Once upon a time there was a skilled carpenter who had a reputation for reliability and magnificent furniture for homes and businesses. Over the years he built up a well-equipped workshop, with an adequate warehouse full of selected materials alongside.
One morning he was working on an order to fit out a new store, when he realized he was out of inches (cm’s). He had the tools, materials, and skills to do what the customer required, but was short of inches. No-one in the village had any to spare, so he had to go over to the city to the Inches Bank (IB).
IB required him to sign over his land for collateral. IB lent him inches as debt (a claim on his property) at 10% interest (that means he had to pay 10% of the outstanding inches to the bank each year).
The carpenter received more orders, and needed to expand by employing an apprentice who turned out to be an exceptionally skilled craftsman. They had a good name and plenty of business, so the partner and his wife soon had happy children in a cozy cottage.
Of course with expansion came the need for more inches, which IB lent on the strength of his workshop and warehouse as collateral. Again the inches were issued as debt at interest.
The carpenter diligently paid the interest each year. He could not pay the debt off completely since his business needed the inches to operate. Business was steady so he did not notice that paying interest actually reduced the amount of inches he had available for working capital, since he simply borrowed any shortfall required.
On day he had time to take stock and noticed that the interest payments had grown to be his single largest expense. He also calculated that he had repaid the amounts borrowed many times over through interest, and somehow still owed the original amounts.
The interest payments kept growing ’till one year he was unable to meet the payments, and the bank foreclosed on his warehouse, selling it to a subsidiary at a fraction of what it was worth, simply to pay their amount, contemptuously disregarding the needs of their loyal carpenter client.
The following year the carpenter had to take on extra work, sell off spare inventory, mortgage his workshop, and eventually cut wages (leaving his partner and their new family destitute), just to make the interest payments.
Eventually, of course, the bank sent in the sheriff and the carpenter was on the street with nothing…
Through the miracle of compound interest, a prosperous, growing business, staffed by skilled craftsmen, feeding two families, was destroyed, the owner dispossessed and left destitute.
Even more staggering when we realise that the inches lent to the carpenter in the form of loans, did not even exist before the carpenter walked into the bank. There was no vault full of inches, or inches deposited by other clients. No, it was created out of nothing the minute the carpenter signed over his property as collateral.
This is same situation for business and governments, where the single largest expense at all levels of governments is interest payments, which explains the exponential growth of government debt worldwide.
Currencies deposited into accounts (of individuals, corporations, and governments) by banks as loans, are not legal tender but private money created out-of-nothing by private corporations (only physical coins and notes are legal tender).
The currency to pay interest is however not created (only the principal amount is). So as interest is paid, the amount of currency available to the borrower declines, forcing the borrower to keep borrowing, expanding, and competing in a perpetual struggle for enough currency for working capital, and to pay interest (stave off foreclosure), while grinding up natural- and human resources.
All Levantine religions have banned interest (usury – Christian, riba – Sharia, neshekh – Halakhah)
Please see comments below, and Financing of the Watermill