Tag Archives: demurrage

The Difference Between Debt-Free Money And Interest-Free Credit

12 Oct

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Cross-posted from Anthony Migchels’ Real Currencies (my comments at conclusion):

The endless barrage of debt, debt, debt, makes debt-free money sound very attractive. But the problem is not debt, it’s interest and interest-free credit based money is superior to debt-free currency. On the other hand, debt-free money could easily be repaired to again be a competitive proposition.

Debt-free money is simply unbacked ‘paper’ (nowadays it’d be mostly electronic, of course) money, printed (usually) by the State. It can then either spend it into circulation itself or have the populace do it. The former is commonly referred to as the Greenback, the latter is known as Social Credit.

Interest-free credit is credit by bookkeeping. Not unlike our current fractional reserve banking system, although Mutual Credit is a simpler and superior way of creating credit, as there is no need for deposits (‘capitalization’). Hence Mutual Credit is intrinsically stable, while fractional reserve banking based lending facilities go bust routinely.

Debt-free money is spent into circulation and continues to circulate until it is retired through taxation. Interest-free credit is lent into circulation and is retired when the debt is repaid. Often the two meet. For instance: John Turmel recently gave the example of a Continental (George Washington’s debt-free money) being spent on infrastructure and retired through taxation covering the investment. In this way debt-free money is basically used as interest-free credit by the Government and the circulating Continental could be seen as the National Debt.

A noteworthy difference between interest-free credit and debt-free money  is that interest-free credit can be spent as often as it is repaid, while debt-free money can only be spent once. This means interest-free credit is more flexible.

Isn’t debt a problem?

Debt as a problem is overrated. It’s not so much the debt, but the interest that is killing us. A mortgage is good example: we go into debt to buy the house, say $100k and after 30 years we have paid $250k, $150k interest. For the repaid debt we obtained a house, for the usury we got nothing.

Crucial to understand is that it is not the bank’s credit. It’s just bookkeeping and the banks keep the books for the community, who really owns the credit. It is in reality our brethren who are allowing us to buy now and pay later. Credit is automatic, when it is mutual.

In the news we hear about debt, debt, debt, but nobody is ever complaining about debt-service, while all the debt could be repaid within twenty years should we stop paying interest and use that money to pay back the principal. Why is this so?

Bankers know loans can go sour. They hate to write them off, but will gnashingly do so,  if they cannot avoid it. Business is business and they are realists. But whereas a write off is a one time loss, ending interest payments would just kill their business case.

This is one of the reasons why I prefer an interest strike over debt repudiation too, except for odious debt, which should be repudiated always.

For the debt real stuff was acquired and while the bank loses when the debt is not repaid, it does not gain anything when it is: the money is just retired. It’s not the bank’s, it did not exist before the loan was taken out and disappears when the loan is repaid.

An interest strike, on the other hand, is to a bank what garlic is to a vampire.

The reason the people don’t talk about suspending interest payments to alleviate the debt quagmire is equally clear. They still don’t understand how they are being colonized through Usury. They assume interest on the debt is natural, as they were programmed to.

Having said that, debt is a bond. The lender is the master of the debtor. Less is more. Even when the lender is the community represented by an interest-free credit facility and even when the debt is for a worthy cause, like an interest-free mortgage.

So isn’t debt-free money perhaps better after all? The issue is, that classical debt-free money proposals are accompanied with Full Reserve Banking. The money would not be debt-free for long, once it is spent into circulation. Once it enters the banking system, it will not leave other than as a loan. A usurious loan. Because of the usury, a quick return of money scarcity after spending the money into circulation can also be expected.

So debt-free money in itself does not end interest-slavery. Because the money will be handled by banks, there will also be money scarcity. Not only because of the usury, but also because the bankers will keep money from circulating in the real economy, most notably to feed their gambling addiction in the international financial economy.

Furthermore, a modern economy without credit is unthinkable. People will need mortgages and even more importantly, modern business is impossible without credit. Investments can be very capital intensive and these investments would be impossible to save beforehand. People will perhaps not be too bothered with businesses paying interest, but the reality is the businesses will have to pass on these costs to their customers, being us.

Repairing Debt-Free Money

These days we can provide Full Reserve Banking without interest, through JAK banking. That’s one way of solving the usury problem with debt-free money. Savers don’t get interest on their savings, but they acquire future rights to interest-free loans if they save now and allow that money to be used for interest-free loans to others.

Probably even better is demurrage, where those with a positive balance pay ‘interest’, basically a penalty for holding money. Demurrage is based on the ways of the ancients, who used to store produce at central warehouses and got receipts in return. These receipts were used to pay others and they declined in value, because the produce in the warehouse did too.

Demurrage is designed to discourage hoarding of money. As a result, velocity of money (how quickly it changes hands) is vastly increased. Not only that, the penalty gives a clear incentive to lend interest-free, as it saves the cost of holding on to it. It is also promotes paying in advance, which also amounts to an interest-free loan. Paying up front instead of at the time of the purchase is very beneficial for the supplier, who can use the money to finance investments interest-free. So demurrage lessens the need for credit and provides interest-free credit.

The great disadvantage of demurrage is that there is little experience with it. The upside is, the experience there is, is very positive. The classic case is Wörgl, Austria, where demurrage money solved the Great Depression in 1934.

Conclusion

Interest-free credit is superior to debt-free money. It is more flexible and gets to the heart of the matter, which is usury. We will never be able to do without credit, but we can rule out interest on the debt.

Current debt-free proposals do not comprehensively solve usury, and thus also not money scarcity.

However, debt-free money can be decisively improved, both by interest-free JAK banking and demurrage.

There is no tutor like practice and ultimately we will have to experiment with different systems to know which is best.

The best part of the story is, that we have several ways of solving our monetary problems overnight. Only the knowledge and the will are lacking as yet and this is changing too.

My own alternate currency proposal, Jubileeus, includes both interest-free banking and demurrage.

I believe it could solve the problems of usury, and money scarcity.

Because it enables every citizen to become their own central banker.

Creating and issuing their own interest-free, demurrage-based digital currency.

Subject to uniform, pre-programmed rules.

Including a personal “Honour” rating.

Publicly visible to other participants, immediately prior to any transaction.

Automatically calculated, as a consequence of both the credit creation and repayment actions of each and every citizen “central banker”.

It is a system that means no one in society need ever be without “money” to buy necessities.

An end to poverty.

Where no one need ever pay interest to borrow.

Where there is a disincentive to “hoard”, or “save” currency, thus slowing the “velocity of money”.

Because hoarding Jubileeus worsens your personal Honour rating.

It is a system where money is never scarce. There can be no “credit crunch”, or “Great Depression”.

Because the total money supply is limited only the number of individuals participating.

And, by the willingness of society to accept a very large, sustained, overall fall in the Honour of each other.

Something which the system is designed to resist. And — over time — to restore.

It is a system where credit creation and “money supply” are regulated by a power that is not central.

It is universal, and natural.

Time.

The Time needed to earn Jubileeus, and so repay your interest-free “debt” to yourself.

And/or, the Time needed for demurrage to automatically restore your Honour rating.

If you have some free Time now, why not spend it on learning about The People’s NWO: Every Man His Own Central Banker.

It is a system that an award-winning contrarian economist — one of just thirteen who predicted the GFC — described as being “about the best” alternate currency system he has heard of yet.

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