Out o the many devastating results,due to this well-hidden mistake in ourmoney system, two are particularlynoteworthy: infation and monetaryinstability.
Between 1950 and 2001every Deutsche Mark lost 80 percento its value – and this was the moststable currency in the world. For mostpeople, infation seems like an integralpart o any money system – almost‘natural’ – since there is no country inthe world without infation. Becauseit is perceived as a given, economistsand most people believe interest isneeded to counteract infation, whilein act interest is the major cause oinfation. The creation o money iscarried out via bank loans. Whoeverreceives these loans has to repay themwith interest and compound interest.I we consider the world economy, itollows that the amount o moneyin circulation is systematically insu-cient to repay all debt. Leaving asidetemporary contractions, it is onlyby a continuous expansion o themoney supply that economic actorsas a whole can sustain their abilityto pay.So where is exponential growth actu-ally taking place? The asset marketshold the answer. It is in the numbero assets and in the asset evalua-tions – and this is especially true orthe securities market that has grownexponentially over the past decades.However, unless this rise correspondswith a comparable rise in the produc-ing economy their surge is excessive.These overvalued assets serve asbacking or creating loans. But – ithe backing is getting weaker – howis the money not supposed to losesolidity? In a monetary system withcompound interest, infation cannotbe prevented. At best, it can be keptat low levels or a number o decades.Ultimately, a correction – that meansa massive and painul adjustment – isinevitable. We see the beginnings othis process right now.
2. Monetary instability
is a secondresult o the exponential growth pat-tern in our money system. In contrastto measures like the meter or thekilogram, we are used to the act thatthe exchange rate o our currenciesvaries almost daily. Cashing in on thisvariability, the global volume o specu-lative oreign currency transactionsbetween 1974 and 2004 increased to97 percent, with a mere 3 percent othe transactions serving the exchangeo goods and services including tour-ism. Recent gures in 2007 show thatthe daily volume o trading alreadyexceeded $3.200 billion – whereas inthe 1970s it amounted to just $20 to30 billion. Thus, economic instability iscreated on a global scale. Ater specu-lative money fowed massively intoThailand, Malaysia and Korea in theearly 1990s – only to be withdrawn aew weeks later – it let the most dev-astating eects – not unlike war – onthe culture, ecology and society.
Three historical solutions
The religious leaders o Judaism, Islamand Christianity understood the prob-lems o compounding interest and letus solutions how to deal with it:
Sharia observe a complex set orules to prevent interest romcompounding. It orbids not onlyinvestments in morally or sociallyprohibitive activities, but alsospeculation and excessive costs oloans and, consequently, makesthe moneylenders – whether pri-vate or proessional – a part o theproject, which they are nancing.Thereore, they have a strong senseo responsibility or its continuityand success.
o compounding interest by waivingall debt regularly every seven yearsin the so-called “jubilee year”. Aterseven times seven or 49 years, notonly debts were ‘or-given’ anddebt-slaves were reed, but alsoprivate land was given back to thecommunity.
mainly during the Middle Ages be-tween 900 and 1400 AD, imposedstrict interest prohibition laws. Theypunished those who levied intereston loans severely, excluding themrom the Christian community andChristian unerals. Money was keptin circulation by regularly re-callingand re-minting the thin metal coins– in some areas called Brakteaten– every three to our years and bylevying a ee o 30 to 40 percent inthe renewal process. This was – atthe same time – a way o collectingtaxes. The use o the old coins wasorbidden by law and sanctionedby prison sentences. This timerelated charge on money – called‘demurrage’ – acted as a ‘circula-tion incentive’ and meant thatnobody was able to hoard moneywithout risking a loss. Instead ocharging interest, people usuallyaccepted loans that guaranteedthe equivalent value ater somemonths or years – and thus theyeliminated the ‘liquidity premium’,or reward or the lender, whichcauses the compounding o inter-est. In terms o modern bankingpractices, leaving out this share inthe cost o interest would halve thecosts or loans and subsequently –over time – the 45 percent share ointerest in prices.All three historic solutions haveremained alive up to this day: TheIslamic model is nding more andmore acceptance among the Muslimpopulation in view o the ailure othe capitalist money system to provideor systemic stability and airness. TheJewish model o waiving the debtshas been advocated to counteractthe capitalist money systems’ inabilityto deal with social justice – in termso the waiving the outstanding loanso the least developed countries.And many o the complementarycurrencies now running in Germanyare using demurrage as a circulationincentive.Where these solutions have not beenapplied, three historic consequenceshave arisen: hyperinfation (or crash),social revolution and war. However,neither the 87 monetary crashes overthe last 25 years, nor World Wars Ior II, nor social revolutions like theFrench, Russian or Chinese, havechanged anything undamentally interms o the money system.