation worse.
The result is simply this: as more and more dollars are created and injected into the economy, the purchasing power of all the dollars in circulation comes under pressure. It’s called inflation.
In times of inflation, people turn to gold, the only real currency. Viewed in that context, it is perfectly understandable why gold has been moving higher. Moreso, in 1987 prices gold should trade at $1500 per ounce.
The younger generation of money managers know little about gold. They know about structured investments such as those that are now failing left and right, but they don’t know about gold.
While gold doesn’t go up in a straight line – no investment does – it has been considered real money since about 4,000 B.C. Compare that track record against that of government-issued paper currencies. Actually, there is no comparison.
Given the historical record, it’s hard to argue with the adage that all paper money continually falls in value, just at varying rates of speed.
For the last 6 years, gold has been a better investment than paper currencies. I expect this trend to continue and to accelerate.
But why is it that gold is still considered a store of value after all these millennia? Why is it that record numbers of investors – private and institutional – are beginning to turn to more modern forms of gold, including gold ETFs and, of course, the shares of established gold mining companies?
For the answer to that question, I defer to none other than Aristotle who, in the fourth century BC, explained why gold is money…
To serve well as money, an object must be:
durable, which is why we don’t use strawberries as money;
divisible, which is why artwork isn’t practical;
convenient, which is why lead isn’t very good;
consistent, which rules out real estate;
and useful in itself, which is why paper is such a weak choice.
Of all the 92 naturally occurring elements, none fits the requirements better than gold. No one ordained that it should be money; it grew into that role through the practical decisions of millions of people over thousands of years. Not to pick a fight with Aristotle, there’s another essential characteristic I’ll add to the list. For an object to serve well as money, it must be difficult to produce – otherwise, a growing supply of the object will undermine its value. Gold is again the standout. Adding to gold reserves requires a massive expenditure of labor and capital to find it and dig the stuff out of the ground.
So difficult is it to produce, all the gold ever mined would fit into a cube roughly 25 meters on a side -- and that’s something no politician or banker can ever change. How different from paper money, and even more different from the deposits the Federal Reserve regularly creates just by running electrons (there are plenty of them, and they don’t cost much) through a computer.
Key for gold is how little supply is added in a year -- only about 80 million ounces ($62 billion worth at today’s prices). That amounts to a gross “inflation” rate for gold of 1.6% per year, compared to the existing supply of approximately 5 billion ounces. And gold’s net inflation rate is actually a little less than that, since some amount of metal disappears every year in uses that are not fully recoverable. Competing forms of money – the U.S. dollar, for example – typically increase at an annual rate of 15% . In the final analysis, if you have not yet bought gold , it is high time now to protect your savings with gold.
Saturday, December 22, 2007
أنت بدون الإسلام صفر
من مبادئنا الأصيلة، ومن تعاليمنا الجليلة، أن نفتخر بهذا الدين، وأن نتشرّف بأن جعلنا الله مسلمين، فمَن لم يتشرّف بالدين ومن لم يفتخر بكونه من المسلمين، ففي قلبه شك وقلّة يقين، يقول الله في محكم التنـزيل، مُخاطباً رسوله صلى الله عليه وسلم: (وإنه لذكرٌ لك ولقومك وسوف تُسئلون)، أيْ: شرف لك، وشرف لقومك، وشرف لأتباعك إلى يوم القيامة، فالواجب أن تتشرّف بالقرآن، لكونك من أُمّة القرآن، ومن أُمة الإسلام.
بُشرى لنا معشر الإسلام إن لنا مـن العناية ركناً غير مُنْهَدِمِ
لـمّا دعا الله داعِينا لطـاعته بأكرم الرُّسْلِ كنّا أكرمَ الأُمَمِ
يقول جلّ ذِكره: (ولا تهنوا ولا تحزنوا وأنتم الأعلون إن كنتم مؤمنين)، الأعلون سنداً، والأعلون مبادئاً، والأعلون منهجاً، فمبدؤنا المبدأ الأصيل، وقرآننا القرآن الجليل، وسندنا الربُّ الفضيل، فكيف يهِن مَن كان الله سنده، وكيف يِهن مَن كان الله ربّه ومولاه، وكيف يهِن مَن كان رسوله وقُدوته محمداً صلى الله عليه وسلم، وكيف يِهن مَن كان دينه الإسلام؟!.
ولذلك كان لزاماً علينا أن نفخر، وأن نشعر بالشرف والجلالة والنّبل، يوم أن جعلنا الله مسلمين.
لقد ردّ الله –عز وجلّ- على الذين ظنّوا أن مبادئ الشرف ومبادئ الرّفعة، في تحصيل الأموال وامتلاك الدنيا فقال سبحانه: (وقالوا لولا نُزّل هذا القرآن على رجلٍ من القريتين عظيم، أهم يقسمون رحمت ربك نحن قسمنا بينهم معيشتهم في الحياة الدنيا ورفعنا بعضهم فوق بعضٍ درجات ليتخذ بعضهم بعضاً سخرياً ورحمت ربك خيرٌ مما يجمعون).
فالشّرف كل الشّرف ليس في الدور، ولا القصور، ولا في الأموال، ولا في الهيئات ولا في الذّوات، الشّرف أن تكون عبداً لربّ الأرض والسموات، الشرف أن تكون من أولياء الله، الذين يعملون الصالحات، ويجتنبون المُحَرَّمات، ويحبون الصالحين.
ترى المتّقي، فيُحبّه قلبك إن كنت مسلماً؛ لِما يظهر عليه من علامات النصح والقبول والرِّضا، وترى الكافر فيبغضه قلبك، ولو كان وسيماً جميلاً، لأن عليه آيات السّخط، وتعلوه سِمات الإعراض عن الله: (وإذا رأيتهم تُعجبك أجسامهم وإن يقولوا تسمع لقولهم كأنهم خشبٌ مسندة)، فالأجسام طويلة، والبشرة جميلة، ولكن القلوب قلوب ضلالة، وقلوب جهالة، وقلوب عمالة، ولذلك كان الصحابة رضوان الله عليهم، لا يملكون في الدنيا قليلاً ولا كثيراً، ولا يجد أحدهم إلا كسرَة الخبز، وينام في الطرقات، ولكن الله نظر إلى قلوبهم فهَداهم إلى الإسلام.
أخي : افخر بأنك مسلم، ولا يساورك شك في عظمة هذا الدين الذي تعتنقه، وفي أثره الحميد عليك، عضَّ عليه بالنواجذ، وتشبث به، وانضوِ تحت رايته، لتتقدم وترتقي، وسيكون المجد رفيقك، والرفعة مكانك، والنصر حليفك، إن أبقيت حبلك موصولاً بربك، وافتخرت بأنك مسلم، فأنت بدون الإسلام صفر.
بُشرى لنا معشر الإسلام إن لنا مـن العناية ركناً غير مُنْهَدِمِ
لـمّا دعا الله داعِينا لطـاعته بأكرم الرُّسْلِ كنّا أكرمَ الأُمَمِ
يقول جلّ ذِكره: (ولا تهنوا ولا تحزنوا وأنتم الأعلون إن كنتم مؤمنين)، الأعلون سنداً، والأعلون مبادئاً، والأعلون منهجاً، فمبدؤنا المبدأ الأصيل، وقرآننا القرآن الجليل، وسندنا الربُّ الفضيل، فكيف يهِن مَن كان الله سنده، وكيف يِهن مَن كان الله ربّه ومولاه، وكيف يهِن مَن كان رسوله وقُدوته محمداً صلى الله عليه وسلم، وكيف يِهن مَن كان دينه الإسلام؟!.
ولذلك كان لزاماً علينا أن نفخر، وأن نشعر بالشرف والجلالة والنّبل، يوم أن جعلنا الله مسلمين.
لقد ردّ الله –عز وجلّ- على الذين ظنّوا أن مبادئ الشرف ومبادئ الرّفعة، في تحصيل الأموال وامتلاك الدنيا فقال سبحانه: (وقالوا لولا نُزّل هذا القرآن على رجلٍ من القريتين عظيم، أهم يقسمون رحمت ربك نحن قسمنا بينهم معيشتهم في الحياة الدنيا ورفعنا بعضهم فوق بعضٍ درجات ليتخذ بعضهم بعضاً سخرياً ورحمت ربك خيرٌ مما يجمعون).
فالشّرف كل الشّرف ليس في الدور، ولا القصور، ولا في الأموال، ولا في الهيئات ولا في الذّوات، الشّرف أن تكون عبداً لربّ الأرض والسموات، الشرف أن تكون من أولياء الله، الذين يعملون الصالحات، ويجتنبون المُحَرَّمات، ويحبون الصالحين.
ترى المتّقي، فيُحبّه قلبك إن كنت مسلماً؛ لِما يظهر عليه من علامات النصح والقبول والرِّضا، وترى الكافر فيبغضه قلبك، ولو كان وسيماً جميلاً، لأن عليه آيات السّخط، وتعلوه سِمات الإعراض عن الله: (وإذا رأيتهم تُعجبك أجسامهم وإن يقولوا تسمع لقولهم كأنهم خشبٌ مسندة)، فالأجسام طويلة، والبشرة جميلة، ولكن القلوب قلوب ضلالة، وقلوب جهالة، وقلوب عمالة، ولذلك كان الصحابة رضوان الله عليهم، لا يملكون في الدنيا قليلاً ولا كثيراً، ولا يجد أحدهم إلا كسرَة الخبز، وينام في الطرقات، ولكن الله نظر إلى قلوبهم فهَداهم إلى الإسلام.
أخي : افخر بأنك مسلم، ولا يساورك شك في عظمة هذا الدين الذي تعتنقه، وفي أثره الحميد عليك، عضَّ عليه بالنواجذ، وتشبث به، وانضوِ تحت رايته، لتتقدم وترتقي، وسيكون المجد رفيقك، والرفعة مكانك، والنصر حليفك، إن أبقيت حبلك موصولاً بربك، وافتخرت بأنك مسلم، فأنت بدون الإسلام صفر.
Monday, December 10, 2007
Subprime Mortgage : Another crime of the banks
What is hurting the banking industry now is subprime lending – that is, passing out money to subprime mortgage borrowers, subprime corporate borrowers and subprime speculators.
But don’t worry. We live in an age of Democracy & Capitalism...and the protectors (banks) are supposed to make sure the consumers don’t get hurt.
So it was that Henry Paulson came up with an idea...the ‘teaser freezer’ plan. It is being sold to the public as a way to protect homeowners . But it has another purpose,to help save the banks from their own bad judgment.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates,the real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies – all the way up to senior management – knew about it.
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
The problem isn’t just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world.
Ultimately, the people in these secret Paulson meetings were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time. As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006.
Paulson became the U.S. Treasury Secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know. Goldman Sachs achieved recent accolades in the markets for having bet heavily against the housing market, while Citigroup, Morgan Stanley, Bear Sterns, Merrill Lynch and others got hammered for failing to time the end of the credit bubble.
Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.
It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.
But don’t worry. We live in an age of Democracy & Capitalism...and the protectors (banks) are supposed to make sure the consumers don’t get hurt.
So it was that Henry Paulson came up with an idea...the ‘teaser freezer’ plan. It is being sold to the public as a way to protect homeowners . But it has another purpose,to help save the banks from their own bad judgment.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates,the real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies – all the way up to senior management – knew about it.
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
The problem isn’t just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world.
Ultimately, the people in these secret Paulson meetings were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time. As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006.
Paulson became the U.S. Treasury Secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know. Goldman Sachs achieved recent accolades in the markets for having bet heavily against the housing market, while Citigroup, Morgan Stanley, Bear Sterns, Merrill Lynch and others got hammered for failing to time the end of the credit bubble.
Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.
It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.
Monday, December 3, 2007
Moslems Without Islam
If we are to contribute toward the development and betterment of arab societies, we must raise the issue how the Muslim world can regain its purpose & vitality, and how it can respond successfully to the challenges that it is now faced with?
One, the strength of government does not materialize except through implementation of justice, equality among all citizens, protection of private property, and freedom for all.
Two, government cannot gain strength except through its people.
Three, people cannot be sustained except by wealth.
Four, wealth cannot be acquired except through development.
Five, development cannot be attained except through justice.
Six, justice is the criterion by which God will evaluate mankind.
Seventh, government is charged with the responsibility of actualizing justice.
The human being must be at the centre of any development because the rise and fall of civilizations is closely dependent on the well-being or misery of the people.
If human beings are the focus, then development and justice become the most crucial links in the chain of causation. Development is essential because unless there is a perceptible improvement in the well-being of the people, they will not be motivated to do their best . Moreover, in the absence of development, the inflow of scholars, artisans, labour and capital that need to take place from other societies to boost development further may not take place . This may make it difficult to sustain development and may lead ultimately to a decline .
Development does not refer to merely economic growth. It encompasses all-round human development . Economic development cannot be brought about by economic forces alone in isolation of non-economic sectors of the society.
It needs moral, social, political and demographic support. If this support does not become available, economic development may not get triggered, and if it does, it may not be sustainable. Development is, however, not possible without justice. However, justice, like development, is also not conceived in a narrow economic sense but rather in the more comprehensive sense of justice in all spheres of human life.
Anyone who confiscates the property of someone or forces him to work for him, or presses an unjustified claim against him, or imposes on him a duty not required by law has committed injustice. Collection of unjustified taxes is also injustice; transgression on another’s property or taking it away by force or theft constitutes injustice; denying other people their rights is also injustice . One of the greatest injustices and the most destructive of development is the unjustified imposition of tasks on people and subjecting them to forced labour.
The extent to which property rights are infringed determines the extent to which the incentive to earn and acquire it goes. If the incentive is gone, they refrain from earning. This adversely affects their efficiency, innovativeness, entrepreneurship, drive and other qualities, ultimately leading to the society’s disintegration and decline.
Justice, however, necessitates certain rules of behaviour which include economics and moral values in religious worldviews. They are the standards by which people interact with, and fulfill their obligations towards each other.
Divine Laws command the doing of good and prohibit the doing of what is evil and destructive.
The Divine laws can only give rules of behaviour, it cannot itself enforce them. It is the responsibility of the political authority to ensure compliance through incentives and deterrents . The political authority has the same relationship to a civilization as form has to matter .It is not possible to conceive of political authority without civilization and of civilization without political authority . Good rulership is equivalent to gentleness and if the ruler is tyrannical and harsh in punishments . . . the people become fearful and depressed and seek to protect themselves by means of lies, ruses and deception. This becomes their character trait. Their perceptions and character become corrupted . . .. They may conspire to kill him.
Recognition of private property and respect for individual freedom within the constraints of moral values .The job of the state is, in addition to defense and maintenance of law and order, to ensure justice, fulfillment of contracts, removal of grievances, fulfillment of needs and compliance with the rules of behaviour.8 In other words, the state must do things that help people carry on their lawful businesses more effectively and prevent them from committing excesses and injustices against each other.
It is undesirable for the government authority to get directly involved in economic activity. Doing so will not only hurt the people by reducing their opportunities and
profits (now termed as crowding out of the private sector) but also reduce the state’s tax revenue. Thus, the state must neither be a laissez faire state nor a totalitarian state. It is rather a state which ensures the prevalence justice, protection of private property and
serves as an instrument for accelerating human development and well-being .
Wealth provides the resources that are needed for ensuring justice and development, the effective performance of its role by the government , and the well-being of all people.
Wealth does not depend on the stars , or the existence of gold and silver mines . It depends rather on economic activities and, the largeness of the market, incentives and facilities provided by the government and tools , which in turn depend on saving or the surplus left after satisfying the needs of the people. The greater the activity, the greater will be the income. Higher income will contribute to larger savings and greater investment in tools which will in turn contribute to greater development and wealth . we must emphasize the role of investment further by saying: wealth does not grow when hoarded and amassed in safes. It rather grows and expands when it is spent for the well-being of the people, for giving them their rights, and for removing their hardships. This makes the people better off, strengthens the government , makes the times prosperous, and enhances its prestige . Factors that act as catalysts are low rates of taxes , security of life and property , and a healthy physical environment amply provided with trees and water and other essential amenities of life .
Wealth also depends on division of labour and specialization, the greater the specialization the higher will be the growth of wealth. Individual human beings cannot by themselves satisfy all their needs. They must cooperate for this purpose in their civilization. The needs that can be satisfied by the cooperation of a group exceed many times what they can produce individually .
The surplus is spent to provide the goods of luxury and to satisfy the needs of inhabitants
of other cities. They import other goods in exchange for these. They will then have more wealth .Greater prosperity enables them to have luxury and the things that go with it, such as elegant houses, clothes and utensils, and the use of servants and carriages . . . Consequently, industry and crafts thrive . Human beings do not allow their labour to be used free. Therefore, division of labour will take place only when exchange is possible.
This requires well-regulated markets which enable people to exchange and fulfill their needs .
A rise in incomes and wealth contributes to a rise in tax revenues and enables the government to spend more on the people’s well-being. This leads to an expansion in economic opportunities and greater development, which, in turn, induces a natural rise in population and also the immigration of skilled and unskilled labour and scholars from other places , thus further strengthening the human and intellectual capital of that society. Such a rise in population boosts the demand for goods and services, and thereby promotes industries), raises incomes, promotes sciences and education , and further accelerates development . In the beginning, prices tend to decline with the rise in development and production. However, if demand keeps on rising and the supply is unable to keep pace with it, scarcities develop, leading to a rise in the prices of goods and services. The prices of necessities tend to rise faster than those of luxuries, and prices in urban areas rise faster than those in rural areas.
The cost of labour also rises and so do taxes. These lead to a further rise in prices, which creates hardship for people and leads to a reversal in the flow of population. Development declines and along with it prosperity and civilization .
The strength or weakness of civilization depends on the strength or weakness
of the political authority which it embodies. The survival of the political authority depends ultimately on the well-being of the people which it must try to ensure by providing a proper environment for actualizing development as well as justice . If the political authority is corrupt and incompetent and not accountable before the people, it will not perform its functions conscientiously. Consequently, the resources at its disposal will not get effectively utilized and the services that need to be provided to facilitate development will not become available. Development as well as well-being will then suffer. Unless there is development, the resources needed to enable the society as well as the government to meet the challenges that they face and to actualize their socio-economic goals will not expand.
One, the strength of government does not materialize except through implementation of justice, equality among all citizens, protection of private property, and freedom for all.
Two, government cannot gain strength except through its people.
Three, people cannot be sustained except by wealth.
Four, wealth cannot be acquired except through development.
Five, development cannot be attained except through justice.
Six, justice is the criterion by which God will evaluate mankind.
Seventh, government is charged with the responsibility of actualizing justice.
The human being must be at the centre of any development because the rise and fall of civilizations is closely dependent on the well-being or misery of the people.
If human beings are the focus, then development and justice become the most crucial links in the chain of causation. Development is essential because unless there is a perceptible improvement in the well-being of the people, they will not be motivated to do their best . Moreover, in the absence of development, the inflow of scholars, artisans, labour and capital that need to take place from other societies to boost development further may not take place . This may make it difficult to sustain development and may lead ultimately to a decline .
Development does not refer to merely economic growth. It encompasses all-round human development . Economic development cannot be brought about by economic forces alone in isolation of non-economic sectors of the society.
It needs moral, social, political and demographic support. If this support does not become available, economic development may not get triggered, and if it does, it may not be sustainable. Development is, however, not possible without justice. However, justice, like development, is also not conceived in a narrow economic sense but rather in the more comprehensive sense of justice in all spheres of human life.
Anyone who confiscates the property of someone or forces him to work for him, or presses an unjustified claim against him, or imposes on him a duty not required by law has committed injustice. Collection of unjustified taxes is also injustice; transgression on another’s property or taking it away by force or theft constitutes injustice; denying other people their rights is also injustice . One of the greatest injustices and the most destructive of development is the unjustified imposition of tasks on people and subjecting them to forced labour.
The extent to which property rights are infringed determines the extent to which the incentive to earn and acquire it goes. If the incentive is gone, they refrain from earning. This adversely affects their efficiency, innovativeness, entrepreneurship, drive and other qualities, ultimately leading to the society’s disintegration and decline.
Justice, however, necessitates certain rules of behaviour which include economics and moral values in religious worldviews. They are the standards by which people interact with, and fulfill their obligations towards each other.
Divine Laws command the doing of good and prohibit the doing of what is evil and destructive.
The Divine laws can only give rules of behaviour, it cannot itself enforce them. It is the responsibility of the political authority to ensure compliance through incentives and deterrents . The political authority has the same relationship to a civilization as form has to matter .It is not possible to conceive of political authority without civilization and of civilization without political authority . Good rulership is equivalent to gentleness and if the ruler is tyrannical and harsh in punishments . . . the people become fearful and depressed and seek to protect themselves by means of lies, ruses and deception. This becomes their character trait. Their perceptions and character become corrupted . . .. They may conspire to kill him.
Recognition of private property and respect for individual freedom within the constraints of moral values .The job of the state is, in addition to defense and maintenance of law and order, to ensure justice, fulfillment of contracts, removal of grievances, fulfillment of needs and compliance with the rules of behaviour.8 In other words, the state must do things that help people carry on their lawful businesses more effectively and prevent them from committing excesses and injustices against each other.
It is undesirable for the government authority to get directly involved in economic activity. Doing so will not only hurt the people by reducing their opportunities and
profits (now termed as crowding out of the private sector) but also reduce the state’s tax revenue. Thus, the state must neither be a laissez faire state nor a totalitarian state. It is rather a state which ensures the prevalence justice, protection of private property and
serves as an instrument for accelerating human development and well-being .
Wealth provides the resources that are needed for ensuring justice and development, the effective performance of its role by the government , and the well-being of all people.
Wealth does not depend on the stars , or the existence of gold and silver mines . It depends rather on economic activities and, the largeness of the market, incentives and facilities provided by the government and tools , which in turn depend on saving or the surplus left after satisfying the needs of the people. The greater the activity, the greater will be the income. Higher income will contribute to larger savings and greater investment in tools which will in turn contribute to greater development and wealth . we must emphasize the role of investment further by saying: wealth does not grow when hoarded and amassed in safes. It rather grows and expands when it is spent for the well-being of the people, for giving them their rights, and for removing their hardships. This makes the people better off, strengthens the government , makes the times prosperous, and enhances its prestige . Factors that act as catalysts are low rates of taxes , security of life and property , and a healthy physical environment amply provided with trees and water and other essential amenities of life .
Wealth also depends on division of labour and specialization, the greater the specialization the higher will be the growth of wealth. Individual human beings cannot by themselves satisfy all their needs. They must cooperate for this purpose in their civilization. The needs that can be satisfied by the cooperation of a group exceed many times what they can produce individually .
The surplus is spent to provide the goods of luxury and to satisfy the needs of inhabitants
of other cities. They import other goods in exchange for these. They will then have more wealth .Greater prosperity enables them to have luxury and the things that go with it, such as elegant houses, clothes and utensils, and the use of servants and carriages . . . Consequently, industry and crafts thrive . Human beings do not allow their labour to be used free. Therefore, division of labour will take place only when exchange is possible.
This requires well-regulated markets which enable people to exchange and fulfill their needs .
A rise in incomes and wealth contributes to a rise in tax revenues and enables the government to spend more on the people’s well-being. This leads to an expansion in economic opportunities and greater development, which, in turn, induces a natural rise in population and also the immigration of skilled and unskilled labour and scholars from other places , thus further strengthening the human and intellectual capital of that society. Such a rise in population boosts the demand for goods and services, and thereby promotes industries), raises incomes, promotes sciences and education , and further accelerates development . In the beginning, prices tend to decline with the rise in development and production. However, if demand keeps on rising and the supply is unable to keep pace with it, scarcities develop, leading to a rise in the prices of goods and services. The prices of necessities tend to rise faster than those of luxuries, and prices in urban areas rise faster than those in rural areas.
The cost of labour also rises and so do taxes. These lead to a further rise in prices, which creates hardship for people and leads to a reversal in the flow of population. Development declines and along with it prosperity and civilization .
The strength or weakness of civilization depends on the strength or weakness
of the political authority which it embodies. The survival of the political authority depends ultimately on the well-being of the people which it must try to ensure by providing a proper environment for actualizing development as well as justice . If the political authority is corrupt and incompetent and not accountable before the people, it will not perform its functions conscientiously. Consequently, the resources at its disposal will not get effectively utilized and the services that need to be provided to facilitate development will not become available. Development as well as well-being will then suffer. Unless there is development, the resources needed to enable the society as well as the government to meet the challenges that they face and to actualize their socio-economic goals will not expand.
Rothschilds & Rockefellers - Terrorists Or Bankers
Money is Power", or shall we say, "The Monopoly to Create Credit Money and charge interest is Absolute Power". (Alex James)
Amsel (Amschel) Bauer Mayer Rothschild, 1838:
"Let me issue and control a Nation's money and I care not who makes its laws".
Letter written from London by the Rothschilds to their New York agents introducing their banking method into America: "The few who can understand the system will be either so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while, on the other hand, that great body of people, mentally incapable of comprehending the tremendous advantage that Capital derives from the system, will bear its burden without complaint and, perhaps, without even suspecting that the system is inimical to their interests."
Nathan Rothschild said to the Commons Secret Committee on the question early in 1819: "In what line of business are you? - Mostly in the foreign banking line. "Have the goodness to state to the Committee in detail, what you conceive would be the consequence of an obligation imposed upon the Bank [of England, which he owned] to resume cash payments at the expiration of a year from the present time? - I do not think it can be done without very great distress to this country; it would do a great deal of mischief; we may not actually know ourselves what mischief it might cause. "Have the goodness to explain the nature of the mischief, and in what way it would be produced? - Money will be so very scarce, every article in this country will fall to such an enormous extent, that many persons will be ruined."
The director of the Prussian Treasury wrote on a visit to London that Nathan Rothschild had as early as 1817: ".., incredible influence upon all financial affairs here in London. It is widely stated.., that he entirely regulates the rate of exchange in the City. His power as a banker is enormous".
Austrian Prince Mettemich's secretary wrote of the Rothschilds, as early as 1818, that: "... they are the richest people in Europe."
Referring to James Rothschild, the poet Heinrich Heine said: "Money is the god of our times, and Rothschild is his prophet."
James Rothschild built his fabulous mansion, called Ferrilres, 19 miles north-east of Paris. Wilhelm I, on first seeing it, exclaimed: "Kings couldn't afford this. It could only belong to a Rothschild!"
Author Frederic Morton wrote that the Rothschilds had: "conquered the World more thoroughly, more cunningly, and much more lastingly than all the Caesars before..."
As Napoleon pointed out: "Terrorism, War & Bankruptcy are caused by the privatization of money, issued as a debt and compounded by interest "- he cancelled debt and interest in France - hence the Battle of Waterloo.
Some writers have claimed that Nathan Rothschild "warned that the United States would find itself involved in a most disastrous war if the bank's charter were not renewed." (do you see the similarities here? If you don't play the game an economic disaster will fall on you and you will be destroyed.)
"There is but one power in Europe and that is Rothschild." 19th century French commentator.
Lord Rothschild (Rockefellers and Rothschilds' relatives) in his book The Shadow of a Great Man quotes a letter sent from Davidson on June 24, 1814 to Nathan Rothschild, "As long as a house is like yours, and as long as you work together with your brothers, not a house in the world will be able to compete with you, to cause you harm or to take advantage of you, for together you can undertake and perform more than any house in the world." The closeness of the Rothschild brothers is seen in a letter from Soloman (Salmon) Rothschild to his brother Nathan on Feb. 28, 1815, "We are like the mechanism of a watch: each part is essential." (2) This closeness is further seen in that of the 18 marriages made by Mayer Amschel Rothschild's grandchildren - 16 were contracted between first cousins.
"Centralisation of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly." The Communist Manifesto. In the case of the Bolshevik revolution, Rothschilds/ Rockefellers' Chase Bank owned the state. In the US, the FED owners "own" the state.
Rothschilds' favorite saying who along with the Rockefellers are the major Illuminati Banking Dynasties: "Who controls the issuance of money controls the government!"
Nathan Rothschild said (1777-1836): "I care not what puppet is placed on the throne of England to rule the Empire. The man who controls Britain's money supply controls the British Empire and I control the British money supply."
Rockefeller is reported to have said: "Competition is a sin". "Own nothing. Control everything". Because he wants to centralize control of everything and enslave us all, i.e. the modern Nimrod or Pharaoh.
The Rothschild were behind the colonization and occupations of India and the Rothschild owned British Petroleum was granted unlimited rights to all offshore Indian oil, which is still valid till this day.
"Give me the control of the credit of a nation, and I care not who makes the laws." The famous boastful statement of Nathaniel Meyer Rothschild, speaking to a group of international bankers, 1912: "The few who could understand the system (cheque, money, credits) will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." The boastful statement by Rothschild Bros. of London.
These people are the top masterminds and conspired for the creation of illegal FEDERAL RESERVE BANK in 1913: Theodore Roosevelt, Paul Warburg - Representative Of Rothschild, Woodrow Wilson - U.S. President Signed FED Into Act, Nelson W. Aldrich - Representative Of Rockefeller, Benjamin Strong - Representative Of Rockefeller, Frank A. Vanderlip - Representative Of Rockefeller, John D. Rockefeller - Rockefeller Himself, Henry Davison - Representative Of J. P. Morgan, Charles Norton - Representative Of J. P. Morgan.
In the last century, members of the British Fabian Society dynastic banking families in the City of London financed the Communist takeover of Russia. Trotsky in his biography refers to some of the loans from these British financiers going back as far as 1907. By 1917 the major subsidies and funding for the Bolshevik Revolution were co-ordinated and arranged by Sir George Buchanan and Lord Alfred Milner. [no doubt using money from Cecil Rhodes' South African gold and diamond legacy - Ed] The Communist system in Russia was a "British experiment" designed ultimately to become the Fabian Socialist model for the British takeover of the World through the UN and EU. The British plan to takeover the World and bring in a "New World Order" began with the teachings of John Ruskin and Cecil Rhodes at Oxford University. Rhodes in one of his wills in 1877 left his vast fortune to Lord Nathan Rothschild as trustee to set up the Rhodes Scholarship Program at Oxford to indoctrinate promising young graduates for the purpose, and also establish a secret society [Royal Institute of International Affairs RIIA, which branched into the Round Table, the Bilderbergers, the CFR, the Trilateral, etc -- Ed] for leading business and banking leaders around the World who would work for the City to bring in their Socialist World government.
Rothschild appointed Lord Alfred Milner to implement the plan.
Benjamin Freedman (Friedman) said this in 1961, Washington (he was a millionaire insider in international Zionist organizations, friend to 4 US presidents, and was also part of the 117-man strong Zionist delegation at the signing of the Treaty of Versailles in 1919 where Germany was forced into bankruptcy to the Zionist BankLords and social chaos): "Two years into WW1, Germany, which was then winning the war, offered Britain and France a negotiated peace deal, but German Zionist groups seeing the opportunity made a deal with Britain to get the United States into the war if Britain promised to give the Zionists Palestine."
In other words, they made this deal: "We will get the United States into this war as your ally. The price you must pay us is Palestine after you have won the war and defeated Germany, Austria-Hungary, and Turkey." They made that promise, in October of 1916. And shortly after that -- I don't know how many here remember it -- the United States, which was almost totally pro-German because the newspapers and mass communications media here were controlled by the Zionist bankers who owned the major commercial banks and the 12 Federal Reserve Banks (the original Stockholders of the Federal Reserve Banks in 1913 were the Rockefeller' s, JP Morgan, Rothschild's, Lazard Freres, Schoellkopf, Kuhn-Loeb, Warburgs, Lehman Brothers and Goldman Sachs, all with roots in Germany's Zionists like the British Royal family, J.P. Morgan, Carnegie, Bush, Rumsfeld, Clintons, the Nazis that were brought into the CIA, etc. http://land.netonecom.net/tlp/ref/federal_reserve.shtml ) and they were pro-German because they wanted to use Germany to destroy the Czar of Russia and let the Communists whom they funded take over. The German Zionist bankers -- Rothschilds, Rockefeller, Kuhn Loeb and the other big banking firms in the United States refused to finance France or England to the extent of one dollar. They stood aside and they said: "As long as France and England are tied up with Russia, not one cent!" They poured money into Germany, fighting with Germany against Russia, to lick the Czarist regime. The newspapers had been all pro-German, where they'd been telling the people of the difficulties that Germany was having fighting Great Britain commercially and in other respects, then after making the deal with the British for Palestine, all of a sudden the Germans were no good. They were villains. They were Huns. They were shooting Red Cross nurses. They were cutting off babies' hands. And they were no good. The Zionists in London sent cables to the US, to Justice Brandeis: "Go to work on President Wilson. We're getting from England what we want. Now you go to work, and you go to work on President Wilson and get the US into the war." And that did happen. Shortly after President Woodrow Wilson declared war on Germany.
The power of the Rothschild family was evidenced on 24 Sept 2002 when a helicopter touched down on the lawn of Waddedson Manor, their ancestral home in Buckinghamshire, England. Out of the helicopter strode Warren Buffet, - touted as the second richest man in the World but really a lower ranking player- and Arnold Schwarzenegger (the gropinator), at that time a candidate for the Governorship of California. Also in attendance at this two day meeting of the World's most powerful businessmen and financiers hosted by Jacob Rothschild were James Wolfensohn, president of the World Bank and Nicky Oppenheimer, chairman of De Beers. Arnold went on to secure the governorship of one of the biggest economies on the planet a year later. That he was initiated into the ruling class in the Rothschilds' English country manor suggests that the centre of gravity of the three hundred trillion dollar cartel is in the U.K. and Europe not the U.S.
A recent article in the London Financial Times indicates why it is impossible to gain an accurate estimate of the wealth of the trillionaire bankers. Discussing the sale of Evelyn Rothschild's stake in Rothschild Continuation Holdings, it states: ...[this] requires agreement on the valuation of privately held assets whose value has never been tested in a public market. Most of these assets are held in a complex network of tax-efficient structures around the World.
Queen Elizabeth II's shareholdings remain hidden behind Bank of England Nominee accounts. The Guardian newspaper reported in May 2002 ... "the reason for the wild variations in valuations of her private wealth can be pinned on the secrecy over her portfolio of share investments. This is because her subjects have no way of knowing through a public register of interests where she, as their head of state, chooses to invest her money. Unlike the members of the Commons and now the Lords, the Queen does not have to annually declare her interests and as a result her subjects cannot question her or know about potential conflicts of interests..." In fact, the Queen even has an extra mechanism to ensure that her investments remain secret - a nominee company called the Bank of England Nominees. It has been available for decades to the entire World's current heads of state to allow them anonymity when buying shares. Therefore, when a company publishes a share register and the Bank of England Nominees is listed, it is not possible to gauge whether the Queen, President Bush or even Saddam Hussein is the true shareholder.
By this method, the trillionaire masters of the universe remain hidden whilst Forbes magazine poses lower ranking billionaires like Bill Gates and Warren Buffett as the richest men in the World. Retired management consultant Gaylon Ross Sr, author of Who's Who of the Global Elite, has been tipped from a private source that the combined wealth of the Rockefeller family in 1998 was approx (US) $11 trillion and the Rothschilds (U.S.) $100 trillion. However something of an insider's knowledge of the hidden wealth of the elite is contained in the article, "Will the Dollar and America Fall Down on August 19?.." on page 1 of the 12th July 2001 issue of Russian newspaper Pravda. The newspaper interviewed Tatyana Koryagina, a senior research fellow in the Institute of Macroeconomic Researches subordinated to the Russian Ministry of Economic Development (Minekonom) on the subject of a recent conference concerning the fate of the U.S. economy:
Koryagina: The known history of civilization is merely the visible part of the iceberg. There is a shadow economy, shadow politics and also a shadow history, known to conspirologists. There are [unseen] forces acting in the World, unstoppable for [most powerful] countries and even continents.
Ashley Mote (EU): "Mr President, I wish to draw your attention to the Global Security Fund, set up in the early 1990s under the auspices of Jacob Rothschild. This is a Brussels-based fund and it is no ordinary fund: it does not trade, it is not listed and it has a totally different purpose. It is being used for geopolitical engineering purposes, apparently under the guidance of the intelligence services." "I have previously asked about the alleged involvement of the European Union's own intelligence resources in the management of slush funds in offshore accounts, and I still await a reply. To that question I now add another: what are the European Union's connections to the Global Security Fund and what relationship does it have with European Union institutions? "Recently, Ashley Mote of the European Union (EU) asked this volatile question in a public EU meeting, a question never answered, as Mr. Mote, merely by asking this question, was immediately scratched from the White House Christmas card list and placed on its top ten hit list. The Illuminati's cash cow, grazing freely on the World wide pasture of greenbacks, isn't called "Elsie" but instead is called the Global Security Fund, a name actually meaning in the secret cult's language Global Terrorist Fund. In simple terms, it's a gigantic illegal trust fund, estimated by undercover overseas financial investigators at 65 trillion dollars, set-up for "Illuminati rainy days" and established when it is desperately needed in a pinch for bribery, assassinations and sponsoring World wide terrorist activities to divert attention from their banking mafia. Although the fund is cloaked in secrecy and made possible by the Western civilization' s Federal Reserve banking system, investigators trying to pry into the Illuminati's secret treasure trove have uncovered some interesting facts.
Amsel (Amschel) Bauer Mayer Rothschild, 1838:
"Let me issue and control a Nation's money and I care not who makes its laws".
Letter written from London by the Rothschilds to their New York agents introducing their banking method into America: "The few who can understand the system will be either so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while, on the other hand, that great body of people, mentally incapable of comprehending the tremendous advantage that Capital derives from the system, will bear its burden without complaint and, perhaps, without even suspecting that the system is inimical to their interests."
Nathan Rothschild said to the Commons Secret Committee on the question early in 1819: "In what line of business are you? - Mostly in the foreign banking line. "Have the goodness to state to the Committee in detail, what you conceive would be the consequence of an obligation imposed upon the Bank [of England, which he owned] to resume cash payments at the expiration of a year from the present time? - I do not think it can be done without very great distress to this country; it would do a great deal of mischief; we may not actually know ourselves what mischief it might cause. "Have the goodness to explain the nature of the mischief, and in what way it would be produced? - Money will be so very scarce, every article in this country will fall to such an enormous extent, that many persons will be ruined."
The director of the Prussian Treasury wrote on a visit to London that Nathan Rothschild had as early as 1817: ".., incredible influence upon all financial affairs here in London. It is widely stated.., that he entirely regulates the rate of exchange in the City. His power as a banker is enormous".
Austrian Prince Mettemich's secretary wrote of the Rothschilds, as early as 1818, that: "... they are the richest people in Europe."
Referring to James Rothschild, the poet Heinrich Heine said: "Money is the god of our times, and Rothschild is his prophet."
James Rothschild built his fabulous mansion, called Ferrilres, 19 miles north-east of Paris. Wilhelm I, on first seeing it, exclaimed: "Kings couldn't afford this. It could only belong to a Rothschild!"
Author Frederic Morton wrote that the Rothschilds had: "conquered the World more thoroughly, more cunningly, and much more lastingly than all the Caesars before..."
As Napoleon pointed out: "Terrorism, War & Bankruptcy are caused by the privatization of money, issued as a debt and compounded by interest "- he cancelled debt and interest in France - hence the Battle of Waterloo.
Some writers have claimed that Nathan Rothschild "warned that the United States would find itself involved in a most disastrous war if the bank's charter were not renewed." (do you see the similarities here? If you don't play the game an economic disaster will fall on you and you will be destroyed.)
"There is but one power in Europe and that is Rothschild." 19th century French commentator.
Lord Rothschild (Rockefellers and Rothschilds' relatives) in his book The Shadow of a Great Man quotes a letter sent from Davidson on June 24, 1814 to Nathan Rothschild, "As long as a house is like yours, and as long as you work together with your brothers, not a house in the world will be able to compete with you, to cause you harm or to take advantage of you, for together you can undertake and perform more than any house in the world." The closeness of the Rothschild brothers is seen in a letter from Soloman (Salmon) Rothschild to his brother Nathan on Feb. 28, 1815, "We are like the mechanism of a watch: each part is essential." (2) This closeness is further seen in that of the 18 marriages made by Mayer Amschel Rothschild's grandchildren - 16 were contracted between first cousins.
"Centralisation of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly." The Communist Manifesto. In the case of the Bolshevik revolution, Rothschilds/ Rockefellers' Chase Bank owned the state. In the US, the FED owners "own" the state.
Rothschilds' favorite saying who along with the Rockefellers are the major Illuminati Banking Dynasties: "Who controls the issuance of money controls the government!"
Nathan Rothschild said (1777-1836): "I care not what puppet is placed on the throne of England to rule the Empire. The man who controls Britain's money supply controls the British Empire and I control the British money supply."
Rockefeller is reported to have said: "Competition is a sin". "Own nothing. Control everything". Because he wants to centralize control of everything and enslave us all, i.e. the modern Nimrod or Pharaoh.
The Rothschild were behind the colonization and occupations of India and the Rothschild owned British Petroleum was granted unlimited rights to all offshore Indian oil, which is still valid till this day.
"Give me the control of the credit of a nation, and I care not who makes the laws." The famous boastful statement of Nathaniel Meyer Rothschild, speaking to a group of international bankers, 1912: "The few who could understand the system (cheque, money, credits) will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." The boastful statement by Rothschild Bros. of London.
These people are the top masterminds and conspired for the creation of illegal FEDERAL RESERVE BANK in 1913: Theodore Roosevelt, Paul Warburg - Representative Of Rothschild, Woodrow Wilson - U.S. President Signed FED Into Act, Nelson W. Aldrich - Representative Of Rockefeller, Benjamin Strong - Representative Of Rockefeller, Frank A. Vanderlip - Representative Of Rockefeller, John D. Rockefeller - Rockefeller Himself, Henry Davison - Representative Of J. P. Morgan, Charles Norton - Representative Of J. P. Morgan.
In the last century, members of the British Fabian Society dynastic banking families in the City of London financed the Communist takeover of Russia. Trotsky in his biography refers to some of the loans from these British financiers going back as far as 1907. By 1917 the major subsidies and funding for the Bolshevik Revolution were co-ordinated and arranged by Sir George Buchanan and Lord Alfred Milner. [no doubt using money from Cecil Rhodes' South African gold and diamond legacy - Ed] The Communist system in Russia was a "British experiment" designed ultimately to become the Fabian Socialist model for the British takeover of the World through the UN and EU. The British plan to takeover the World and bring in a "New World Order" began with the teachings of John Ruskin and Cecil Rhodes at Oxford University. Rhodes in one of his wills in 1877 left his vast fortune to Lord Nathan Rothschild as trustee to set up the Rhodes Scholarship Program at Oxford to indoctrinate promising young graduates for the purpose, and also establish a secret society [Royal Institute of International Affairs RIIA, which branched into the Round Table, the Bilderbergers, the CFR, the Trilateral, etc -- Ed] for leading business and banking leaders around the World who would work for the City to bring in their Socialist World government.
Rothschild appointed Lord Alfred Milner to implement the plan.
Benjamin Freedman (Friedman) said this in 1961, Washington (he was a millionaire insider in international Zionist organizations, friend to 4 US presidents, and was also part of the 117-man strong Zionist delegation at the signing of the Treaty of Versailles in 1919 where Germany was forced into bankruptcy to the Zionist BankLords and social chaos): "Two years into WW1, Germany, which was then winning the war, offered Britain and France a negotiated peace deal, but German Zionist groups seeing the opportunity made a deal with Britain to get the United States into the war if Britain promised to give the Zionists Palestine."
In other words, they made this deal: "We will get the United States into this war as your ally. The price you must pay us is Palestine after you have won the war and defeated Germany, Austria-Hungary, and Turkey." They made that promise, in October of 1916. And shortly after that -- I don't know how many here remember it -- the United States, which was almost totally pro-German because the newspapers and mass communications media here were controlled by the Zionist bankers who owned the major commercial banks and the 12 Federal Reserve Banks (the original Stockholders of the Federal Reserve Banks in 1913 were the Rockefeller' s, JP Morgan, Rothschild's, Lazard Freres, Schoellkopf, Kuhn-Loeb, Warburgs, Lehman Brothers and Goldman Sachs, all with roots in Germany's Zionists like the British Royal family, J.P. Morgan, Carnegie, Bush, Rumsfeld, Clintons, the Nazis that were brought into the CIA, etc. http://land.netonecom.net/tlp/ref/federal_reserve.shtml ) and they were pro-German because they wanted to use Germany to destroy the Czar of Russia and let the Communists whom they funded take over. The German Zionist bankers -- Rothschilds, Rockefeller, Kuhn Loeb and the other big banking firms in the United States refused to finance France or England to the extent of one dollar. They stood aside and they said: "As long as France and England are tied up with Russia, not one cent!" They poured money into Germany, fighting with Germany against Russia, to lick the Czarist regime. The newspapers had been all pro-German, where they'd been telling the people of the difficulties that Germany was having fighting Great Britain commercially and in other respects, then after making the deal with the British for Palestine, all of a sudden the Germans were no good. They were villains. They were Huns. They were shooting Red Cross nurses. They were cutting off babies' hands. And they were no good. The Zionists in London sent cables to the US, to Justice Brandeis: "Go to work on President Wilson. We're getting from England what we want. Now you go to work, and you go to work on President Wilson and get the US into the war." And that did happen. Shortly after President Woodrow Wilson declared war on Germany.
The power of the Rothschild family was evidenced on 24 Sept 2002 when a helicopter touched down on the lawn of Waddedson Manor, their ancestral home in Buckinghamshire, England. Out of the helicopter strode Warren Buffet, - touted as the second richest man in the World but really a lower ranking player- and Arnold Schwarzenegger (the gropinator), at that time a candidate for the Governorship of California. Also in attendance at this two day meeting of the World's most powerful businessmen and financiers hosted by Jacob Rothschild were James Wolfensohn, president of the World Bank and Nicky Oppenheimer, chairman of De Beers. Arnold went on to secure the governorship of one of the biggest economies on the planet a year later. That he was initiated into the ruling class in the Rothschilds' English country manor suggests that the centre of gravity of the three hundred trillion dollar cartel is in the U.K. and Europe not the U.S.
A recent article in the London Financial Times indicates why it is impossible to gain an accurate estimate of the wealth of the trillionaire bankers. Discussing the sale of Evelyn Rothschild's stake in Rothschild Continuation Holdings, it states: ...[this] requires agreement on the valuation of privately held assets whose value has never been tested in a public market. Most of these assets are held in a complex network of tax-efficient structures around the World.
Queen Elizabeth II's shareholdings remain hidden behind Bank of England Nominee accounts. The Guardian newspaper reported in May 2002 ... "the reason for the wild variations in valuations of her private wealth can be pinned on the secrecy over her portfolio of share investments. This is because her subjects have no way of knowing through a public register of interests where she, as their head of state, chooses to invest her money. Unlike the members of the Commons and now the Lords, the Queen does not have to annually declare her interests and as a result her subjects cannot question her or know about potential conflicts of interests..." In fact, the Queen even has an extra mechanism to ensure that her investments remain secret - a nominee company called the Bank of England Nominees. It has been available for decades to the entire World's current heads of state to allow them anonymity when buying shares. Therefore, when a company publishes a share register and the Bank of England Nominees is listed, it is not possible to gauge whether the Queen, President Bush or even Saddam Hussein is the true shareholder.
By this method, the trillionaire masters of the universe remain hidden whilst Forbes magazine poses lower ranking billionaires like Bill Gates and Warren Buffett as the richest men in the World. Retired management consultant Gaylon Ross Sr, author of Who's Who of the Global Elite, has been tipped from a private source that the combined wealth of the Rockefeller family in 1998 was approx (US) $11 trillion and the Rothschilds (U.S.) $100 trillion. However something of an insider's knowledge of the hidden wealth of the elite is contained in the article, "Will the Dollar and America Fall Down on August 19?.." on page 1 of the 12th July 2001 issue of Russian newspaper Pravda. The newspaper interviewed Tatyana Koryagina, a senior research fellow in the Institute of Macroeconomic Researches subordinated to the Russian Ministry of Economic Development (Minekonom) on the subject of a recent conference concerning the fate of the U.S. economy:
Koryagina: The known history of civilization is merely the visible part of the iceberg. There is a shadow economy, shadow politics and also a shadow history, known to conspirologists. There are [unseen] forces acting in the World, unstoppable for [most powerful] countries and even continents.
Ashley Mote (EU): "Mr President, I wish to draw your attention to the Global Security Fund, set up in the early 1990s under the auspices of Jacob Rothschild. This is a Brussels-based fund and it is no ordinary fund: it does not trade, it is not listed and it has a totally different purpose. It is being used for geopolitical engineering purposes, apparently under the guidance of the intelligence services." "I have previously asked about the alleged involvement of the European Union's own intelligence resources in the management of slush funds in offshore accounts, and I still await a reply. To that question I now add another: what are the European Union's connections to the Global Security Fund and what relationship does it have with European Union institutions? "Recently, Ashley Mote of the European Union (EU) asked this volatile question in a public EU meeting, a question never answered, as Mr. Mote, merely by asking this question, was immediately scratched from the White House Christmas card list and placed on its top ten hit list. The Illuminati's cash cow, grazing freely on the World wide pasture of greenbacks, isn't called "Elsie" but instead is called the Global Security Fund, a name actually meaning in the secret cult's language Global Terrorist Fund. In simple terms, it's a gigantic illegal trust fund, estimated by undercover overseas financial investigators at 65 trillion dollars, set-up for "Illuminati rainy days" and established when it is desperately needed in a pinch for bribery, assassinations and sponsoring World wide terrorist activities to divert attention from their banking mafia. Although the fund is cloaked in secrecy and made possible by the Western civilization' s Federal Reserve banking system, investigators trying to pry into the Illuminati's secret treasure trove have uncovered some interesting facts.
Friday, November 30, 2007
Islamic Banks : Another Destructive Tool
1. The above caption sounds odd but it is true and demands an explanation from IDB. Islamic Research and Training Institute–IRTI established in 1981 to undertake research and training for enabling the economic, financial and banking activities in Muslim countries to conform to shariah.
2. Rationale of Islamic banking: IRTI occasional paper no:2 holds “People need banking services. Now, since the banking services are needed but interest is prohibited, Islamic economies have to find alternative ways of performing various banking functions. This challenge provides the rationale of Islamic banking”. Thus Islamic banks must perform the following functions totally free of interest and the like:
(i) Financial intermediation between savers and fund users
(ii) Offer loans for genuine needs of all sectors of the economy and government without any service charge which is prohibited by Quraanic tennet: “you are entitled to your principal amounts.” Hadeeth qudsi declares “reward for qard is 18 times” implying that Islam wants vast use of loans. An article in Sept.2002 issue of ‘Islamic Economic Studies’ held “Dayn financing plays an important role in Islamic financial system”. Dayn includes both loan and debt.
(iii) Limit profit earning to genuine risk-taking financing modes avoiding risk-free fixed-return modes resembling interest.
3. Shortcomings and misdeeds of ‘Islamic Banks’:- Islamic banks avoid giving loans–the most needed primary banking service. They do not encash commercial papers and do not open letters of credit. They exploit Islamic sentiment of their clients and neither promote Islamic economic ideals nor do they contribute to economic development of Muslim countries. By transferring funds mobilized from Muslims to western financial markets they deprive Muslim countries of their due share in economic development. Their misdeeds and shortcomings as identified below render them unworthy of their name:-
(a) “The case of Islamic banking cannot be advanced unless a strong system of inter bank transactions based on Islamic principles is developed. The lack of such a system forces the Islamic banks to turn to conventional banks for their short term needs of liquidity which the conventional banks do not provide without either an open or camouflaged interest”-‘Introduction to Islamic Finance’ by M.Taqi Usmani chairman / member of a dozen Shariah advisory boards of ‘Islamic Banks’.
(b) “In order to effectively replace interest, the Islamic economy needs a comprehensive financing mechanism defined as a mechanism which provides monetary financial accommodation to enterprises but remains neutral with respect to their longer-run ownership structure”- IRTI Research Paper 29.
(c) “… some IBs hold temporarily idle balances whereas other IBs need these balances and both groups are unable to benefit from these funds due to the lack of short-term financial instruments” – IRTI Research Paper 41.
(d) “But what if the government needs cash (to pay salaries or buy services) and needs it now. The option available, so far, is borrowing from public or banking sector on interest. Almost all Islamic governments borrow on interest” – ‘IRTI Seminar Proceedings no 39’.
(e) “The modes of financing used by Islamic banks are dominated by fixed-return modes especially Murabahah… The profit sharing modes account for less than 14% financing. While Islamic banks and investment funds have so far mobilized huge financial resources, a large part of these resources have found its way into western financial markets. There is no Islamic (or for that matter, conventional indigenous) financial institution which has been able to channel savings from western countries into Muslim countries”-IRTI Occasional Paper no 2.
(f) “The asset side of Pakistan’s interest-free banks mirrors that of Islamic banks elsewhere. Approximately 80-90% of return-bearing assets have been devoted to trade related mark-up techniques with some participation in equity investment and musharika partnerships. The mark-up contracts used bear striking resemblance to interest-bearing trade credits”-‘Islamic Finance – Theory and Practice’ by Paul S. Mills and John R. Presley.
(g) “Islamic banking in practice is often very different from Islamic banking in theory. The majority of actual Islamic transactions involve disguised interest rather than genuine sharing of risk, profit and loss”. – ‘Islamic Banking and Finance’ by Andrew Cunningham.
(h) “Murabahah has become by far the most widely used Islamic financing instrument accounting for over 80% of Islamic financing. Some Shariah boards have questioned the extensive use of Murabaha in view of the limited risks involved to the financier and the similarity of the percentage mark-up to interest. Islamic finance is often approached from the perspective of the service provider rather than the needs of the client. The financial instruments have largely been developed from what is practicable and convenient for the bank… often it has been a case of adapting and modifying conventional instruments so that they can be seen to be Islamically legitimate” – ‘Islamic Finance’ by Rodney Wilson.
(j) “Mark-up does not, in essence, differ from the interest system”–IDB–IRTI Islamic Translation Series no 8. Pakistan Federal Shariat Court Judgment on interest (Riba).
(k) “Originally Murabahah is not a mode of financing. It is only a device to escape from interest and not an ideal instrument for carrying out the economic objectives of Islam”.–‘Introduction to Islamic Finance’ by M.Taqi Usmaini.
(l) “What is being done [in Murabahah] is a fictitious deal which ensures pre-determined profit to the bank without actually dealing in goods or sharing any real risk”–‘Elimination of interest’ by Prof. Khurshid Ahmad.
(m) In an interview published in ‘Arab News’ of 17 Jan. 2004 Prince Al-Waleed ibn Talal chairman of $20 billion worth Kingdom Holding company said: “My point is why do the profits of Islamic banks go down when world interest rates fall and their profits go up when the interest rates go up. In the light of my seven years experience as chairman of Saudi United Bank, I can tell you that there is no such thing as an Islamic bank”.
4. Claim of the advocates of Interest and their challenging questions: The misdeeds and shortcomings of Islamic banks cited above prompted advocates of interest in Pakistan to claim that interest- free banking is not feasible and that Islamic banking is heela banking. They also raised the following challenging questions about ‘Islamic Banks’:-
(i) Is there any single bank in the Islamic or non-Islamic world that is truly run on an interest-free basis?
(ii) Can a central bank conduct its monetary policy without a norm of interest?
(iii) Are not the practices of Islamic Banks a queer blend of interest-based modes of finance carrying a façade of Islamic names?
(iv) What are exactly the Islamic compliant instruments of finance? Can these instruments meet the myriad and diverse needs of modern trade, finance and banking?
(v) When and where have these instruments been applied and with what degree of success?
(vi) Does the Islamic Development Bank as the model Islamic bank operate on interest-free basis? If that is the case why did it offer to extend a loan to Government of Pakistan after nuclear detonation at an interest rate of 5% above LIBOR?
(vii) By what mechanism can Islamic banks undertake financial intermediation that is the primary function of all commercial banks throughout the world?
5. IDB President’s recognition of the necessity of resolving the problems faced by ‘Islamic Banks’: My personal request to IDB President during 4th International Conference on Islamic Economics and Banking held in UK in Aug.2000 for solving the problems faced by ‘Islamic Banks’ brought the following response in IDB letter of 2nd Oct. 2000 “Referring to the documents submitted to H.E The President of Islamic Development Bank (IDB) about your observation on the Islamic Banking movement, we appreciate very much your good efforts and insights. The Islamic Banks’ Office of IDB will try to do its best to communicate to the Islamic Banks the shortcomings that you had mentioned in your document”.
6. IRTI’s slack attitude towards resolving the problems faced by ‘Islamic Banks’: Since early 1999 I have been requesting IRTI officials to solve the problems faced by ‘Islamic Banks’ as they bring disrepute to Islamic banking and damage the cause of elimination of interest. I pleaded that TMCL is the comprehensive financing mechanism needed by Islamic economy for replacing interest effectively. I argued that use of TMCL as lending instrument would solve the problems faced by ‘Islamic Banks’, effectively replace interest and pave the way to economic co-operation among Muslim countries. They neither accepted my pleas nor found their own solution of the problems. They remained unmoved even by the plea that the problems remaining unresolved for years after identification were weakening the case for elimination of interest. My last fully substantiated plea to solve the problem by way of TMCL brought the following unreasoned responses’ from IRTI not mentioning any strategy or intention to solve the crucial problems:-
Chief, Islamic Banking & Finance Division:
“We have discussed the matter of Time Multiple Counter Loan on several occasions. We have different views about the scheme. While I respect your views, I do not subscribe to them. We have previously agreed that no productive result will come out of further discussions surrounding the scheme. I therefore, regret not being able to continue this discussion with you.
Director IRTI:
“I regret to inform you that presently IRTI is not in a position to hold any discussion meeting, symposium, seminar or conference on the subject of TMCL as suggested by you. Nevertheless I am thankful to you for the consideration you have shown to IRTI by thinking of us for this task”.
These responses signify the misfortune and decadence of Muslim Ummah. While others are conducting research on planets and space, premier financial Islamic Research Institute officials decline to explore the potential of an innovative financial instrument for replacing interest – the worst crime in Islamic jurisprudence!
7. Damage done by ‘Islamic Banks’ to the cause of elimination of interest: Due to the problems faced by ‘Islamic Banks’ remaining unresolved they continued functioning defectively. The claim of the advocates of interest remained unrefuted and their challenging questions remained unanswered. Consequently they succeeded in getting the Supreme Court Judgment of 23 Dec 99 ordering elimination of interest set aside on 24th June 2002.
8. Remedy for the damage done by ‘Islamic Banks’: Now the riba case is again with Federal Shariat Court of Pakistan for readjudication. Pro-interest lobby may win in that court also unless it is shown that interest-free banking is feasible. It is therefore incumbent upon Islamic economists specially Directors of IRTI, International Institute of Islamic Economics–Islamabad, Islamic Foundation–UK, Malaysian Institute of Economics and Research, General Council for Islamic Banks and Financial Institutions–Bahrain, Institute of Islamic Banking and Insurance–UK and Centre for Research in Islamic Economics–King AbdulAziz University–Jeddah, to devise, for presentation in the court, feasible interest-free banking plan that can satisfactorily refute the claim of the advocates of interest and answer their challenging questions. However, if they are unable to do so, then in fulfillment of their religious and professional duty, they must endorse TMCL plan for interest-free banking described in my book ‘Interest-free Banking’ available on website www.realislamicbanking.com. The novel idea of TMCL for replacing interest was the fruit of about 50 years’ intensive research by late Prof. Shaikh Mahmood Ahmad applauded in Supreme Court of Pakistan Judgment in Riba case as “our country’s most outstanding economist and researcher and a leading thinker... had devoted a considerable part of his life to the study of the theory of interest”.
Mr.Muhammad Akram Khan in his book ‘Islamic Banking in Pakistan–The Future Path’ says” The financial institutions have not explored the potential of TMCL --- the concept is loaded with infinite possibilities of application in interest-free finance”.
e-mail from Dr.Ismail Sirageldin (John Hopkins University USA):
“I find your suggestion for a TMCL system to replace the conventional interest based system and your elaboration on its mechanism and merits most stimulating and careful. Your paper and proposal goes a long way in elucidating the problems and the roads to perfecting an Islamic banking system that acts as an effective vehicle for sustained development while adhering to the Islamic ethical system. I congratulate you on that, but more essential, I congratulate you on starting free thinking dialogue in this important issue, a truly Islamic way to advance and exchange knowledge and development.
e-mail from Dr.Zubair Hassan (International Islamic University Kuala Lumpur):
“Personally I do find TMCL a sound instrument as replacement of interest, more so after reading your reply to clarify certain doubts”.
e-mail from Dr.M.Kabir Hassan (Deptt. Of Economics and Finance University of New Orleans USA–“Your proposal appears logical to me --- I will incorporate this idea in my recent work on ‘Innovations in Islamic Finance”.
All those who want Muslim Ummah to get rid of interest are requested to do what they can to strengthen the case of Islamists in Federal Shariat Court. Any suggestions as to what should be done in this connection will be gratefully received.
(By Abdul Wadood Khan who can be reached at aw_khan@hotmail.com,
2. Rationale of Islamic banking: IRTI occasional paper no:2 holds “People need banking services. Now, since the banking services are needed but interest is prohibited, Islamic economies have to find alternative ways of performing various banking functions. This challenge provides the rationale of Islamic banking”. Thus Islamic banks must perform the following functions totally free of interest and the like:
(i) Financial intermediation between savers and fund users
(ii) Offer loans for genuine needs of all sectors of the economy and government without any service charge which is prohibited by Quraanic tennet: “you are entitled to your principal amounts.” Hadeeth qudsi declares “reward for qard is 18 times” implying that Islam wants vast use of loans. An article in Sept.2002 issue of ‘Islamic Economic Studies’ held “Dayn financing plays an important role in Islamic financial system”. Dayn includes both loan and debt.
(iii) Limit profit earning to genuine risk-taking financing modes avoiding risk-free fixed-return modes resembling interest.
3. Shortcomings and misdeeds of ‘Islamic Banks’:- Islamic banks avoid giving loans–the most needed primary banking service. They do not encash commercial papers and do not open letters of credit. They exploit Islamic sentiment of their clients and neither promote Islamic economic ideals nor do they contribute to economic development of Muslim countries. By transferring funds mobilized from Muslims to western financial markets they deprive Muslim countries of their due share in economic development. Their misdeeds and shortcomings as identified below render them unworthy of their name:-
(a) “The case of Islamic banking cannot be advanced unless a strong system of inter bank transactions based on Islamic principles is developed. The lack of such a system forces the Islamic banks to turn to conventional banks for their short term needs of liquidity which the conventional banks do not provide without either an open or camouflaged interest”-‘Introduction to Islamic Finance’ by M.Taqi Usmani chairman / member of a dozen Shariah advisory boards of ‘Islamic Banks’.
(b) “In order to effectively replace interest, the Islamic economy needs a comprehensive financing mechanism defined as a mechanism which provides monetary financial accommodation to enterprises but remains neutral with respect to their longer-run ownership structure”- IRTI Research Paper 29.
(c) “… some IBs hold temporarily idle balances whereas other IBs need these balances and both groups are unable to benefit from these funds due to the lack of short-term financial instruments” – IRTI Research Paper 41.
(d) “But what if the government needs cash (to pay salaries or buy services) and needs it now. The option available, so far, is borrowing from public or banking sector on interest. Almost all Islamic governments borrow on interest” – ‘IRTI Seminar Proceedings no 39’.
(e) “The modes of financing used by Islamic banks are dominated by fixed-return modes especially Murabahah… The profit sharing modes account for less than 14% financing. While Islamic banks and investment funds have so far mobilized huge financial resources, a large part of these resources have found its way into western financial markets. There is no Islamic (or for that matter, conventional indigenous) financial institution which has been able to channel savings from western countries into Muslim countries”-IRTI Occasional Paper no 2.
(f) “The asset side of Pakistan’s interest-free banks mirrors that of Islamic banks elsewhere. Approximately 80-90% of return-bearing assets have been devoted to trade related mark-up techniques with some participation in equity investment and musharika partnerships. The mark-up contracts used bear striking resemblance to interest-bearing trade credits”-‘Islamic Finance – Theory and Practice’ by Paul S. Mills and John R. Presley.
(g) “Islamic banking in practice is often very different from Islamic banking in theory. The majority of actual Islamic transactions involve disguised interest rather than genuine sharing of risk, profit and loss”. – ‘Islamic Banking and Finance’ by Andrew Cunningham.
(h) “Murabahah has become by far the most widely used Islamic financing instrument accounting for over 80% of Islamic financing. Some Shariah boards have questioned the extensive use of Murabaha in view of the limited risks involved to the financier and the similarity of the percentage mark-up to interest. Islamic finance is often approached from the perspective of the service provider rather than the needs of the client. The financial instruments have largely been developed from what is practicable and convenient for the bank… often it has been a case of adapting and modifying conventional instruments so that they can be seen to be Islamically legitimate” – ‘Islamic Finance’ by Rodney Wilson.
(j) “Mark-up does not, in essence, differ from the interest system”–IDB–IRTI Islamic Translation Series no 8. Pakistan Federal Shariat Court Judgment on interest (Riba).
(k) “Originally Murabahah is not a mode of financing. It is only a device to escape from interest and not an ideal instrument for carrying out the economic objectives of Islam”.–‘Introduction to Islamic Finance’ by M.Taqi Usmaini.
(l) “What is being done [in Murabahah] is a fictitious deal which ensures pre-determined profit to the bank without actually dealing in goods or sharing any real risk”–‘Elimination of interest’ by Prof. Khurshid Ahmad.
(m) In an interview published in ‘Arab News’ of 17 Jan. 2004 Prince Al-Waleed ibn Talal chairman of $20 billion worth Kingdom Holding company said: “My point is why do the profits of Islamic banks go down when world interest rates fall and their profits go up when the interest rates go up. In the light of my seven years experience as chairman of Saudi United Bank, I can tell you that there is no such thing as an Islamic bank”.
4. Claim of the advocates of Interest and their challenging questions: The misdeeds and shortcomings of Islamic banks cited above prompted advocates of interest in Pakistan to claim that interest- free banking is not feasible and that Islamic banking is heela banking. They also raised the following challenging questions about ‘Islamic Banks’:-
(i) Is there any single bank in the Islamic or non-Islamic world that is truly run on an interest-free basis?
(ii) Can a central bank conduct its monetary policy without a norm of interest?
(iii) Are not the practices of Islamic Banks a queer blend of interest-based modes of finance carrying a façade of Islamic names?
(iv) What are exactly the Islamic compliant instruments of finance? Can these instruments meet the myriad and diverse needs of modern trade, finance and banking?
(v) When and where have these instruments been applied and with what degree of success?
(vi) Does the Islamic Development Bank as the model Islamic bank operate on interest-free basis? If that is the case why did it offer to extend a loan to Government of Pakistan after nuclear detonation at an interest rate of 5% above LIBOR?
(vii) By what mechanism can Islamic banks undertake financial intermediation that is the primary function of all commercial banks throughout the world?
5. IDB President’s recognition of the necessity of resolving the problems faced by ‘Islamic Banks’: My personal request to IDB President during 4th International Conference on Islamic Economics and Banking held in UK in Aug.2000 for solving the problems faced by ‘Islamic Banks’ brought the following response in IDB letter of 2nd Oct. 2000 “Referring to the documents submitted to H.E The President of Islamic Development Bank (IDB) about your observation on the Islamic Banking movement, we appreciate very much your good efforts and insights. The Islamic Banks’ Office of IDB will try to do its best to communicate to the Islamic Banks the shortcomings that you had mentioned in your document”.
6. IRTI’s slack attitude towards resolving the problems faced by ‘Islamic Banks’: Since early 1999 I have been requesting IRTI officials to solve the problems faced by ‘Islamic Banks’ as they bring disrepute to Islamic banking and damage the cause of elimination of interest. I pleaded that TMCL is the comprehensive financing mechanism needed by Islamic economy for replacing interest effectively. I argued that use of TMCL as lending instrument would solve the problems faced by ‘Islamic Banks’, effectively replace interest and pave the way to economic co-operation among Muslim countries. They neither accepted my pleas nor found their own solution of the problems. They remained unmoved even by the plea that the problems remaining unresolved for years after identification were weakening the case for elimination of interest. My last fully substantiated plea to solve the problem by way of TMCL brought the following unreasoned responses’ from IRTI not mentioning any strategy or intention to solve the crucial problems:-
Chief, Islamic Banking & Finance Division:
“We have discussed the matter of Time Multiple Counter Loan on several occasions. We have different views about the scheme. While I respect your views, I do not subscribe to them. We have previously agreed that no productive result will come out of further discussions surrounding the scheme. I therefore, regret not being able to continue this discussion with you.
Director IRTI:
“I regret to inform you that presently IRTI is not in a position to hold any discussion meeting, symposium, seminar or conference on the subject of TMCL as suggested by you. Nevertheless I am thankful to you for the consideration you have shown to IRTI by thinking of us for this task”.
These responses signify the misfortune and decadence of Muslim Ummah. While others are conducting research on planets and space, premier financial Islamic Research Institute officials decline to explore the potential of an innovative financial instrument for replacing interest – the worst crime in Islamic jurisprudence!
7. Damage done by ‘Islamic Banks’ to the cause of elimination of interest: Due to the problems faced by ‘Islamic Banks’ remaining unresolved they continued functioning defectively. The claim of the advocates of interest remained unrefuted and their challenging questions remained unanswered. Consequently they succeeded in getting the Supreme Court Judgment of 23 Dec 99 ordering elimination of interest set aside on 24th June 2002.
8. Remedy for the damage done by ‘Islamic Banks’: Now the riba case is again with Federal Shariat Court of Pakistan for readjudication. Pro-interest lobby may win in that court also unless it is shown that interest-free banking is feasible. It is therefore incumbent upon Islamic economists specially Directors of IRTI, International Institute of Islamic Economics–Islamabad, Islamic Foundation–UK, Malaysian Institute of Economics and Research, General Council for Islamic Banks and Financial Institutions–Bahrain, Institute of Islamic Banking and Insurance–UK and Centre for Research in Islamic Economics–King AbdulAziz University–Jeddah, to devise, for presentation in the court, feasible interest-free banking plan that can satisfactorily refute the claim of the advocates of interest and answer their challenging questions. However, if they are unable to do so, then in fulfillment of their religious and professional duty, they must endorse TMCL plan for interest-free banking described in my book ‘Interest-free Banking’ available on website www.realislamicbanking.com. The novel idea of TMCL for replacing interest was the fruit of about 50 years’ intensive research by late Prof. Shaikh Mahmood Ahmad applauded in Supreme Court of Pakistan Judgment in Riba case as “our country’s most outstanding economist and researcher and a leading thinker... had devoted a considerable part of his life to the study of the theory of interest”.
Mr.Muhammad Akram Khan in his book ‘Islamic Banking in Pakistan–The Future Path’ says” The financial institutions have not explored the potential of TMCL --- the concept is loaded with infinite possibilities of application in interest-free finance”.
e-mail from Dr.Ismail Sirageldin (John Hopkins University USA):
“I find your suggestion for a TMCL system to replace the conventional interest based system and your elaboration on its mechanism and merits most stimulating and careful. Your paper and proposal goes a long way in elucidating the problems and the roads to perfecting an Islamic banking system that acts as an effective vehicle for sustained development while adhering to the Islamic ethical system. I congratulate you on that, but more essential, I congratulate you on starting free thinking dialogue in this important issue, a truly Islamic way to advance and exchange knowledge and development.
e-mail from Dr.Zubair Hassan (International Islamic University Kuala Lumpur):
“Personally I do find TMCL a sound instrument as replacement of interest, more so after reading your reply to clarify certain doubts”.
e-mail from Dr.M.Kabir Hassan (Deptt. Of Economics and Finance University of New Orleans USA–“Your proposal appears logical to me --- I will incorporate this idea in my recent work on ‘Innovations in Islamic Finance”.
All those who want Muslim Ummah to get rid of interest are requested to do what they can to strengthen the case of Islamists in Federal Shariat Court. Any suggestions as to what should be done in this connection will be gratefully received.
(By Abdul Wadood Khan who can be reached at aw_khan@hotmail.com,
The Fallacy Of Paper Money
The history of fiat money, to put it kindly, has been one of failure. In fact, EVERY fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well.
Why would it be different here in the U.S.? Well, in actuality, it hasn’t been. In fact, in American short history, they have already had several failed attempts at using paper currency, and it is my opinion that today’s dollars are no different than the continentals issued during the Revolutionary War. But I will get into that in a moment. In the meantime, I will show you that fiat currencies have not been successful, and the only aspect of fiat currencies that have stood the test of time is the inability of political systems to prevent the devaluation and debasement of this paper money by letting the printing presses run wild.
Although Rome didn’t actually have paper money, it provided one of the first examples of true debasement of a currency. The denarius, Rome’s coinage of the time, was, essentially, pure silver at the beginning of the first century A.D. By A.D. 54, Emperor Nero had entered the scene, and the denarius was approximately 94% silver. By around A.D.100, the denarius’ silver content was down to 85%.
Emperors that succeeded Nero liked the idea of devaluing their currency in order to pay the bills and increase their own wealth. By 218, the denarius was down to 43% silver, and in 244, Emperor Philip the Arab had the silver content dropped to 0.05%. Around the time of Rome’s collapse, the denarius contained only 0.02% silver and virtually nobody accepted it as a medium of exchange or a store of value.
When the Chinese first started using paper money, they called it “flying money,” because it could just fly from your hands. The reason for the issuance of paper money is simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became overissued and fell in value.
In the 11th century, a bank in the Szechuan province of China issued paper money in exchange for the iron coins. Initially, this was fine, because the paper money was exchangeable for gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost.
Genghis Khan won this war, but the Mongols didn’t assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan’s grandson Kublai Khan united China and assumed the emperorship. After running into some setbacks with paper currency, Kublai eventually had some success with fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:
“You might say that [Kublai] has the secret of alchemy in perfection…the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.”
Even Helicopter Ben would be impressed. Marco Polo went on to say:
“This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress.”
Wait a second, I thought we were bashing fiat currencies here…Can anyone say crackup boom? Since Marco Polo experienced this firsthand, and has been very helpful to us thus far, I think I will allow him to finish his analysis of China’s paper money experiment.
“Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both…All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves…The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion.”
I wonder if Keynes read Marco Polo’s experiences with Chinese fiat currencies when he said that the U.S. government should just bury bottles full of money in old mine shafts to spur economic growth.
The French have been particularly unsuccessful in their attempts with fiat money.
John Law was the first man to introduce paper money to France. The notion of paper money was greatly helped along by the passing of Louis XIV and the 3 billion livres of debt that he left.
When Louis XV was old enough to make his own mistakes, he required that all taxes be paid in paper money. The currency was backed by coinage…until people actually wanted coins.
The theme of the day…the new paper currency rapidly became oversupplied until nobody wished to own the worthless junk anymore and demanded coinage for their currency.
Oops. It looks like Law didn’t think that anyone would actually want coins ever again. After making it illegal to export any gold or silver, and the failed attempts by the locals to exchange their paper currency for something of actual value, the currency collapsed.
John Law became the most hated man in France and was forced to flee to Italy.
In the latter part of the 18th century, the French government again tried to give paper money another go. This time, the pieces of garbage they issued were called assignats. By 1795, inflation of assignats was running at approximately 13,000%. Oops.
Then Napoleon stepped on the scene and brought with him the gold franc. One of the good things that Napoleon realized is that gold is the way of a stable currency, and that’s what pretty much ensued during his reign.
After Waterloo had come and gone, the French gave it another go in the 1930s, this time with the paper franc. It took only 12 years for them to inflate their currency until it lost 99% of its value. History has proven a couple things about the French: 1) They are quick to surrender and 2) They are very talented at making worthless currency.
Post-World War I Weimar Germany was one of the greatest periods of hyperinflation that ever existed. The Treaty of Versailles was essentially a financial punishment placed on Germany to make reparations.
The sums of money to be paid by Germany were enormous, and the only way it could make repayment was by running the printing press. (Huge unpayable debt — that sounds familiar. I wonder what the solution in the U.S. will be.)
Inflation got so bad in this period that German citizens were literally using stacks of marks to heat their furnaces. Here is a brief timeline of the marks per one U.S. dollar exchange rate:
April 1919: 12 marks
November 1921: 263 marks
January 1923: 17,000 marks
August 1923: 4.621 million marks
October 1923: 25.26 billion marks
December 1923: 4.2 trillion marks.
In recent times, fiat failures have become more common occurrences. For the sake of time, I won’t go into extensive details of all these examples of paper money failures, because there are SO many. But here you have it:
In 1932, Argentina had the eighth largest economy in the world before its currency collapsed. In 1992, Finland, Italy, and Norway had currency shocks that spread through Europe.
In 1994, Mexico went through the infamous “Tequila Hangover,” which sent the peso tumbling and spread economic hardships throughout Latin America.
In 1997, the Thai baht fell through the floor and the effects spread to Malaysia, the Philippines, Indonesia, Hong Kong, and South Korea.
The Russian ruble was not the currency you wanted your investments denominated in 1998, after its devaluation brought on economic recession.
In the early 21st century, we have seen the Turkish lira experience strokes of hyperinflation similar to that of the mark of Weimar Germany.
In present times, we have Zimbabwe, which was once considered the breadbasket of Africa and was one of the wealthiest countries on the continent. Now Mugabe’s attempts at price controls, combined with hyperinflation, have the nation unable to supply the most basic essentials such as bread and clean water.
In the U.S., I should say the lessons were not learned. There are many consistencies from the above-mentioned stories that led up to the eventual collapse of the currencies.
The scary thing is that the U.S. has some of these above-mentioned characteristics, the ones that lead to useless paper money becoming just that. More on that in just a second. I would first like to give a brief look at the U.S. attempts with paper money in America's short history.
The first attempt with paper money came in 1690 with the issuance of Colonial notes. The first Colonial notes were issued in Massachusetts and were redeemable for gold, silver, corn, cattle and other commodities.
The other Colonies quickly jumped on the toilet paper money bandwagon and began issuing their own paper currencies. Like a broken record, the money quickly became overissued. The lessons of John Law and others were definitely not learned. It is not good enough just to say that a currency is backed by commodities. It actually HAS to be backed by commodities. Essentially, it was still a fiat money, and in a short period of time, Colonials became as good as toilet paper.
The next experiment came during the Revolutionary War. Big surprise — the issuance of paper money was used to finance the war efforts. This time, the currency was called a continental.
The crash of the continental was spectacular, and the phrase “not worth a continental” was coined. This brought on a large distrust for paper currency, and until 1913, toilet paper money in the U.S. wasn’t used.
Enter the infamous Federal Reserve and its monopoly on money and interest rates. Now we have the greenback.
Although the money was “officially” backed by a gold standard until 1971, it wasn’t a true gold standard. When the government found it inconvenient to have a gold standard, it just made it illegal for U.S. citizens to hold gold or exchange dollars for gold.
As reported on Strike-the-root.com:
“Under the infallible leadership of President Franklin Roosevelt, it was made illegal to own gold. On March 11, 1933, he issued an order forbidding banks to make gold payments. On April 5, Roosevelt ordered all citizens to surrender their gold — no person could hold more than $100 in gold coins, except for collector’s coins. He also made it unlawful to export gold for payment abroad, unless done through the Treasury. The penalty for defying Roosevelt was 10 years in prison and a $250,000 fine.”
But the official demise of the dollar was locked into place in 1971 when “Tricky Dick” Nixon completely severed all ties between the dollar and the gold standard. During the decade that followed, the U.S. experienced some of the worst inflation in its history, only matched by today’s U.S. monetary and fiscal irresponsibility.
The U.S. of A. has all the characteristics set in place that have led to the collapse of every other fiat currency money in history.
We are currently at war, and the financing of this war is extremely inflationary. In fact, if you look back at our history, since 1914, the U.S has engaged in 16 military conflicts. We have been involved in some form of violent international accord in 44 of the past 93 years. The overwhelming majority of military conflicts result in monetary inflation.
The U.S. has a debt similar to that of Weimar Germany. All though the reasons for the debt are completely different, it appears that this Mount Everest of IOUs is going to be impossible to pay back. I guess the U.S. could just print 10 trillion dollar bills and hand them out, but the implications of such actions are obvious.
We are currently increasing the supply of dollars at a rate of 13% per annum. This over-issuance of a currency has been the leading indicator of a currency on the brink.
So what’s in the future for the dollar?
Some, myself included, might say that the dollar has already failed. It has lost over 92% of its value since its initial issuance in 1913. After the revaluation in 1934, the dollar dropped another 41%. In my opinion, it already is useless paper money, but for the above-mentioned characteristics, which are alarmingly similar to the circumstances that led up to the eventual collapse of the dollar’s toilet paper predecessors, I believe that we have seen only the tip of the iceberg of the dollar’s inevitable path toward becoming absolete paper money.
Why would it be different here in the U.S.? Well, in actuality, it hasn’t been. In fact, in American short history, they have already had several failed attempts at using paper currency, and it is my opinion that today’s dollars are no different than the continentals issued during the Revolutionary War. But I will get into that in a moment. In the meantime, I will show you that fiat currencies have not been successful, and the only aspect of fiat currencies that have stood the test of time is the inability of political systems to prevent the devaluation and debasement of this paper money by letting the printing presses run wild.
Although Rome didn’t actually have paper money, it provided one of the first examples of true debasement of a currency. The denarius, Rome’s coinage of the time, was, essentially, pure silver at the beginning of the first century A.D. By A.D. 54, Emperor Nero had entered the scene, and the denarius was approximately 94% silver. By around A.D.100, the denarius’ silver content was down to 85%.
Emperors that succeeded Nero liked the idea of devaluing their currency in order to pay the bills and increase their own wealth. By 218, the denarius was down to 43% silver, and in 244, Emperor Philip the Arab had the silver content dropped to 0.05%. Around the time of Rome’s collapse, the denarius contained only 0.02% silver and virtually nobody accepted it as a medium of exchange or a store of value.
When the Chinese first started using paper money, they called it “flying money,” because it could just fly from your hands. The reason for the issuance of paper money is simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became overissued and fell in value.
In the 11th century, a bank in the Szechuan province of China issued paper money in exchange for the iron coins. Initially, this was fine, because the paper money was exchangeable for gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost.
Genghis Khan won this war, but the Mongols didn’t assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan’s grandson Kublai Khan united China and assumed the emperorship. After running into some setbacks with paper currency, Kublai eventually had some success with fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:
“You might say that [Kublai] has the secret of alchemy in perfection…the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.”
Even Helicopter Ben would be impressed. Marco Polo went on to say:
“This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress.”
Wait a second, I thought we were bashing fiat currencies here…Can anyone say crackup boom? Since Marco Polo experienced this firsthand, and has been very helpful to us thus far, I think I will allow him to finish his analysis of China’s paper money experiment.
“Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both…All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves…The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion.”
I wonder if Keynes read Marco Polo’s experiences with Chinese fiat currencies when he said that the U.S. government should just bury bottles full of money in old mine shafts to spur economic growth.
The French have been particularly unsuccessful in their attempts with fiat money.
John Law was the first man to introduce paper money to France. The notion of paper money was greatly helped along by the passing of Louis XIV and the 3 billion livres of debt that he left.
When Louis XV was old enough to make his own mistakes, he required that all taxes be paid in paper money. The currency was backed by coinage…until people actually wanted coins.
The theme of the day…the new paper currency rapidly became oversupplied until nobody wished to own the worthless junk anymore and demanded coinage for their currency.
Oops. It looks like Law didn’t think that anyone would actually want coins ever again. After making it illegal to export any gold or silver, and the failed attempts by the locals to exchange their paper currency for something of actual value, the currency collapsed.
John Law became the most hated man in France and was forced to flee to Italy.
In the latter part of the 18th century, the French government again tried to give paper money another go. This time, the pieces of garbage they issued were called assignats. By 1795, inflation of assignats was running at approximately 13,000%. Oops.
Then Napoleon stepped on the scene and brought with him the gold franc. One of the good things that Napoleon realized is that gold is the way of a stable currency, and that’s what pretty much ensued during his reign.
After Waterloo had come and gone, the French gave it another go in the 1930s, this time with the paper franc. It took only 12 years for them to inflate their currency until it lost 99% of its value. History has proven a couple things about the French: 1) They are quick to surrender and 2) They are very talented at making worthless currency.
Post-World War I Weimar Germany was one of the greatest periods of hyperinflation that ever existed. The Treaty of Versailles was essentially a financial punishment placed on Germany to make reparations.
The sums of money to be paid by Germany were enormous, and the only way it could make repayment was by running the printing press. (Huge unpayable debt — that sounds familiar. I wonder what the solution in the U.S. will be.)
Inflation got so bad in this period that German citizens were literally using stacks of marks to heat their furnaces. Here is a brief timeline of the marks per one U.S. dollar exchange rate:
April 1919: 12 marks
November 1921: 263 marks
January 1923: 17,000 marks
August 1923: 4.621 million marks
October 1923: 25.26 billion marks
December 1923: 4.2 trillion marks.
In recent times, fiat failures have become more common occurrences. For the sake of time, I won’t go into extensive details of all these examples of paper money failures, because there are SO many. But here you have it:
In 1932, Argentina had the eighth largest economy in the world before its currency collapsed. In 1992, Finland, Italy, and Norway had currency shocks that spread through Europe.
In 1994, Mexico went through the infamous “Tequila Hangover,” which sent the peso tumbling and spread economic hardships throughout Latin America.
In 1997, the Thai baht fell through the floor and the effects spread to Malaysia, the Philippines, Indonesia, Hong Kong, and South Korea.
The Russian ruble was not the currency you wanted your investments denominated in 1998, after its devaluation brought on economic recession.
In the early 21st century, we have seen the Turkish lira experience strokes of hyperinflation similar to that of the mark of Weimar Germany.
In present times, we have Zimbabwe, which was once considered the breadbasket of Africa and was one of the wealthiest countries on the continent. Now Mugabe’s attempts at price controls, combined with hyperinflation, have the nation unable to supply the most basic essentials such as bread and clean water.
In the U.S., I should say the lessons were not learned. There are many consistencies from the above-mentioned stories that led up to the eventual collapse of the currencies.
The scary thing is that the U.S. has some of these above-mentioned characteristics, the ones that lead to useless paper money becoming just that. More on that in just a second. I would first like to give a brief look at the U.S. attempts with paper money in America's short history.
The first attempt with paper money came in 1690 with the issuance of Colonial notes. The first Colonial notes were issued in Massachusetts and were redeemable for gold, silver, corn, cattle and other commodities.
The other Colonies quickly jumped on the toilet paper money bandwagon and began issuing their own paper currencies. Like a broken record, the money quickly became overissued. The lessons of John Law and others were definitely not learned. It is not good enough just to say that a currency is backed by commodities. It actually HAS to be backed by commodities. Essentially, it was still a fiat money, and in a short period of time, Colonials became as good as toilet paper.
The next experiment came during the Revolutionary War. Big surprise — the issuance of paper money was used to finance the war efforts. This time, the currency was called a continental.
The crash of the continental was spectacular, and the phrase “not worth a continental” was coined. This brought on a large distrust for paper currency, and until 1913, toilet paper money in the U.S. wasn’t used.
Enter the infamous Federal Reserve and its monopoly on money and interest rates. Now we have the greenback.
Although the money was “officially” backed by a gold standard until 1971, it wasn’t a true gold standard. When the government found it inconvenient to have a gold standard, it just made it illegal for U.S. citizens to hold gold or exchange dollars for gold.
As reported on Strike-the-root.com:
“Under the infallible leadership of President Franklin Roosevelt, it was made illegal to own gold. On March 11, 1933, he issued an order forbidding banks to make gold payments. On April 5, Roosevelt ordered all citizens to surrender their gold — no person could hold more than $100 in gold coins, except for collector’s coins. He also made it unlawful to export gold for payment abroad, unless done through the Treasury. The penalty for defying Roosevelt was 10 years in prison and a $250,000 fine.”
But the official demise of the dollar was locked into place in 1971 when “Tricky Dick” Nixon completely severed all ties between the dollar and the gold standard. During the decade that followed, the U.S. experienced some of the worst inflation in its history, only matched by today’s U.S. monetary and fiscal irresponsibility.
The U.S. of A. has all the characteristics set in place that have led to the collapse of every other fiat currency money in history.
We are currently at war, and the financing of this war is extremely inflationary. In fact, if you look back at our history, since 1914, the U.S has engaged in 16 military conflicts. We have been involved in some form of violent international accord in 44 of the past 93 years. The overwhelming majority of military conflicts result in monetary inflation.
The U.S. has a debt similar to that of Weimar Germany. All though the reasons for the debt are completely different, it appears that this Mount Everest of IOUs is going to be impossible to pay back. I guess the U.S. could just print 10 trillion dollar bills and hand them out, but the implications of such actions are obvious.
We are currently increasing the supply of dollars at a rate of 13% per annum. This over-issuance of a currency has been the leading indicator of a currency on the brink.
So what’s in the future for the dollar?
Some, myself included, might say that the dollar has already failed. It has lost over 92% of its value since its initial issuance in 1913. After the revaluation in 1934, the dollar dropped another 41%. In my opinion, it already is useless paper money, but for the above-mentioned characteristics, which are alarmingly similar to the circumstances that led up to the eventual collapse of the dollar’s toilet paper predecessors, I believe that we have seen only the tip of the iceberg of the dollar’s inevitable path toward becoming absolete paper money.
The Myth Of "Islamic banking"
The so-called "Islamic bank' is a usurious institution contrary to Islam. The 'Islamic bank" is an absurd attempt to resolve, as was done in the case of Christianity, the unswerving opposition of Islam to usury for fourteen centuries.
Since its origin, the 'Islamic bank' has been patronized and promoted by usurers. Their only intention was to incorporate the thousand million Muslims of the world--who in general would scornfully avoid using any banking or usurious institution--into the international financial and monetary system. The artificial creation by the colonial powers of the so called 'Islamic states', itself a contradiction in terms, whose character is markedly anti-lslamic, was the historical result of the end of territorial colonization and the beginning of the financial neo-colonialism.
The universal establishment of the western constitutional model (the model of the French revolution) brings with it the establishment of artificial and unnatural boundaries, the creation of a repressive ministerial bureaucracy, the exacting of taxes, the imposition of artificially legalized money and the legalization of usury (the banking system) - measures which are all profoundly contrary to Islam. The Islamic Bank is thus nothing more than a typically degenerate and belated product of the so-called 'Islamic states'.
In order to speak on the "Islamic Bank", the new science of so-called 'Islamic economics' has emerged from the American and European universities. However fallacious these two self-supporting concepts of economics are concepts regarded with scorn by the Muslims of traditional education they have served as a justification for the new class of state functionaries and bureaucrats who have come to constitute a kind of 'Islamic modernism'. A few years of mediocre education in western universities will not allow many of the Islamic economists to discover that the foundations of economics have been shattered as a science and in practice in the very Europe which saw it come into existence.
The rationalistic framework of the positive sciences which has been called into question in Europe has been currently defended by those neo-bureaucrats who are still fascinated by their years of education in the West. Even though the sincere, albeit naive, faith of the majority of those who participate in these modernist movements cannot be denied, time and a greater maturity has shown them the bitter side of the ideological and scientific modernism in which they have placed their trust.
The return of the Islamic tradition has not only been the best antidote against this modernism in those Muslim countries but in the hand of a new generation of Muslims in the West it has also resulted in the transcending of modernism and brought about the culmination of our western civilization which today is of {universal character.}
In contrast to the modernist confusion, the position of the Shari'a of Islam clear and does not admit any controversy.
Allah says in the Qur'an:
"Oh you who believe! Have fear of Allah and give up what remains of what is due (to you) of Usury. If you do not, then take notice of war (against you) from Allah and His Messenger." {Qur'an 2,278}
From this it is clear that the Muslims must not only abandon Usury but that he is also obliged to fight against usury. The 'Islamic bank' is a totally crypto-usurious institution and like all the other usurious constitutions must be rejected and fought. Besides the falsehood of its very name we can enumerate at least three reasons why its practice is considered usurious.
A. The creation and utilization of artificial paper-money whose use is a confined monopoly.
The Shari'a prohibits the forceful imposition of one single money on the market; what is explicitly stated is that money can be any kind of merchandise which is socially accepted as a means of exchange. If besides this we add to this the character of monopoly inherent in a (paper-)money -- without any value as a commodity -- whose value is imposed by the state, then it becomes clear the manipulation and acceptance of this system has nothing to do with the deen of Islam. Moreover given that there does not exist a single state in the world where the monetary system of paper money is not applied then this is sufficient reason for affirming that the Muslims live in a world where authentic Islamic governance is absent.
There exists no justification of a strategic or a political kind in the imposition of paper money as a prop for a possible Islamic government since this imposition is based on a deception of the people who support this government: moreover it is a contradiction that a just and equitable government finance itself by means of robbing from the very people whom it is governing.
The use of paper money by any institution is contrary to the nature of Islam. In the case of the bank however there is an added element to this contradiction -- namely the capacity of the bank to freely create paper money by means of credit -- which is independent of whether this paper-money is used for honest business or usurious loans. The use of credit to artificially expand the monetary resources is emphatically forbidden in the Shari'a.
"It is not permitted to pay a loan by asking the lender to receive payment from a third person who owes money to the lender...."
Consequently it is not allowed to settle a debt with another debt.
"It is not permitted that you sell something that you do not possess on the understanding that you will buy it and will give it to the buyer." ('Al-Risala' of Ibn Abi Zaid al-Qayrawani, chap. 34).
Imam Malik says, "A person should not buy a debt due to another person, be he present or absent, without the confirmation of the person who owes the debt. He is buying something which has not been guaranteed to him and so if the contract is not completed what he has paid loses its value. This is an uncertain transaction and is not good." ('Al Muwatta' of Imam Malik, chap. 31).
The confirmation of a debt is an indispensable condition for its transfer; the confirmation occurs with the guaranteeing that the debt can be and will be paid. In other words notice will be given that someone with a debt which is unpayable will be able to transfer it to another person. Not even in debts of sale is the lack of confirmation of guarantee permitted.
Imam Malik distinguishes between someone who becomes indebted for something that he possesses and someone who becomes indebted for something which he does not have in his possession, this latter kind of debt is disapproved of since it leads to usury and fraud ('Al-Muwatta', chap. 31), like in the case of the banks.
The Shari'a prohibits the commercialization or multiplication of a debt without the means to guarantee it. Thus, the banking business as such cannot exist in Islam; the only function it could have would be to restrict itself to being an institution for transferring money but without the capacity to expand the amount of credit.
B) The usurping of part ownership
The second reason why the Islamic bank is a fallacy is the constitutive structure of its ownership. In Islam the constitution of any business must guarantee the identification of ownership and the respect of this ownership. There thus exist two forms of constitution for a business by two of more persons.
1. The loan (or qirad ) by which the investor transfers the property of their investment to an agent who manages the business.
2. Co-ownership in which all the investors have made a prior agreement as to the execution of a specific business (by means of a contract) and in which ownership is based on equality of conditions between all the co-owners.
The structure of the 'Islamic banks' is based not on the strictness and exactness of the Shari'a but rather on the model of the corporation in the West in which the exercise of property is not carried out by those who --nominally --are the owners but is carried out by means of a system of usurpation which we can call by the majorities'.
This means that the innocent investor who takes part in this type of business contract has no protection of his investment since neither establishes a business loan (qirad ), in accordance with the way this type of contract is defined, nor is he able to make decisions with respect to the very business in which he is a co-own.owner (unless this same person is the majority) since this is not decided beforehand in the contract.
Thus this type of contract is not a business contract but a sophisticated and unprotected surrender of one's right of ownership. Whoever is the majority at any one time, then that person (or group of persons) and only that person is the authentic owner of the business. That is to say, in accordance with our understanding only the person who can decide is the owner in fact. For this reason the system of majority is neither co-ownership, Or, as we shall see, a loan.
The business loan (qirad ) is not a loan of money for a specific period made without knowing what is going to be invested in, but rather it is made for the establishment of a specific business:
Imam Malik says, "It is not permitted for the agent to stipulate that the use of the money of the qirad is his for a certain number of years and that it cannot be withdrawn from him during this period of time." He says, "It is not correct that the investor stipulates that the money of the qirad should not be returned for a certain number of years which are specified since the qirad is not for a specific time." ('Al-Muwatta' of Imam Malik, chap. 31).
The contract of the business loan on qirad implies the specifying of the person who is the agent or new owner and on whom the total responsibility of the investment rests. Thus the loan cannot be established by an indeterminate majority or with the persons who represent it if they, between them, form a single co-ownership) without jeopardizing the exercise of co-ownership of the minority co-owners, who are bound by the decisions (of the majority) despite disapproving of them.
This means that firstly before someone invests in a business it has to be known what that business is, prior to investment (according to basic conditions which arc made known in a reasonable way beforehand, and which are complete,with w condition wanting in any way); secondly it means that the person (or persons) who is the decision maker in such a business is the owner (or co-owners) and that reciprocally only the owner (or the owners) decides with respect to the business;
Thirdly, that in every co-ownership the owners enjoy the same status (the fulfillment of the contract which they have and agreed to) even though they participate to different degrees (such that the profits are distributed proportionally); and fourthly it means that those contracts in which, without there occurring any loan, the owner is deprived of the right of ownership to exercise control, then in these contracts there is a usurpation of ownership.
In short, the structure of co-ownership of the 'Islamic banks' in which the shareholders are invited to participate is not acceptable ; in Islam since it consists of an unjustified usurpation of the ownership of the minority shareholders in favor of the executive council or administrator which represents the majority.
C. The payment of the usurious interest
Due to the very structures and the arena in which the 'Islamic banks' deals in a contract , fluctuation in value is generated which affect the individual transactions the bank makes. As a result an contracts made by the ' Islamic bank' are usurious. Short of removing ourselves completely from the monetary system then we are of necessity justified in affirming that every commercial contract made with in this system is already usurious since the values makes of one of the commodities which is interchanged, namely completely the paper money is being increased by pressure , force and the state monopoly. The usurious nature of these institutions is much deeper however.
Every loan of a commodity open to devaluation and whose value was superior when it was received, is usurious. In general a loan cannot be made of a commodity whose value is changeable. If however a devaluation happens unexpectedly the payment of a compensation equal to the devaluation of the lent merchandise will have to be established (and this cannot be confused with the interest). This fact denies the validity of the principle of 'interest-free' on which 'Islamic banks' are based, since paper money cannot be taken as a authentic money with a stable value. Every time this bank borrows paper money for a time, it gains the devaluation suffered by this money during the time of the loan. It is like the typical usurious trick which consisted of the loaning of wheat when it has limited value (during harvest) and stipulating that it be given back when wheat has attained a better price on the market (several months after the harvest).
This however does not mean that the taking of an interest which is equal to inflation makes the operation of loans in paper-money permissible since this commodity can never become the object of a free and fluctuating evaluation.
The payment of dividends, except when considered as the sharing out of the profits of the business and when accepted unanimously by ad the co-owners is payment of usurious interest The Shari'a contains no doubt in this respect: the only possible justification for the increase or decrease at the time of the return of the loan is the resulting profit or loss of the business, connected with that loan. None of the parties can reserve the use of a pan of the profits without them having been previously distributed:
"The person who makes an investment cannot stipulated that he retain part of the profit without sharing it with the agent; likewise the agent cannot stipulate that he retain a pan of the profit without sharing ." ('Al-Muwatta' of Imam Malik, chap. 31)
This however is what happens when the agent does not distribute all the profits but rather an estimation of them. The profits are simply the difference between the value (or market price) of the invested goods and the value of the goods and the value of the goods obtained by the business. Then the results or profits are not an 'objective' estimation but rather a demonstrable reality.
It may be however that the parties to the business contract want to extend the contract and continue the profit already made by establishing a 'mutually acceptable' payment as if it were the same as partial payments of the total profit. But this 'mutually acceptable' payment means that if even one of the parties was not in agreement with the proposition to continue the business or not in agreement with the calculation of the profit which has been 'objectively' estimated by someone -- or even a majority of the co-owners -- then he can, by exercising his right of ownerships dissolve the business and verify-- by the sales of the business goods--if the estimate was correct or not.
This will not violate the right of ownership of the rest of the co-owners since the contract will have been completed; besides this can be continued by buying it again from the sale of liquidation of the person who does not want to continue or who does not accept the profits which have been estimated. The calculation of the resulting profits is logically identical for all types of business whether they be established by way of a business loan (or qirad ) or as co-ownership. The qirad in general is established for a particular business with a particular person, where the results are clearly defined but it is not to be thrown to a basket of other business that the investor cannot clearly identify in full, that is not only the nature of the business and the identity of the agent but specially the exact results of the business.
In short the system of calculation or estimation of the dividends of the modem corporations adopted by the 'Islamic banks', are not the actual resulting profits of the business and as such, by their excessive estimation or underestimation, they represent a usurious interest. Even besides the fact that this estimation cannot possibly always be correct, there is the fact that the very contract itself is unacceptable, since in the type of contract that the corporation make with the shareholders the fact that the latter have to renounce their right of co-ownership without even being able to refuse what they consider to be an incorrect estimation represents an illegitimate usurpation of ownership.
Usury has corrupted the market, transforming it into a usurious system. There is no way of establishing an (equitable) market without going outside of the modem monetary and financial systems. All attempts to recuperate an (equitable) Islamic market with (equitable) Islamic business and transactions must be based on the Qur'anic principle of Equity (al-'Adl){Qur'an 2, 282} which is also defined in the Shari'a. Islam, besides being the situation of the Muslims themselves, a situation based on the Qur'an and our tradition of fiqh, is and has been for centuries an impregnable fortress Of guidance and source of unparalleled knowledge for the Muslims. The 'Islamic bank' is a Trojan horse which has been infiltrated into Dar al-lslam.
Since its origin, the 'Islamic bank' has been patronized and promoted by usurers. Their only intention was to incorporate the thousand million Muslims of the world--who in general would scornfully avoid using any banking or usurious institution--into the international financial and monetary system. The artificial creation by the colonial powers of the so called 'Islamic states', itself a contradiction in terms, whose character is markedly anti-lslamic, was the historical result of the end of territorial colonization and the beginning of the financial neo-colonialism.
The universal establishment of the western constitutional model (the model of the French revolution) brings with it the establishment of artificial and unnatural boundaries, the creation of a repressive ministerial bureaucracy, the exacting of taxes, the imposition of artificially legalized money and the legalization of usury (the banking system) - measures which are all profoundly contrary to Islam. The Islamic Bank is thus nothing more than a typically degenerate and belated product of the so-called 'Islamic states'.
In order to speak on the "Islamic Bank", the new science of so-called 'Islamic economics' has emerged from the American and European universities. However fallacious these two self-supporting concepts of economics are concepts regarded with scorn by the Muslims of traditional education they have served as a justification for the new class of state functionaries and bureaucrats who have come to constitute a kind of 'Islamic modernism'. A few years of mediocre education in western universities will not allow many of the Islamic economists to discover that the foundations of economics have been shattered as a science and in practice in the very Europe which saw it come into existence.
The rationalistic framework of the positive sciences which has been called into question in Europe has been currently defended by those neo-bureaucrats who are still fascinated by their years of education in the West. Even though the sincere, albeit naive, faith of the majority of those who participate in these modernist movements cannot be denied, time and a greater maturity has shown them the bitter side of the ideological and scientific modernism in which they have placed their trust.
The return of the Islamic tradition has not only been the best antidote against this modernism in those Muslim countries but in the hand of a new generation of Muslims in the West it has also resulted in the transcending of modernism and brought about the culmination of our western civilization which today is of {universal character.}
In contrast to the modernist confusion, the position of the Shari'a of Islam clear and does not admit any controversy.
Allah says in the Qur'an:
"Oh you who believe! Have fear of Allah and give up what remains of what is due (to you) of Usury. If you do not, then take notice of war (against you) from Allah and His Messenger." {Qur'an 2,278}
From this it is clear that the Muslims must not only abandon Usury but that he is also obliged to fight against usury. The 'Islamic bank' is a totally crypto-usurious institution and like all the other usurious constitutions must be rejected and fought. Besides the falsehood of its very name we can enumerate at least three reasons why its practice is considered usurious.
A. The creation and utilization of artificial paper-money whose use is a confined monopoly.
The Shari'a prohibits the forceful imposition of one single money on the market; what is explicitly stated is that money can be any kind of merchandise which is socially accepted as a means of exchange. If besides this we add to this the character of monopoly inherent in a (paper-)money -- without any value as a commodity -- whose value is imposed by the state, then it becomes clear the manipulation and acceptance of this system has nothing to do with the deen of Islam. Moreover given that there does not exist a single state in the world where the monetary system of paper money is not applied then this is sufficient reason for affirming that the Muslims live in a world where authentic Islamic governance is absent.
There exists no justification of a strategic or a political kind in the imposition of paper money as a prop for a possible Islamic government since this imposition is based on a deception of the people who support this government: moreover it is a contradiction that a just and equitable government finance itself by means of robbing from the very people whom it is governing.
The use of paper money by any institution is contrary to the nature of Islam. In the case of the bank however there is an added element to this contradiction -- namely the capacity of the bank to freely create paper money by means of credit -- which is independent of whether this paper-money is used for honest business or usurious loans. The use of credit to artificially expand the monetary resources is emphatically forbidden in the Shari'a.
"It is not permitted to pay a loan by asking the lender to receive payment from a third person who owes money to the lender...."
Consequently it is not allowed to settle a debt with another debt.
"It is not permitted that you sell something that you do not possess on the understanding that you will buy it and will give it to the buyer." ('Al-Risala' of Ibn Abi Zaid al-Qayrawani, chap. 34).
Imam Malik says, "A person should not buy a debt due to another person, be he present or absent, without the confirmation of the person who owes the debt. He is buying something which has not been guaranteed to him and so if the contract is not completed what he has paid loses its value. This is an uncertain transaction and is not good." ('Al Muwatta' of Imam Malik, chap. 31).
The confirmation of a debt is an indispensable condition for its transfer; the confirmation occurs with the guaranteeing that the debt can be and will be paid. In other words notice will be given that someone with a debt which is unpayable will be able to transfer it to another person. Not even in debts of sale is the lack of confirmation of guarantee permitted.
Imam Malik distinguishes between someone who becomes indebted for something that he possesses and someone who becomes indebted for something which he does not have in his possession, this latter kind of debt is disapproved of since it leads to usury and fraud ('Al-Muwatta', chap. 31), like in the case of the banks.
The Shari'a prohibits the commercialization or multiplication of a debt without the means to guarantee it. Thus, the banking business as such cannot exist in Islam; the only function it could have would be to restrict itself to being an institution for transferring money but without the capacity to expand the amount of credit.
B) The usurping of part ownership
The second reason why the Islamic bank is a fallacy is the constitutive structure of its ownership. In Islam the constitution of any business must guarantee the identification of ownership and the respect of this ownership. There thus exist two forms of constitution for a business by two of more persons.
1. The loan (or qirad ) by which the investor transfers the property of their investment to an agent who manages the business.
2. Co-ownership in which all the investors have made a prior agreement as to the execution of a specific business (by means of a contract) and in which ownership is based on equality of conditions between all the co-owners.
The structure of the 'Islamic banks' is based not on the strictness and exactness of the Shari'a but rather on the model of the corporation in the West in which the exercise of property is not carried out by those who --nominally --are the owners but is carried out by means of a system of usurpation which we can call by the majorities'.
This means that the innocent investor who takes part in this type of business contract has no protection of his investment since neither establishes a business loan (qirad ), in accordance with the way this type of contract is defined, nor is he able to make decisions with respect to the very business in which he is a co-own.owner (unless this same person is the majority) since this is not decided beforehand in the contract.
Thus this type of contract is not a business contract but a sophisticated and unprotected surrender of one's right of ownership. Whoever is the majority at any one time, then that person (or group of persons) and only that person is the authentic owner of the business. That is to say, in accordance with our understanding only the person who can decide is the owner in fact. For this reason the system of majority is neither co-ownership, Or, as we shall see, a loan.
The business loan (qirad ) is not a loan of money for a specific period made without knowing what is going to be invested in, but rather it is made for the establishment of a specific business:
Imam Malik says, "It is not permitted for the agent to stipulate that the use of the money of the qirad is his for a certain number of years and that it cannot be withdrawn from him during this period of time." He says, "It is not correct that the investor stipulates that the money of the qirad should not be returned for a certain number of years which are specified since the qirad is not for a specific time." ('Al-Muwatta' of Imam Malik, chap. 31).
The contract of the business loan on qirad implies the specifying of the person who is the agent or new owner and on whom the total responsibility of the investment rests. Thus the loan cannot be established by an indeterminate majority or with the persons who represent it if they, between them, form a single co-ownership) without jeopardizing the exercise of co-ownership of the minority co-owners, who are bound by the decisions (of the majority) despite disapproving of them.
This means that firstly before someone invests in a business it has to be known what that business is, prior to investment (according to basic conditions which arc made known in a reasonable way beforehand, and which are complete,with w condition wanting in any way); secondly it means that the person (or persons) who is the decision maker in such a business is the owner (or co-owners) and that reciprocally only the owner (or the owners) decides with respect to the business;
Thirdly, that in every co-ownership the owners enjoy the same status (the fulfillment of the contract which they have and agreed to) even though they participate to different degrees (such that the profits are distributed proportionally); and fourthly it means that those contracts in which, without there occurring any loan, the owner is deprived of the right of ownership to exercise control, then in these contracts there is a usurpation of ownership.
In short, the structure of co-ownership of the 'Islamic banks' in which the shareholders are invited to participate is not acceptable ; in Islam since it consists of an unjustified usurpation of the ownership of the minority shareholders in favor of the executive council or administrator which represents the majority.
C. The payment of the usurious interest
Due to the very structures and the arena in which the 'Islamic banks' deals in a contract , fluctuation in value is generated which affect the individual transactions the bank makes. As a result an contracts made by the ' Islamic bank' are usurious. Short of removing ourselves completely from the monetary system then we are of necessity justified in affirming that every commercial contract made with in this system is already usurious since the values makes of one of the commodities which is interchanged, namely completely the paper money is being increased by pressure , force and the state monopoly. The usurious nature of these institutions is much deeper however.
Every loan of a commodity open to devaluation and whose value was superior when it was received, is usurious. In general a loan cannot be made of a commodity whose value is changeable. If however a devaluation happens unexpectedly the payment of a compensation equal to the devaluation of the lent merchandise will have to be established (and this cannot be confused with the interest). This fact denies the validity of the principle of 'interest-free' on which 'Islamic banks' are based, since paper money cannot be taken as a authentic money with a stable value. Every time this bank borrows paper money for a time, it gains the devaluation suffered by this money during the time of the loan. It is like the typical usurious trick which consisted of the loaning of wheat when it has limited value (during harvest) and stipulating that it be given back when wheat has attained a better price on the market (several months after the harvest).
This however does not mean that the taking of an interest which is equal to inflation makes the operation of loans in paper-money permissible since this commodity can never become the object of a free and fluctuating evaluation.
The payment of dividends, except when considered as the sharing out of the profits of the business and when accepted unanimously by ad the co-owners is payment of usurious interest The Shari'a contains no doubt in this respect: the only possible justification for the increase or decrease at the time of the return of the loan is the resulting profit or loss of the business, connected with that loan. None of the parties can reserve the use of a pan of the profits without them having been previously distributed:
"The person who makes an investment cannot stipulated that he retain part of the profit without sharing it with the agent; likewise the agent cannot stipulate that he retain a pan of the profit without sharing ." ('Al-Muwatta' of Imam Malik, chap. 31)
This however is what happens when the agent does not distribute all the profits but rather an estimation of them. The profits are simply the difference between the value (or market price) of the invested goods and the value of the goods and the value of the goods obtained by the business. Then the results or profits are not an 'objective' estimation but rather a demonstrable reality.
It may be however that the parties to the business contract want to extend the contract and continue the profit already made by establishing a 'mutually acceptable' payment as if it were the same as partial payments of the total profit. But this 'mutually acceptable' payment means that if even one of the parties was not in agreement with the proposition to continue the business or not in agreement with the calculation of the profit which has been 'objectively' estimated by someone -- or even a majority of the co-owners -- then he can, by exercising his right of ownerships dissolve the business and verify-- by the sales of the business goods--if the estimate was correct or not.
This will not violate the right of ownership of the rest of the co-owners since the contract will have been completed; besides this can be continued by buying it again from the sale of liquidation of the person who does not want to continue or who does not accept the profits which have been estimated. The calculation of the resulting profits is logically identical for all types of business whether they be established by way of a business loan (or qirad ) or as co-ownership. The qirad in general is established for a particular business with a particular person, where the results are clearly defined but it is not to be thrown to a basket of other business that the investor cannot clearly identify in full, that is not only the nature of the business and the identity of the agent but specially the exact results of the business.
In short the system of calculation or estimation of the dividends of the modem corporations adopted by the 'Islamic banks', are not the actual resulting profits of the business and as such, by their excessive estimation or underestimation, they represent a usurious interest. Even besides the fact that this estimation cannot possibly always be correct, there is the fact that the very contract itself is unacceptable, since in the type of contract that the corporation make with the shareholders the fact that the latter have to renounce their right of co-ownership without even being able to refuse what they consider to be an incorrect estimation represents an illegitimate usurpation of ownership.
Usury has corrupted the market, transforming it into a usurious system. There is no way of establishing an (equitable) market without going outside of the modem monetary and financial systems. All attempts to recuperate an (equitable) Islamic market with (equitable) Islamic business and transactions must be based on the Qur'anic principle of Equity (al-'Adl){Qur'an 2, 282} which is also defined in the Shari'a. Islam, besides being the situation of the Muslims themselves, a situation based on the Qur'an and our tradition of fiqh, is and has been for centuries an impregnable fortress Of guidance and source of unparalleled knowledge for the Muslims. The 'Islamic bank' is a Trojan horse which has been infiltrated into Dar al-lslam.
What Is Inflation ?
Let’s first break this question down into the two types of inflation; monetary inflation and price inflation. Price inflation is the general rise in prices of goods and services. This is the one everyone talks about. You here the complaint "Gee…how expensive "fill in the blank" has gotten!" It is important to point out that price inflation is not a problem; it is a symptom . This is a very crucial difference. If price inflation is a symptom, then what is the problem? The problem is monetary inflation. "Monetary inflation" is a fancy phrase meaning the creation (really "excessive" creation) of a particular currency. In our case, it is the excessive creation of Riyals. Those riyals can be infused into the economy either through the actual printing (or electronic creation) of riyals or through credit ultimately issued by a central & commercial banks. In any case, monetary inflation is the cause of price inflation.
Stated another way, monetary inflation is the problem and price inflation is the symptom. Monetary inflation means increasing the money supply. Keep in mind that when we talk about "price inflation", it doesn’t always mean rising prices of goods and services; it can also mean that assets can experience price inflation as well. Whenever we hear about an "asset bubble" it is a reference to how an asset has risen in price far above its realistic market price (the effects of supply-and-demand) due to an excessive influx of monetary inflation. Some recent examples of asset bubbles (excessive price inflation of assets due to the problem of monetary inflation) are the Internet/ Tech stock bubble of the late 1990s and the real estate bubble of 2002-2006 and the saudi stock market's bubble of 2006.
It is an important distinction to point out the difference of a "bull market" and an "asset bubble". A bull market—rising prices for an asset (such as stocks, real estate, etc.)—is a natural and ordinary event. It is an extension of supply-and-demand; there are more buyers than sellers of the asset so the result is "rising prices." An asset bubble is an artificial and unnatural event. The rise in the price of the asset is primarily driven by monetary inflation (such as through the excessive issuance of credit). Because a bubble is unnatural and ultimately unsustainable, it inevitably "pops"; the artificial boom then becomes an artificial bust. As the economist Ludwig von Mises (www.mises.org) painstakingly pointed out, booms and busts (as well as recessions, depressions and hyper-inflation) are not creations of a free market; they are in fact created by government mismanagement of monetary and fiscal policy. Back to inflation…
Why is it necessary to "fight inflation"?
Inflation is a pernicious and destructive economic force. Inflation at a real-world rate of 2% or lower (preferably ‘zero") is tolerable for an economy. 3-5% inflation is bad but it can be manageable. Beyond that, it can be destructive. When inflation soars into double digits and beyond, it can cause tremendous damage to the economy. Thanks to the efforts of private sources (coupled with data from the Federal Reserve), it has been recently (early 2007) calculated that price inflation is in the 6-9% range and the money supply is expanding at an alarming rate of about 13%. Keep in mind that inflation is effectively a hidden tax that wreaks the most havoc to lower income and middle income folks. Inflation destroys purchasing power and those with limited income, fixed income or little in the way of savings are hurt the most. This is why there are many analysts that have voiced the opinion that the United States (specifically the Federal Reserve) should significantly limit and/or shrink the growth of the money supply and eventually return to the gold standard.
During the hundred-year span of 1812-1912, there was virtually no price inflation as our country strictly adhered to a gold standard. From 1913 to the 1930s, the United States slowly, partially and then completely abolished the gold standard in our economy. The end result was that a dollar that was worth 100 cents in 1913 is now, in 2007, worth less than three cents.
If monetary inflation is the problem, who is responsible?
Central bank / commercial banks
So what should the Fed be telling us about inflation?
They should be informing us about monetary inflation. Specifically, the management and growth of the money supply. The Fed can start by reinstating the M3 money supply measurement which they stopped reporting in March 2006. M3 is the broadest measure of the money supply and it is indeed a critical number for the financial markets. Fortunately, M3 was reconstructed by private sources (such as www.shadowstats.com). The money supply growth rate hit an astounding and disturbing 13% recently. This is the real problem and all of us need to be informed about excessive monetary inflation and its’ insidious effects.
What is the core rate of inflation?
Here is where the controversy lies. When you talk to some reporters and economists, they will tell you that the core rate is important to the Fed and to the financial markets. Please understand the following point; the core rate is not important and it should be dropped or ignored. As a financial planner, educator and writer, it is definitely not important to me or to my clients, students and readers. What possible importance does it have? It is only important to the Fed and to some politicians but beyond that, the core rate is useless, meaningless and misleading. If this commentary sounds too harsh, then let’s think about it for a moment. Think about why the core rate is only important to the government.
It is not an accident that Bernanke and other officials spend most of their time talking about the core rate and not about monetary inflation or "real-life" inflation. Imagine for a moment that you are the head of the Fed. Would you rather talk about monetary inflation and the money supply (what you are directly responsible for) or about something vague and distant like … the core rate of inflation? If you were responsible for inflation, what would you rather talk about; an inflation rate of 6-9% (the realistic inflation) or about some benign, vague rate that is only a measly 1.9%?
Let’s face it; the more Bernanke talks about "the core rate" and about "being under 2%", the more the financial press reports the same. The average reporter ends up thinking "gee, he’s talking so much about the core rate…it must be important!" Again, it is important to the government because that way they can talk about some seemingly innocuous measurement and essentially keep everyone calm. "Excited? Concerned? About what? After all, the core rate is only a measly 1.9%!"
The more tangible reason for the government to under-report inflation is so that payments to Social Security recipients and other pensioners are lower. Keep in mind that the initial wave of baby boomers (78 million total.) start retiring in 2008. Over time, every percentage point that is not being paid is worth trillions. So now we can see a solid reason why a lower inflation rate is important to the government. A lower rate is good publicity and it also means trillions in savings.
Why isn’t the core rate important to the financial markets?
Why isn’t the core rate important to retirees?
Why isn’t the core rate important to investors?
As you read this, millions of investors are making choices with their money. What will they invest in? If they think that inflation is benign, then they will invest accordingly. But what if they were aware of real-world inflation? Think about your own actions. What would you do differently if you knew that inflation was 8% instead of 2%? You would certainly invest at least a portion of your portfolio in inflation hedges such as gold, silver, energy and related securities. For investors, a return must be generated that meets or exceeds the real-world rate of inflation. Yes…that includes the costs of food and energy. Therefore, for investors, the core rate is meaningless.
* We spend little or no time addressing the problem (monetary inflation).
* We spend too little time addressing real-world price inflation
* We spend very little time addressing the point that the dollar is losing value due to excessive monetary inflation.
* We spend too much time talking about the core rate of inflation which has no real value to consumers, retirees, investors or anyone else for that matter.
Stated another way, monetary inflation is the problem and price inflation is the symptom. Monetary inflation means increasing the money supply. Keep in mind that when we talk about "price inflation", it doesn’t always mean rising prices of goods and services; it can also mean that assets can experience price inflation as well. Whenever we hear about an "asset bubble" it is a reference to how an asset has risen in price far above its realistic market price (the effects of supply-and-demand) due to an excessive influx of monetary inflation. Some recent examples of asset bubbles (excessive price inflation of assets due to the problem of monetary inflation) are the Internet/ Tech stock bubble of the late 1990s and the real estate bubble of 2002-2006 and the saudi stock market's bubble of 2006.
It is an important distinction to point out the difference of a "bull market" and an "asset bubble". A bull market—rising prices for an asset (such as stocks, real estate, etc.)—is a natural and ordinary event. It is an extension of supply-and-demand; there are more buyers than sellers of the asset so the result is "rising prices." An asset bubble is an artificial and unnatural event. The rise in the price of the asset is primarily driven by monetary inflation (such as through the excessive issuance of credit). Because a bubble is unnatural and ultimately unsustainable, it inevitably "pops"; the artificial boom then becomes an artificial bust. As the economist Ludwig von Mises (www.mises.org) painstakingly pointed out, booms and busts (as well as recessions, depressions and hyper-inflation) are not creations of a free market; they are in fact created by government mismanagement of monetary and fiscal policy. Back to inflation…
Why is it necessary to "fight inflation"?
Inflation is a pernicious and destructive economic force. Inflation at a real-world rate of 2% or lower (preferably ‘zero") is tolerable for an economy. 3-5% inflation is bad but it can be manageable. Beyond that, it can be destructive. When inflation soars into double digits and beyond, it can cause tremendous damage to the economy. Thanks to the efforts of private sources (coupled with data from the Federal Reserve), it has been recently (early 2007) calculated that price inflation is in the 6-9% range and the money supply is expanding at an alarming rate of about 13%. Keep in mind that inflation is effectively a hidden tax that wreaks the most havoc to lower income and middle income folks. Inflation destroys purchasing power and those with limited income, fixed income or little in the way of savings are hurt the most. This is why there are many analysts that have voiced the opinion that the United States (specifically the Federal Reserve) should significantly limit and/or shrink the growth of the money supply and eventually return to the gold standard.
During the hundred-year span of 1812-1912, there was virtually no price inflation as our country strictly adhered to a gold standard. From 1913 to the 1930s, the United States slowly, partially and then completely abolished the gold standard in our economy. The end result was that a dollar that was worth 100 cents in 1913 is now, in 2007, worth less than three cents.
If monetary inflation is the problem, who is responsible?
Central bank / commercial banks
So what should the Fed be telling us about inflation?
They should be informing us about monetary inflation. Specifically, the management and growth of the money supply. The Fed can start by reinstating the M3 money supply measurement which they stopped reporting in March 2006. M3 is the broadest measure of the money supply and it is indeed a critical number for the financial markets. Fortunately, M3 was reconstructed by private sources (such as www.shadowstats.com). The money supply growth rate hit an astounding and disturbing 13% recently. This is the real problem and all of us need to be informed about excessive monetary inflation and its’ insidious effects.
What is the core rate of inflation?
Here is where the controversy lies. When you talk to some reporters and economists, they will tell you that the core rate is important to the Fed and to the financial markets. Please understand the following point; the core rate is not important and it should be dropped or ignored. As a financial planner, educator and writer, it is definitely not important to me or to my clients, students and readers. What possible importance does it have? It is only important to the Fed and to some politicians but beyond that, the core rate is useless, meaningless and misleading. If this commentary sounds too harsh, then let’s think about it for a moment. Think about why the core rate is only important to the government.
It is not an accident that Bernanke and other officials spend most of their time talking about the core rate and not about monetary inflation or "real-life" inflation. Imagine for a moment that you are the head of the Fed. Would you rather talk about monetary inflation and the money supply (what you are directly responsible for) or about something vague and distant like … the core rate of inflation? If you were responsible for inflation, what would you rather talk about; an inflation rate of 6-9% (the realistic inflation) or about some benign, vague rate that is only a measly 1.9%?
Let’s face it; the more Bernanke talks about "the core rate" and about "being under 2%", the more the financial press reports the same. The average reporter ends up thinking "gee, he’s talking so much about the core rate…it must be important!" Again, it is important to the government because that way they can talk about some seemingly innocuous measurement and essentially keep everyone calm. "Excited? Concerned? About what? After all, the core rate is only a measly 1.9%!"
The more tangible reason for the government to under-report inflation is so that payments to Social Security recipients and other pensioners are lower. Keep in mind that the initial wave of baby boomers (78 million total.) start retiring in 2008. Over time, every percentage point that is not being paid is worth trillions. So now we can see a solid reason why a lower inflation rate is important to the government. A lower rate is good publicity and it also means trillions in savings.
Why isn’t the core rate important to the financial markets?
Why isn’t the core rate important to retirees?
Why isn’t the core rate important to investors?
As you read this, millions of investors are making choices with their money. What will they invest in? If they think that inflation is benign, then they will invest accordingly. But what if they were aware of real-world inflation? Think about your own actions. What would you do differently if you knew that inflation was 8% instead of 2%? You would certainly invest at least a portion of your portfolio in inflation hedges such as gold, silver, energy and related securities. For investors, a return must be generated that meets or exceeds the real-world rate of inflation. Yes…that includes the costs of food and energy. Therefore, for investors, the core rate is meaningless.
* We spend little or no time addressing the problem (monetary inflation).
* We spend too little time addressing real-world price inflation
* We spend very little time addressing the point that the dollar is losing value due to excessive monetary inflation.
* We spend too much time talking about the core rate of inflation which has no real value to consumers, retirees, investors or anyone else for that matter.
The banking System Is Corrupt
The ignorance of coin, credit, and circulation is unfortunately, a widespread occurrence – causing perplexities, confusion in the financial markets. Is it the fault of the common man that he cannot understand the complexities of a monetary system that moved Lord Keynes to say that not one man in a million understands money?
What is meant by fractional reserves? It would seem that reserves are reduced to a fraction, but a fraction of what? Perhaps we should seek the wise counsel of the Federal Reserve, as this is their raison d’etre.
Required reserve balances are balances that a depository institution must hold with the Federal Reserve to satisfy its reserve requirement. Reserve requirements are imposed on all depository institutions – which include commercial banks.
Where The Money Comes From ?
Trillions of dollars are said to be everywhere.. Today billions of dollars are tossed around from computer to computer without the blink of an eye. Trillions are now the topic de jour.
Budgets, deficits, and international money flows are all described using trillions or parts thereof.
The Beginning
On that fateful day when Federal Reserve Notes were first issued, it is obvious that a huge number of dollar bills had to be printed. Now, the printing press is pretty much obsolete; the only money that actually gets printed is used to replace old and worn Federal Reserve notes already in circulation. In vogue today is electronic money – fast food style.
The process actually begins with the Treasury Department printing a piece of paper called a bond, which is done electronically. Treasury bonds are debt obligations (liability) of the government to repay a loan - with interest.
The Treasury sells bonds to the public. The bonds the public does not buy, the Treasury deposits with the Federal Reserve. When the Fed accepts the bond from the Treasury, it lists the bond on its books as an asset.
The Fed assumes the government will make good on its promise to pay back the loan. This is based on the belief that the government’s power to tax the people is sufficient collateral.
Because the Fed now has an asset that it didn't have before receiving the Treasury bond, the Fed can now create a liability that is offset by its new asset.
The liability that the Fed creates is a Federal Reserve check. It gives the Treasury the check in payment for the Treasury bond.
THERE IS NO EXISTING MONEY IN THE FED'S ACCOUNT TO COVER THIS CHECK.
The Federal Reserve check is endorsed by the Treasury and is deposited in one of the government's accounts at the Federal Reserve. The government can use the deposits to write checks against, to pay for government expenses.
This is the first new money flow to enter the system. Various government contractors, vendors, etc. receive these checks as payment for services rendered, and they take the checks and deposit them in their commercial banks.
The Second Step
The deposits in the commercial banks take on a sort of split personality.
On the one hand, the deposits are the bank’s liabilities, as they owe the total sums to their depositors.
However, because of FRACTIONAL RESERVE lending, the bankers get to lend out 9 times what they have on deposit.
The commercial banks get to list the deposits as RESERVES.
In other words, FRACTIONAL RESERVE lending allows the commercial banks to create 9 times more money then they have on reserve. The banks lend money they don’t have, and:
They get to charge interest on it.
As the newly issued money is put to work by borrowers, they then spend it and the receiver then deposits it in their bank account, and the bank starts the reserve lending policy all over again. This is why the Money supply must expand by the amount of interest owed on the debt.
If it didn't, the debt would not be able to be serviced. There is no money created without creating debt, they are one and the same. Wealth is not created by creating money by fiat – only debt. As the Fed has admitted:
"Commercial banks create checkbook money whenever they grant a loan, simply by adding new deposit dollars in accounts on their books in exchange for a borrower's IOU."
Conclusion
Fractional reserve lending invokes the moral hazard of fidelity of contract. Banks have on deposit (reserve) at most 10% of the “money supply.”
This means that if more than 10% of depositors go to the bank at one time to withdraw “our” money – there isn’t any money to withdraw beyond the 10% reserves.
Which means that 90% of the money supply is non-existent, nothing more than a fleeting illusion.
What is meant by fractional reserves? It would seem that reserves are reduced to a fraction, but a fraction of what? Perhaps we should seek the wise counsel of the Federal Reserve, as this is their raison d’etre.
Required reserve balances are balances that a depository institution must hold with the Federal Reserve to satisfy its reserve requirement. Reserve requirements are imposed on all depository institutions – which include commercial banks.
Where The Money Comes From ?
Trillions of dollars are said to be everywhere.. Today billions of dollars are tossed around from computer to computer without the blink of an eye. Trillions are now the topic de jour.
Budgets, deficits, and international money flows are all described using trillions or parts thereof.
The Beginning
On that fateful day when Federal Reserve Notes were first issued, it is obvious that a huge number of dollar bills had to be printed. Now, the printing press is pretty much obsolete; the only money that actually gets printed is used to replace old and worn Federal Reserve notes already in circulation. In vogue today is electronic money – fast food style.
The process actually begins with the Treasury Department printing a piece of paper called a bond, which is done electronically. Treasury bonds are debt obligations (liability) of the government to repay a loan - with interest.
The Treasury sells bonds to the public. The bonds the public does not buy, the Treasury deposits with the Federal Reserve. When the Fed accepts the bond from the Treasury, it lists the bond on its books as an asset.
The Fed assumes the government will make good on its promise to pay back the loan. This is based on the belief that the government’s power to tax the people is sufficient collateral.
Because the Fed now has an asset that it didn't have before receiving the Treasury bond, the Fed can now create a liability that is offset by its new asset.
The liability that the Fed creates is a Federal Reserve check. It gives the Treasury the check in payment for the Treasury bond.
THERE IS NO EXISTING MONEY IN THE FED'S ACCOUNT TO COVER THIS CHECK.
The Federal Reserve check is endorsed by the Treasury and is deposited in one of the government's accounts at the Federal Reserve. The government can use the deposits to write checks against, to pay for government expenses.
This is the first new money flow to enter the system. Various government contractors, vendors, etc. receive these checks as payment for services rendered, and they take the checks and deposit them in their commercial banks.
The Second Step
The deposits in the commercial banks take on a sort of split personality.
On the one hand, the deposits are the bank’s liabilities, as they owe the total sums to their depositors.
However, because of FRACTIONAL RESERVE lending, the bankers get to lend out 9 times what they have on deposit.
The commercial banks get to list the deposits as RESERVES.
In other words, FRACTIONAL RESERVE lending allows the commercial banks to create 9 times more money then they have on reserve. The banks lend money they don’t have, and:
They get to charge interest on it.
As the newly issued money is put to work by borrowers, they then spend it and the receiver then deposits it in their bank account, and the bank starts the reserve lending policy all over again. This is why the Money supply must expand by the amount of interest owed on the debt.
If it didn't, the debt would not be able to be serviced. There is no money created without creating debt, they are one and the same. Wealth is not created by creating money by fiat – only debt. As the Fed has admitted:
"Commercial banks create checkbook money whenever they grant a loan, simply by adding new deposit dollars in accounts on their books in exchange for a borrower's IOU."
Conclusion
Fractional reserve lending invokes the moral hazard of fidelity of contract. Banks have on deposit (reserve) at most 10% of the “money supply.”
This means that if more than 10% of depositors go to the bank at one time to withdraw “our” money – there isn’t any money to withdraw beyond the 10% reserves.
Which means that 90% of the money supply is non-existent, nothing more than a fleeting illusion.
The Problem With Today's Money
Where does money come from? money is created by banks. Banks create money, not from their own earnings or from the funds deposited by customers, but from the borrowers' promises to repay loans. Most importantly, borrowers not only promise to repay, but to repay with interest, and the bank writes the amount of money of both into the borrower's account.
Whereas most paper currencies used to be backed by gold, that is no longer the case, and we have instead a fiat currency backed by nothing except the word of the central banks that the money is worth its stated value. Moreover, money today is created as debt, that is, money is created whenever anyone takes a loan from a bank. In fact, every deposit becomes a potential for a loan-a process which can be and is repeated many times, ultimately creating infinite amounts of money from debt.
The bottom line is that banks can create as much money as we can borrow! One wonders how individuals, banks, governments, and other entities can all be in debt at the same time, owing astronomical amounts of money. This question is answered when we consider that banks don't lend actual money; they create it from debt, and since debt is potentially unlimited, so is the supply of money. But what is so wrong with this scheme? Hasn't it been working all these years? Actually, there are several things very wrong with it.
The first issue is that the people who produce the real wealth in the society are in debt to those who lend out the money in that society. Moreover, if there were no debt, there would be no money.
Most of us have been taught that paying our debts responsibly is good for ourselves and for the economy. We imagine that if all debts were paid off, the economy would improve. In terms of individual debt, that's true, but in terms of the overall economy, the exact opposite is true. We are continually dependent on bank credit for money to be in existence-bank credit which supplies loans. Loans and money supply are inextricably connected, and during the Great Depression, the supply of money plummeted as the supply of loans dried up.
Secondly, banks only create the amount of the principal of loan. So where does the money come from to pay the interest? From the general economy's money supply, most of which has been created in the same way.
The problem is that for long-term loans, the interest far exceeds the principal, so unless a lot of money is created to pay the interest, a lot of foreclosures will result. In order to maintain a functional society, the foreclosure rate must be low, so more and more debt must be created which means that more and more interest is created, resulting in a vicious and escalating spiral of indebtedness. Furthermore, it is only the lag time between the time money is created to the time debt is repaid that keeps the overall shortage of money from catching up and bankrupting the entire system. It takes only a few second of reading the headlines of the financial pages during this month, August, 2007, to notice that foreclosure rates and lag time are threatening to meltdown the entire U.S. economy. The preferred method of the Federal Reserve and central banks addressing this calamity is, yes, you guessed it: to create more debt. The lowering of interest rates in recent years, the bombardment of credit card applications we find regularly in our mailboxes, the red ink in which the United States government is drowning are all an attempt to stave off the collapse of the entire system.
Can any sane human being believe that this situation can persist forever? What is the inevitable outcome of a fiduciary game of musical chairs? Monetary historian, Andrew Gause, answered this question:
One thing to realize about our fractional reserve banking system is that, like a child's game of musical chairs, as long as the music is playing, there are no losers.
And finally, a system based on fractional reserve banking is, to say the least, not sustainable because it is predicated on incessant growth. Perpetual growth requires perpetual use of resources and the constant conversion of precious resources into garbage just to keep the system from collapsing.
A crucial assumption that must be questioned is the practice of usury or the charging of interest for lending money. It is a moral and a practical issue because it necessarily results in lenders ending up with all the money, particularly when foreclosures happen. Not only is debt deplorably profitable for lenders in terms of interest and service charges, but when borrowers cannot pay, as in the case of housing foreclosures, lenders walk away with the proceeds
Whereas most paper currencies used to be backed by gold, that is no longer the case, and we have instead a fiat currency backed by nothing except the word of the central banks that the money is worth its stated value. Moreover, money today is created as debt, that is, money is created whenever anyone takes a loan from a bank. In fact, every deposit becomes a potential for a loan-a process which can be and is repeated many times, ultimately creating infinite amounts of money from debt.
The bottom line is that banks can create as much money as we can borrow! One wonders how individuals, banks, governments, and other entities can all be in debt at the same time, owing astronomical amounts of money. This question is answered when we consider that banks don't lend actual money; they create it from debt, and since debt is potentially unlimited, so is the supply of money. But what is so wrong with this scheme? Hasn't it been working all these years? Actually, there are several things very wrong with it.
The first issue is that the people who produce the real wealth in the society are in debt to those who lend out the money in that society. Moreover, if there were no debt, there would be no money.
Most of us have been taught that paying our debts responsibly is good for ourselves and for the economy. We imagine that if all debts were paid off, the economy would improve. In terms of individual debt, that's true, but in terms of the overall economy, the exact opposite is true. We are continually dependent on bank credit for money to be in existence-bank credit which supplies loans. Loans and money supply are inextricably connected, and during the Great Depression, the supply of money plummeted as the supply of loans dried up.
Secondly, banks only create the amount of the principal of loan. So where does the money come from to pay the interest? From the general economy's money supply, most of which has been created in the same way.
The problem is that for long-term loans, the interest far exceeds the principal, so unless a lot of money is created to pay the interest, a lot of foreclosures will result. In order to maintain a functional society, the foreclosure rate must be low, so more and more debt must be created which means that more and more interest is created, resulting in a vicious and escalating spiral of indebtedness. Furthermore, it is only the lag time between the time money is created to the time debt is repaid that keeps the overall shortage of money from catching up and bankrupting the entire system. It takes only a few second of reading the headlines of the financial pages during this month, August, 2007, to notice that foreclosure rates and lag time are threatening to meltdown the entire U.S. economy. The preferred method of the Federal Reserve and central banks addressing this calamity is, yes, you guessed it: to create more debt. The lowering of interest rates in recent years, the bombardment of credit card applications we find regularly in our mailboxes, the red ink in which the United States government is drowning are all an attempt to stave off the collapse of the entire system.
Can any sane human being believe that this situation can persist forever? What is the inevitable outcome of a fiduciary game of musical chairs? Monetary historian, Andrew Gause, answered this question:
One thing to realize about our fractional reserve banking system is that, like a child's game of musical chairs, as long as the music is playing, there are no losers.
And finally, a system based on fractional reserve banking is, to say the least, not sustainable because it is predicated on incessant growth. Perpetual growth requires perpetual use of resources and the constant conversion of precious resources into garbage just to keep the system from collapsing.
A crucial assumption that must be questioned is the practice of usury or the charging of interest for lending money. It is a moral and a practical issue because it necessarily results in lenders ending up with all the money, particularly when foreclosures happen. Not only is debt deplorably profitable for lenders in terms of interest and service charges, but when borrowers cannot pay, as in the case of housing foreclosures, lenders walk away with the proceeds
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