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Why existing riba/interest-based economies will always end up collapsing ...

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    kritikvernunft's Avatar Full Member
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    Why existing riba/interest-based economies will always end up collapsing ...

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    You can clearly see what is going wrong at the moment, if you just look at how money is created. Imagine an enonomy in which there is only 1000 dollars moving around, and that they are in the hands of one person who deposits them in his bank account. Say that the bank will lend out 900 dollars and keep 100 dollars in "fractional" reserve. These 900 dollars will have to be repaid to the bank, plus say, 5% i.e. 50 dollars in interest.

    Say that the borrowers will deposit these 900 dollars in their bank accounts. The bank will lend out 810 dollars and keep 90 dollars in reserve. The bank will expect 5% of 810 =40.5 dollars in interest/riba. That process will go on, until the bank has lent out 1000 / 0.1 - 1000 = 9 000 dollars, while holding 1000 in reserve, expecting to receive 5% of 9000 = 450 dollars in riba/interest. These 9000 dollars is to total amount of money in circulation. For each dollar in reserve, 9 dollars will be in circulation.

    There is a serious problem in this economy. The borrowers will have to repay 9500 dollars, but there is only 9000 dollars in circulation. If nothing happens, it is obvious that these borrowers must default on their loans, because how can they pay back 9500 dollars if there are only 9000 dollars around?

    It means that at least 500 new dollars must be created, before it is too late. Otherwise, the economy must default on its debts. Hence, the central bank injects 500 / 9 = 55.55 dollars. That solves the problem of the missing 500 dollars, but since these 500 dollars are also being lent out at 5%, there will be shortage of 500 x 5% = 25 dollars. Every dollar injected by the central bank will create shortages in the money supply and cause defaults and bankruptcies, unless the central bank keeps injecting new money.

    There is another important factor. The value of money depends on what you can buy with it. So, imagine that these 9500 dollars change hands 3 times in a year to buy a production of 3 x 9500 = 28 500 dollars. If the amount of money grows, but the production does not grow, more money will be chasing the same amount of goods and services. That means that the prices will go up. Therefore, the growth of the total volume of money must not exceed the growth of production. In order to spare the borrowers from going bankrupt, they will force up the prices and end up making the money worthless.

    What we have here, is a system in which production and income must keep growing, or else large numbers of people go bankrupt and/or the money becomes worthless; and all of that automatically. That kind of system is not sustainable, and it is the principle of riba/interest itself that sits at the core of the problem. Borrowers in that kind of economy do not default, NOT because they do not want to pay. Borrowers default because it is impossible that they would collectively be able to pay.

    Imagine that people borrowed and paid interest in gold. A large-scale riba system would pretty much immediately collapse, because there will never be enough gold to pay back the loans and their interest. With paper money, it will work a little bit longer, because the government can print new money, but it will not work forever, because the growth in the total amount of paper money will end up rendering it worthless. Keeping the existing riba/interest-based economy afloat will become harder and harder, until the inevitable will happen, and a complete collapse will destroy it.
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    Eric H's Avatar
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    Greetings and peace be with you kritikvernunft;

    I think you summed up the economy very well, it can kind of work up to a point, that is all the time the economy is expanding, but at some point it has to level out and crash. The market call it a correction of value, but when the market crashes, it is often the poor who suffer the most, and the rich walk away even richer after crashes.

    I know very little about the stock market, but I know that when I played it in a very amateur way, I made more money and quicker, on stocks that crashed. The theft of assets by a few billionaires is almost worse than being in a state of war, because it is legalised theft, and the poor suffer and die as a result.

    In the spirit of praying for justice for all people

    Eric
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    Serinity's Avatar Full Member
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    Sad thing is, even while our money is in the bank, it is acummulating riba / interest.

    like 1%-2% interest per year. Where does all the virtual money come from? Riba / interest.

    Say I give you 50 dollars. for each day there passes, I add 2% of interest, for you to pay.. Say after one day: 50 * 1.02 = 51.

    Imagine now, lending 50K, you'd have to pay more in return for the Riba, so one may just lose money by doing riba.. As for the one who does it, one can call it theft.

    And Allah knows best.
    Last edited by Serinity; 09-20-2016 at 07:06 AM.
    Why existing riba/interest-based economies will always end up collapsing ...

    Meaning of Shirk according to The Qur'an
    " Worshipping anyone or anything besides Allah " or " distributing anything exclusive to Allah, to anyone or anything else "

    Meaning of Tawheed according to The Qur'an
    Worshipping none but Allah. Affirming whatever is exclusive to Him, Him alone.
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    darkbro's Avatar Full Member
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    Can you please elaborate more about the USD system? Because it shows no signs of collapsing at all.

    I understand the theory though
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    kritikvernunft's Avatar Full Member
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    format_quote Originally Posted by Eric H View Post
    ... but when the market crashes, it is often the poor who suffer the most, and the rich walk away even richer after crashes ...
    Greetings and peace be with you Eric!

    Certainly not all the rich walk away richer after a crash. Lots of rich people lose everything in a crash. Most actually. In order to walk away richer after a crash, you need to be long on antifragile assets. The value of this type of assets (gold and similar assets) gain in value during a crash, while the value of fragile assets (real estate, stock, bonds, cash, ...) goes down.

    Poor people typically have no assets worth mentioning. So, they are not going to lose or make a lot of money, directly from the crash, because their assets have become worthless or very valuable. In fact, since quite a large number of poor people happen to be in debt, they could even benefit from the fact that their debts have become worthless. It usually goes wrong for poor people through the effects of the crash on the labour market ...
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    interesting topic started . we can find a lot of discussion about riba on internet . i agree it is haram in islam but there is other problem in our economy that is paper currency . it is not real wealth . all the paper currency will be crashed at end .until this issue not solved other issues comming day by day
    Allah Tala save us from all bad things
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    I think your concept is flawed.

    ..the maths might add up.. butt actually it's just 5% per loan per customer.

    and it's not just banking either..

    if i pay for say car insurance.. I get a "discounted" rate if I pay it annually rather than monthly..

    it's not interest in definition.

    as long as someone has the means to pay it back.. steady income etc..

    bank loans are not extortionate.

    ...there finer detailed on late payments or accumulative interest.. if those things exist..

    are a problem.


    ....as highlighted by the less scrupulous non banking sector loan companies.

    ..pawn shops.. etc.



    I feel in the case of interest.... most people miss the point by several galaxies..

    Unless they are desperate..

    because let's face it, most people can't get bank loans.


    Maybe i am missing the point?


    I do agree that economies collapse due to crooked banking..

    Maybe it is all a conspiracy.. national debt.
    Last edited by M.I.A.; 09-20-2016 at 10:38 AM.
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    format_quote Originally Posted by darkbro View Post
    Can you please elaborate more about the USD system? Because it shows no signs of collapsing at all.

    I understand the theory though
    US and western system is debt based system. Here's a good video on it:

    http://www.againstcronycapitalism.or...portant-video/
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    kritikvernunft's Avatar Full Member
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    format_quote Originally Posted by darkbro View Post
    Can you please elaborate more about the USD system? Because it shows no signs of collapsing at all.
    It is fundamentally always just one step away from collapse, because the total amount of debt and interest payments must keep growing, to prevent massive defaulting on the existing, outstanding debt. That is why it keeps indebting everybody, and even tries to enlist the most sub-prime borrowers. Unfortunately, there is only that much debt that one person can handle: student loans, mortgages, credit card debt, car loans ... it still has to add up. If people's income does not grow fast enough, so that they can quickly take on more debt, the entire system will collapse.

    Nowadays, another pillar of the US dollar's value is that other countries must pay for their oil in it. If you want to buy oil (often from the Middle East) you will have to settle by paying dollars into New York bank accounts. If these oil-producing countries accept oil money in any other way, it will be war with them, and the US will invade them. The American military presence in the Middle East is meant to be a threat to any oil-producing country over there, to remind them that they must keep collecting payment using New York bank accounts. Seriously, without for example Saudi Arabia, the dollar would collapse overnight.
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    Greetings and peace be with you kritikvernunft;

    It is fundamentally always just one step away from collapse, because the total amount of debt and interest payments must keep growing, to prevent massive defaulting on the existing, outstanding debt.
    The world economy seems crazy and built on total fiction, apparently the world is $53 trillion in debt, and only five countries in the world are in credit, and these five countries have populations of less than a million each. So who owns the world debt, is it Micky Mouse or Donald Duck? http://www.therichest.com/rich-list/...ing-debt-free/

    Then we have magic tricks like quantitative easing, governments wave their magic wand and new money keeps appearing out of nowhere, Now if I tried the same magic trick and printed my own money, I would be writing to you from prison.

    The world stock market I think was valued at around $70 trillion, but we all know stock market valuations are equally crazy, how can facebook ever be worth a $100 billion? it all sounds like Alice in Wonderland, just a big fairy-tale.

    Money should be truthful, but how much does debt, stock market valuations and quantitative easing distort the true cost of a loaf of bread?

    In the spirit of praying for justice for all people.

    Eric
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    A skilled hacker could hack the banks and have money flooding in his bank account.

    And Allah knows best.
    Why existing riba/interest-based economies will always end up collapsing ...

    Meaning of Shirk according to The Qur'an
    " Worshipping anyone or anything besides Allah " or " distributing anything exclusive to Allah, to anyone or anything else "

    Meaning of Tawheed according to The Qur'an
    Worshipping none but Allah. Affirming whatever is exclusive to Him, Him alone.
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    kritikvernunft's Avatar Full Member
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    format_quote Originally Posted by Eric H View Post
    Now if I tried the same magic trick and printed my own money, I would be writing to you from prison.
    Greetings and peace be with you Eric;

    We print our own money: bitcoin.org. Governments would indeed try to destroy our ledgers, if they could. That is why we have a process called "mining", in which the bitcoin ledger, the blockchain, is globally replicated over tens of thousands of computers. The trick is to decentralize the mechanism in which the ledger gets updated. Governments can take on individuals and small groups, but not such a large and globally distributed number of people.

    Hence, there are alternatives to the riba/interest-infested banking system. You would just have to use them. For me it all started when I began to demand that my wages had to be paid in bitcoin. Everything followed logically from there.
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    Re: Why existing riba/interest-based economies will always end up collapsing ...

    Agreed with a lot said here. The modern economy, over a period of 3 centuries, maybe ab it more, has been based on the foundations of capitalism, i.e. the interest based system. It's a vicious cycle. One which leads to a period of economic collapse, which affects people in unimaginably negative ways for decades. In between these collapses, there's probably a period of 5 years in which things are stable or improving and the poor finally start rising up the ladder...only for that ladder to be thrown back down at the next collapse.

    From 1989 (when I was born) till today, the UK economy has crashed or severely dipped 4 times. In that period, it has always been the working classes that have suffered with job losses, worse education, difficulty in tuition fees, poor health care etc etc etc. Yet the rich have become veen more rich and even more powerful.

    This is why Allah has told us that riba is haram. A great sin in fact. Islam is about justice and interest rates are unjust.
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