A false balance is an abomination to the LORD,
but a just weight is his delight.(Proverbs 11:1 ESV)
In ancient times, exchange was done through precious metals. You’d have a standard weight against which you would measure these metals for trade purposes. Using a heavier than standard weight when purchasing or a lighter weight when selling would allow you to dishonestly cheat a man out of his wealth, making yourself an extra profit.
These days, we will occasionally discuss usury (student loan debt slavery is a common topic in our sphere), but honest weights and measures are talked of less. What’s there to talk about? We no longer use precious metals for exchange,* so what measures are there to be dishonest about?
Unlike our ancestors, where dishonest weights were the domain of dishonest merchants and criminals, our dishonest weights are a fundamental part of our economic system. We have far surpassed the sin of previous generations in this regards and have made it an ideological mission to rob honest men of wealth through dishonest weights, yet almost no one in the Church speaks against this sinful robbery, this abomination to the Lord.
You shall not have in your bag two kinds of weights, a large and a small. You shall not have in your house two kinds of measures, a large and a small. A full and fair weight you shall have, a full and fair measure you shall have, that your days may be long in the land that the LORD your God is giving you. For all who do such things, all who act dishonestly, are an abomination to the LORD your God.(Deuteronomy 25:13-16 ESV)
To explain how our system uses dishonest weights and measures, I must first explain the banking system, as the system is designed to make this theft as hard to detect as possible.
Since the end of the Bretton Woods system, the US and most other nations have had a floating exchange rate** where the value of money is determined by foreign exchange markets (forex). Supply and demand on forex can be complex, but, for our purposes, what we need to know is that, generally, as the supply of a particular currency increases (relative to the goods and services the economy it backs produces) the value of the currency decreases. This causes the nominal prices of goods to rise and is called inflation. Likewise, as the supply of a particular currency decreases (relative to the goods and services the economy it backs produces), the value of the currency increases. This causes the nominal prices of goods to fall and is called deflation.
Most countries have a central bank which controls the money supply. In the US, this central bank is called the Federal Reserve. It is supposedly not “owned”, but the private banks which are members of the reserve system each own stock in the Federal Reserve and the Fed is required them to pay a 6% return annually, despite it being “non-profit”.
This is not relevant to my current point, but I I want To make sure you didn’t miss this, so I’ll highlight it again: the Federal Reserve, the quasi-public institution responible for the US’ money-supply, is “not-owned” by private banks and is required, by law, to pay these private banks a 6% (“non-profit”) return each year.
Continuing on, in fractional reserve banking systems, used by every country on earth, the banks get money in two ways: the first by borrowing from the central bank or from deposits. The banks make profit by loaning this money out to others and charging interest greater than the interest they pay the central bank or depositers.
Your normal individual or business deposits money into a bank, at which point the money become the bank’s property, while the depositer receives a deposit account. (Yes, this means you do not actually own the money you have deposited with the bank; the money is actually considered a loan to the bank; a loan which you pay fees to the bank to give them). The bank is only required to keep a fraction of the deposit (loan) in reserve; the majority of the deposit (loan) the bank lends to others at a higher interest rate than the depositer charges the bank.
Despite the deposit being more akin to a loan than a trust, the deposit is still considered money. So the bank’s loan to a customer becomes new money created out of nothing. So, this new loan adds new money to the money supply.
Also, the bank can borrow from the central bank. When it does so, the central bank simply creates new money to lend to the banks, increasing the money supply. The case of the US is unique, in that while the Fed makes the loans, the Treasury actually creates new currency. The bank then lends the money it borrowed from the central bank for a low interest rate to others for a higher interest rate (typically 3% points higher).
Just so you don’t miss this part, I’ll highlight it again: the banks borrow off the Fed and the Treasury (ie. off of you) and then charges you 3% extra interest to loan it back to you. Do you realize yet why banks have such ridiculously high profits? And we aren’t even to the outright thievery yet.
These two ways are how a fractional banking system creates new money.
Unequal weights and unequal measures
are both alike an abomination to the LORD. (Proverbs 20:10 ESV)
I need to point out one more fact: money that has been inflated is worth less than money that hasn’t. That is tautological, so I won’t go into it further, but it is essential to understanding.
The banks rob normal people through dishonest weights and measures in two ways, both lending and borrowing.
First, lending.
When the Treasury creates money and the Feds loan it out, the banks get it first. Individuals and businesses don’t borrow from the Fed, only banks and the government do. When the banks create money using fractional reserve banking, they obviously get the money first.
What this means is that the banks get the (less valuable) inflated currency to loan out into an economy with nominal prices based on (more valuable) non-inflated money. They are loaning out less valuable currency as if it were more valuable. They are loaning you a shaved gold coin as if it were a non-shaved coin.
Because the banks and the government always get the inflated money first and loan it as if it were non-inflated money, they always reap the value difference between inflation and non-inflation as pure profit.
Second, borrowing.
When the bank borrows money from depositers, (ie. when you make a bank deposit), the depositers are lending them non-inflated money. When the depositers withdraw their loan to the bank (ie. you use your debit card or an ATM), they are spending inflated money. The bank gets the difference between the non-inflated and inflated money as pure profit. They are taking gold coins from you and returning them to you shaved.
Given that the interest rates on even “high interest” savings accounts are usually less than inflation rates (0.87% < 2%) most depositers are literally paying the banks to hold their money (and that’s not even including account fees).
Every investment anybody makes is losing money this way. Investors invest in non-inflated money and receive returns in inflated money, and all the excess value siphoned off through inflation is pure, staight profit for the banks and the government.
You could accurately replace ‘inflation’ with ‘money the government and banks steal from me and everybody else’. A 2.5% inflation rate means the government and banks collectively and literally stole 2.5% of all the wealth in the country.
These dishonest weights and measures, this theft, this abomination is not only built into our economy, it is the very basis of our economic system.
****
You shall do no wrong in judgment, in measures of length or weight or quantity. You shall have just balances, just weights, a just ephah, and a just hin: I am the LORD your God, who brought you out of the land of Egypt. (Leviticus 19:35-36 ESV)
In mainstream economics, slow, “stable” inflation (usually in the 1-4% range) is considered desirable, a necessary evil. Keynesians such as Krugman place particular emphasis on maintaining “moderate” levels of inflation (because 1% just isn’t enough).
Here Krugman argues that the average person saving money because it is profitable to do so is wrong, it is a “liquidity trap”. He purposefully and knowningly advocates increasing inflation so more of your wealth is stolen so you will go spend it instead of being robbed.
To the keynesian, this theft is is good, it is praiseworthy. Keynesians are decidedly and purposefully ideologically evil; they know these weights and measures are dishonest and are used to rob you and the average man so that the banks can make a greater profit. They know this, yet they advocate this dishonesty and even mild dishonesty is not enough, they want more.
Is it any wonder keynesians became dominant when their ideology just happens to enrich the banks and government at the expense of the common man.
****
If he fathers a son who is violent, a shedder of blood, who does any of these things (though he himself did none of these things), who even eats upon the mountains, defiles his neighbor’s wife, oppresses the poor and needy, commits robbery, does not restore the pledge, lifts up his eyes to the idols, commits abomination, lends at interest, and takes profit; shall he then live? He shall not live. He has done all these abominations; he shall surely die; his blood shall be upon himself. (Ezekiel 18:10-13 ESV)
Know this, the socialist fractional reserve, central bank economic system we have is evil. It is detestable, an abomination. It robs the poor to enrich the bankers and the government.
Those lackeys of the banks and government know this and yet they rob you anyway.
Every Christian, every man of any morality, should be fighting the banks, the Fed, the government, and the keynesians. They are evil, they are thieves, and they purposefully robbing and oppressing the average man.
Eventually, hopefully, there inequities will come to light and justice can be enacted.
****
* I am not going to get into the problems of fiat currency here, it is related, but not what I am going to focus on.
** While I leans towards the gold standard, a floating exchange rate on a free market is not, in itself, a dishonest measure. I would support a free, open-market of currency, where any individual or organization could adopt or offer their own competitive form of exchange. Also, even though I would be against it, I do not think a reserve currency monopoly where currency levels are kept stable and new currency released at a set, predefined rate would be dishonest.
OK, now inflation starts to hit the economy only if the money printed (or, as in “created out of thin air”) starts to flow around in the economy.
Problem with libertarians line of thought is that almost never US dollar $ printed was spilling inside of US of NA.
It was distributed worldwide : to Asia, to Africa, to Arab Peninsula. And it’s solely because dollar is an international exchange currency. Those fat 9$ milliards? They went to Saudis who would then accept dollars which were printed and transferred to Vietnam and other countries.
Only recently FED’s QED is actually posing a risk that the dollar just might flood the continental USA.
So, as long as dollar is a international currency (which, because of FED’s inflation and gold-ransacking by US Treasury, soon will not be) you can print money without collapsing your own economy, as long as the money outflows from continental USA.
That is the major flaw in thinking of libertarians – the inflation is what actually enables huge financing in USA by exploiting whole world, so you actually got it backwards.
Not really a “flaw” since libertarians would not support stealing from others even if they are foreigners. Anyway the illusion of the dollar’s value increases the trade deficit, destroying domestic industry to benefit the global banking and government conspirators.
It is a flaw because politics merging with economy means always stealing from others.
Cockblocking with utterly unfair and stupid patent system, buying-out domestic competition, price-dumping like it is today.
Truth being told, the free market works only when everyone plays by the rules – and that is a mistake that libertarians do. Because it is unreal, the governments in the very essence rival between themselves for influence, power and access. And cockblocking your opponent is another way of achieving such goals. So a noble note that “free market works” should be thrown out the window.
It is kind of parallel to mercantilism. Because when UK launched mercantilism – it worked greatly. Until everyone else started to implement it, causing huge bubbles and recessions.
Then UK launched “free market” reform, dominating their ex-colonies and exploiting them further.
It is of no coincidence that most exploited countries in the world were subjugated to most extreme of “free market”. And then fucked without any lube by “international” (nice word anglosphere) corporations.
And the actual source of economic power of USA is actually denying Adam Smiths’ lessons and developing domestic market through protectional rights, national bank-lending, and extremely high import taxes which protected domestic market. But yes, for US citizens, there were few regulations and free market.
Because the real rule is NOT : free market for all.
But it IS : Nationalized banking system which drives the price of money down, thus sparking developments in industrial and technological areas, whilst protecting your domestic market. Free trade and market with economies on the same or lower level of development, and high protective import taxes against stronger economies.
It is an ultimate mix of realism and ideological libertarianism. And it is source of power of Japan, S Korea, USA, Germany.
Friedrich List “The National System of Political Economy.”
Checkmate, libertarians!
The moment you would introduce pure free market, is the moment “international” [which just happen to be placed outside the USA] companies fuck all over your marketplace.
Nice to see this topic covered. The disinformation on economics is heavy and sloppy to keep us in the dark. It took me several years to fully(?) understand it. I submit two conceptual corrections to this excellent post.
(1) “A 2.5% inflation rate means the government and banks collectively and literally stole 2.5% of all the wealth in the country.” Correction, the real theft is all of the growth in the economy (roughly GDP) plus the inflation part (roughly the inflation rate). Therefore, the middle class must shrink. What you do not consider is that not only do prices go up, they would have gone down assuming growth in the economy. If the dollars supply stays the same and the supply of wealth goes up, prices go down, signalling prosperity. Real deflation is actually a good and honest thing. If the parasites were cut off, we would see double digit annual growth I am sure. The overhead at this point must be staggering. Cf. realitydoug.tripod.com.
(2) “While I leans towards the gold standard, a floating exchange rate on a free market is not, in itself, a dishonest measure. I would support a free, open-market of currency, where any individual or organization could adopt or offer their own competitive form of exchange.” You are not quite thinking outside of the box (mental cage). Institutional solutions are not free-market solutions. If every buyer and seller has the privilege and responsibility to define and agree what to use as money, there would be no government guaranteed (responsibility free) investments backed by serfs masquerading as money. People don’t want to risk a catastrophic loss on their choice of money, or carry heavy gold coins. Lazy, lazy. I covered the false promise of the (tacitly government) gold standard in my post “The Gold Standard” (http://realitydoug.wordpress.com/2011/06/12/the-gold-standard-a-measure-of-control-assiduously-avoided/). In short, Gresham’s Law is just a matter of time because legal theft is too damn tempting, easy, and profitable.
Northener,
Good post. I for one don’t see how usury ends anywhere but bad.
That last comment was me…Wordpress isn’t accepting my login.
It’s good to see a Christian mention usery and the like vs whinging about much less damaging though socially unacceptable things like tattoos.
@Free Northerner:
“When the bank borrows money from depositers, (ie. when you make a bank deposit), the depositers are lending them non-inflated money. When the depositers withdraw their loan to the bank (ie. you use your debit card or an ATM), they are spending inflated money. The bank gets the difference between the non-inflated and inflated money as pure profit. They are taking gold coins from you and returning them to you shaved.”
– well, now compare it with lending money to friend. He’ll be also taking gold coins from you and returning them to you shaved => making difference between inflated and non-inflated money doesn’t make sense, it’s the same money that loses it’s worth over time…
Why don’t you just invest all your money into Bitcoin? There is set number of these, so there would be no inflation and due to growth of market it will even deflate… (and nobody will really want to trade them for goods, if there is not absolute need to, because they would be losing money in the longterm…)
P.S.: do you believe, that finding a new enormous gold deposit would be also abomination unto the Lord? If yes, then explain why, if not then please review headline of this post…
You seem to think that the differences between borrowing and lending rates is some kind of scam (and in some extreme cases it may well be), but for the majority of the banking sector it’s actually very mathematically reasonable.
Firstly, well-controlled inflation is not theft, and would happen regardless of changes in the money supply as a result of other market forces (either the prices of goods go up, or they stay the same and your money is worth correspondingly less). If you know that $1 today will only buy 98% as much goods next year, then you plan accordingly. If you don’t plan accordingly, then you only have yourself to blame and can’t claim that you “had 2% of your money stolen”. For example, if you want to buy 100% as much goods next year rather than 98%, you need to trade your dollars today for inflation-protected assets (precious metals, certain bonds, etc).
In terms of “weights”, there is only one set of weights used by the honest parts of the banking sector. There is a weight for today’s dollars, a weight for tomorrow’s dollars, a weight for dollars in one years time, etc. The important thing is that at any one time, everyone is using the same set of weights, and you or I can easily find out what those weights are (by doing calculations on yield curves etc).
As for the difference in borrowing and lending rates, if banks didn’t do this they would actually go bust. When a bank gives you a loan, there are two major risks they have to carry:
1) you might default on your loan, and your collateral might become worth less than the loan
2) if interest rates change (which they do), then you might pre-pay your loan and deprive the bank of their expected income stream, or they might be stuck with you paying interest at a lower rate than they are
Due to these two risks, banks actually lose money on a considerable number of loans (especially during things like the GFC). They have to make up for this loss somehow, and rather than just enslave those who default on their loans (as might have happened in the Ancient Near East), they charge a 1.5% to 2% interest premium. It’s not a scam, it’s just common-sense.
The only real theft is that when banks go bust, the government bails them out with taxpayer funds – that is what you should really be complaining about.
There is a great free lecture series on financial theory on YouTube provided by Yale:
https://www.youtube.com/playlist?list=PLE5829536991C1117
If you have a bit of mathematical background, I highly recommend the series. It will explain what causes inflation rates, what causes the difference between borrowing and lending rates, and much more.
@ RH: The money has been hitting the US economy for a half century now. Just look at these prices from 1972. Inflation has been occurring.
http://www.humanaction.co.za/wp-content/uploads/2010/01/Wimpy-Menu-1972.JPG
@ RD: The growth in GDP in real dollars would simply be the growth in production (except maybe G); only the nominal growth in GDP beyond the real growth would be theft, and that would be covered under the part of the economy under inflation. Not sure what you mean by your second point.
@ Pilgrim: Lending to your friend is done in good faith by you both, inflation is usually too little to worry about. The profits of inflation only matter much over a really long period or if you do a lot of lending. The banks do both and not in good faith, they are purposely using dishonest weights. It would not, for that would be natural inflation, not manipulated inflation.
@ Kman: It’s a scam because it’s public money being lent to them at almost nothing which they are then charging more for or it is money created by risking money which doesn’t exist. If it was their private money they made from honest profit they were loaning they can do what mark-ups they want (as long as it didn’t turn into usury).
As I said, if inflation (or money creation) was set at a steady rate and never manipulated, or even if it occurred due to natural market forces, it would not be dishonest and I wouldn’t have too much of a problem with it, but it is not. New money is dumped in at random whenever the banks or the politicos need it. Look at how much it’s jumped around each year over just the last decade, it’s ranged from .1% to 4% a year.
http://www.usinflationcalculator.com/inflation/current-inflation-rates/
@FN
“It’s a scam because it’s public money being lent to them at almost nothing which they are then charging more for or it is money created by risking money which doesn’t exist.”
In the former case, I already explained why there MUST be a difference in interest rates, because the bank is taking on extra risks. In the latter case, there is supposed to be regulation of the industry so that doesn’t happen, but pre-2008 this was poorly regulated in the US. It should be fine now.
“As I said, if inflation (or money creation) was set at a steady rate and never manipulated, or even if it occurred due to natural market forces, it would not be dishonest and I wouldn’t have too much of a problem with it”
It IS due to natural market forces, and while inflation rates may not be completely stable, the difference between inflation rates and overnight lending rates usually is stable, and future inflation rates can be predicted quite accurately.
The primary driver of inflation is not changes in the money supply, but simple human nature. How many apples would you be happy to give me today in exchange for 100 apples in one year’s time? Probably not 100, right? Most people might say something between 50 and 80 apples. Guess what? That’s inflation right there. You are going to have to give up more value next year to buy apples then than what you need to give up today to buy the same next year’s apples.
The problem is regulation; the Fed has controlled the money supply for decades. It is what manipulates the money supply.
Inflation is not dependent on time preference; the two are distinct concepts.
@Free Notherner
Nice article. It makes sense though defenders of current system would probably come up with strong objections and I am undecided if common sense is valid in the area of financial operations.
@KMan
“In the former case, I already explained why there MUST be a difference in interest rates, because the bank is taking on extra risks”
First, I would ask if such behavior is ethical, then I would talk about risks. After all, they don’t need to do it if it’s too risky.