God is love

Christians believe that God is love. Only, there may be something about this love that the church fathers found to be so troubling that they didn’t want us to know about it. If you know what it is, Christianity suddenly makes a lot more sense, and you may be able to guess what the future religion will look like. Love is such a central theme in Christianity that this religion came to be known as ‘the religion of love’. According to the Gospel, Jesus said we should love God with all our heart, soul, mind and strength:

Love the Lord your God with all your heart and with all your soul and with all your mind and with all your strength.’ The second is this: ‘Love your neighbour as yourself.’ There is no commandment greater than these.”1

Paul is believed to be the author of the First Epistle to the Corinthians. It probably was written around 54 AD. There is little doubt that Paul wrote this letter himself, except for a passage claiming that the man is the head of the familiy, which some scholars believe to be a later addition. This letter may therefore be one of the earliest written sources of Christianity. It contains a remarkable poem:

If I speak in the tongues of men or of angels, but do not have love, I am only a resounding gong or a clanging cymbal.
If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but do not have love, I am nothing.
If I give all I possess to the poor and give over my body to hardship that I may boast, but do not have love, I gain nothing.

Love is patient, love is kind. It does not envy, it does not boast, it is not proud.
It does not dishonour others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs.
Love does not delight in evil but rejoices with the truth.
It always protects, always trusts, always hopes, always perseveres.

Love never fails. But where there are prophecies, they will cease; where there are tongues, they will be stilled; where there is knowledge, it will pass away.
For we know in part and we prophesy in part, but when completeness comes, what is in part disappears.
When I was a child, I talked like a child, I thought like a child, I reasoned like a child.
When I became a man, I put the ways of childhood behind me.
For now we see only a reflection as in a mirror; then we shall see face to face.
Now I know in part; then I shall know fully, even as I am fully known.

And now these three remain: faith, hope and love. But the greatest of these is love.2

According to Paul, love is more important than faith and good works. But why? Christians believe the answer is:

For God so loved the world that he gave his one and only Son, that whoever believes in him shall not perish but have eternal life.3

Christians believe in eternal life. The question is why? Jesus may have died on the cross but Christians believe he still lives because God loves the world. The author of the Gospel of John, who probably was not the Apostle John according to several scholars, may also have written the First Epistle of John, but scholars don’t agree on that either. In this epistle the author shares his views on the love of God:

Dear friends, let us love one another, for love comes from God. Everyone who loves has been born of God and knows God. Whoever does not love does not know God, because God is love. This is how God showed his love among us: He sent his one and only Son into the world that we might live through him. This is love: not that we loved God, but that he loved us and sent his Son as an atoning sacrifice for our sins.4

If you’re not a Christian, you might wonder why this was necessary? The idea that God loves us, and the proof being that God sent his one and only son into the world as an sacrifice for our sins, doesn’t make a lot of sense. The Christian claim is that Adam sinned and that we are all cursed for that, but then came Jesus who allowed himself to be crucified, so that we can all be saved. It seems that God could easily have chosen another path. And what about the peculiar phrase ‘born of God’? Could God be a woman?

Jews and Muslims don’t believe that God has a son. They also don’t believe that Adam’s transgression requires such a sacrifice. When God allegedly ordered Abraham to sacrifice his son and Abraham was about to comply, God allegedly called it off. So what might justify this? There may be something about the relationship between God and Jesus that is removed from the scriptures. The odds are that it has something to do with love because that is what Christianity is all about. Ephesians gives a possible clue:

Husbands, love your wives, just as Christ loved the church and gave himself up for her.5

Christians believe that Jesus was married to the church because of this verse. There is a an issue with this view. The church didn’t exist when Jesus lived. A historian might call this an anachronism. It is inconsistent in time. The verse suggests that this was a love like in a marriage. The Gospels imply that Jesus was married6 but the identity of the bride is never mentioned. And the verse claims that husbands have to love their wives just like Christ loved the church and gave himself up for her, a peculiar thought.

There is a possible explanation that makes sense. God could be a woman. This universe could be a virtual reality created by an advanced civilisation to entertain someone we call God. And God could could use avatars in Her own story and appear like an ordinary human to us. The love the Gospels expound on is the love of God. Hence, the bride may have been God. God appearing in a human form may have been another issue the early church fathers had to deal with. And so they may have deified Jesus.

The most likely candidate for being the avatar of God is Mary Magdalene. She may have convinced Jesus that she was the reincarnation of Eve and that he was the reincarnation of Adam and that Eve was not made out of a rib of Adam but that Adam was a son of Eve. And so Jesus may have believed he had eternal life and would not die.

Surviving records of Jesus’ words and teachings indicate that Jesus believed women to be equal to men. The equality of the sexes is peculiar within the context of a patriarchal society. Paul saw women as equal partners in the Christian movement. The Didache, an early Christian text dating from the first century, implies equality of the sexes.

At some point patriarchy may have been re-established. Texts may have been edited to to this aim. For instance, 1 Corinthians 11:2-16 has been added later.7 It contains the claim that the man is the head of the family. A similar claim is made in the First Epistle to Timothy.8 Scholars believe this letter was written later on and not by Paul as the letter claims.

A woman might like to see a man sacrifice himself to prove his love for her. And you may never love God enough. Christians see Jesus as a sacrificial lamb.9 It appears that God didn’t even care about Jesus. So if someone ever finds himself in the same position as Jesus may have found himself in, he might at first not be enticed by the proposition, until he realises that he may have no choice.

And loving God may not be all that difficult. The Stockholm Syndrome makes it possible to love someone who has taken you hostage and has total control over you and might kill you for some dubious cause. But it doesn’t have to end badly for him. Many things can happen. For instance, in a fairy tale a toad can be kissed into a prince by a princess charming. They may marry and live happily ever after.

Featured image: SpongeBob SquarePants. Nickelodeon. [copyright info]

1. Mark 12:30-31 [link]
2. 1 Corinthians 13 [link]
3. John 3:16 [link]
4. 1 John 4:7-10 [link]
5. Ephesians 5:25 [link]
6. John 3:29 [link], Matthew 9:15 [link], Mark 2:19 [link], Luke 5:34 [link]
7. Forgery and Counter-forgery: The Use of Literary Deceit in Early Christian Polemics. Bart D. Ehrman (2013).
8. 1 Timothy 2:12 [link]
9. 1 Peter 1:18-19 [link]

When Jesus returns

Never again

After 2,000 years a lot of people still expect Jesus to return. But what do they expect to happen when he does? Will Jesus make things right? Will there be a showdown between the forces of good and evil? And will evil people burn in hell forever and will there be no mercy? And how may this work out in practice?

Who are the good people and who are the evil people anyway? What about Buddhists and atheists? They don’t believe in a god. And Hindus? They believe in many gods. Or Jews, Christians and Muslims? Who of them are right? Perhaps Jesus already returned, sort of, at least. And perhaps you don’t want it to happen again.

The personification of evil

Jesus is considered to be the personification of good while Adolf Hitler is seen as the most evil person that ever existed. Closer inspection reveals some intriguing parallels between them. Many Germans considered Adolf Hitler as their saviour and he was worshipped like one. Some Christians believe there will be a rapture when Jesus returns.1 Rapture is a combination of ecstasy, enchantment, enthusiasm and admiration. Few persons ever caused as much rapture as Adolf Hitler did.

Adolf Hitler told the Germans they were the chosen people because of their superior race. Many Jews believe they are the chosen people too because of a special relationship between God and the Jewish people. Like Moses, Hitler promised that he would end the unjust oppression, in this case caused by the Treaty of Versailles. He claimed that the Third Reich would last a thousand years while the Bible tells us that the reign of Christ will last a thousand years too.2 It may not be surprising that a British intelligence report noted that Hitler had a messiah complex.3

The Bible states that the bond between the people and the land that cannot be broken and that the land cannot be sold.4 This is similar to the Nazi ideology of Blood and Soil that focuses on ethnicity and homeland. Blood and Soil stresses the importance of the land people live on and it celebrates rural living. Selected lands were made hereditary, to pass from father to eldest son. Those lands could not be mortgaged or sold.5

You think that Hitler was naturally born evil but that is not correct. The Adolf Hitler from the history books emerged out of circumstances as the following short animation picture demonstrates:

Eva Braun

Eva Braun was the mistress and later wife of Adolf Hitler. Most historians consider her to be an insignificant figure who didn’t take part in political decisions.6 But opinions differ. There is a letter demonstrating she knew of the concentration camps and the gas chambers. Some Nazi-officials close to Hitler have stated that Braun was at the centre of Hitler’s life for most of his twelve years in power. She was committed to Hitler, won his affection, enjoyed a healthy sex life with him, and gave him moral support.7 After learning about a failed plot to kill Hitler in 1944, she wrote to him:

From our first meeting I swore to follow you anywhere even unto death. I live only for your love.

As the end of the Third Reich neared Braun appeared to become merrier. Her ambitions may finally have been realised when she married Hitler and committed suicide together with him. More than twenty assassination attempts on Hitler had failed,8 some of them sponsored by the Pope, so it may always have been the plan that he would end up being her husband. Hitler was born in Braunau am Inn. Braun is the German word for brown while brown is the colour associated with the Nazi ideology. These things may not be mere coincidences. Braun may have been the mastermind behind it all. She may have been an avatar of God.

Hitler’s political views

Like many Germans Hitler considered the Peace Treaty of Versailles to be unjust. The treaty stipulated that Germany accepted responsibility for causing World War I and had to pay massive reparations. The economist Keynes already warned for the harsh peace terms imposed upon Germany shortly after World War I as it might provoke a reaction.

Hitler opposed interest. He had attended a lecture of Gottfried Feder, named The Abolition of the Interest Servitude. It was the reason for Hitler to join the National Socialist Party. Hitler’s views on interest were similar to those expressed in the Bible and the Quran. The ideas of Feder became central in his views on international finance.

Hitler believed that the Germans were racially superior to other peoples and that Germany had to conquer territory to create more living space for the German people. That may have been the reason to start World War II. Hitler hated the Jews. He believed that Jews form a cult that is secretly conspiring to gain world leadership.

View on Auschwitz concentration camp
View on Auschwitz concentration camp

How did it end?

Hitler was good at doing speeches, which were more or less angry rants that inspired his followers. Hitler was seen as a messianic figure by some of his sponsors long before he became famous. During the Great Depression he managed to gain popularity and to grab power in Germany as the following short animation picture shows:

Fifty million people were killed during World War II. Ten million were exterminated in the Holocaust. Six million of them were Jews. When American troops entered Germany in 1945 they were horrified by what they found in the concentration camps. Until then few people imagined that it could be that bad, even though reports about the concentration camps came in as early as 1943.

Words can never describe the horrors of the Nazi concentration camps. It is hard to imagine that people can be that cruel. Exterminating millions of innocent people is beyond anything that has ever been done before, but the Nazis believed they did the right thing. For humanity to survive, they believed, the human race must be improved, so there is no place for the weak and the unfit. It is ‘survival of the fittest’ taken to the extreme. In many ways the Nazis have been the closest thing to pure evil that ever existed. If you have the stomach for it, you can watch a documentary about the Nazi concentration camps.

In several ways Hitler was like Christ as some of his followers expect him to be. These expectations amount to a final reckoning amounting to an atrocity one hundred times worse than World War II. Billions of people might lose their life or be tortured eternally in hell for not having the right beliefs. Only a few people will be saved. If you come to think of it, being tortured eternally in hell may be worse than Nazi concentration camps, because there is no end to it. And so Hitler was in some ways like the expected Messiah, but if anyone was the Antichrist, it must have been Adolf Hitler.

Was it all planned?

It is hard to imagine that God allowed it to happen, let alone that God planned it all. But if you presume there to be a script, such a conclusion is inescapable. The licence plate number of the car in which Franz Ferdinand was killed refers to the end date of World War I so World War I may be planned in every detail. The peculiar coincidences surrounding D-Day indicate that the same may apply to World War II. And World War II includes the Holocaust. A coincidence in history may support this suggestion.

There have been prophetic references to a number of six million Jews in danger of being exterminated or a coming Holocaust of Jews long before World War II. This is not as remarkable as it might seem. The six million figure emerged because there were six million Jews living in Russia before World War I. Jews in Russia suffered under a hostile government.

What is remarkable however, is that these claims appeared melodramatic at the time they were made, and that the six million figure remained circulating in Jewish media after the Russian Empire had collapsed, while it subsequently became the number of Jews killed in the Holocaust.9 A few prophetic statements are listed below:

  • In 1911 Max Nordau, co-founder of the World Zionist Organisation together with Theodore Herzl, pronounced at the tenth Zionist Congress in Basel, Switzerland, that 6,000,000 Jews would be annihilated.9
  • In 1919, shortly after World War I, Zionists feared that a Holocaust of six million Jews is imminent in Europe.9
  • In 1936 the New York Times reported that Zionists were lobbying for the creation of a Jewish nation in Palestine to save the Jews from a European Holocaust. This was three years before World War II and five years before the extermination camps came into existence.9
  • In 1939 The Jewish Criterion predicted that the coming world war would mean the annihilation of six million Jews in East and Central Europe.9
  • In 1940 the Jewish leader Nahum Goldmann predicted that if the Nazis achieved victory, 6,000,000 Jews were doomed to destruction.9

Conclusion

If the Holocaust was part of the script then this also applies to Hitler’s demise as well as the creation of the state of Israel. To God we may just be virtual reality characters that exist for entertainment. That doesn’t make God evil for this world might be a realistic simulation of a real world. Few people see a problem in killing virtual reality characters in a computer game. Killing animals is generally deemed more reprehensible.

All the good things that happen may also have been part of the script. Another conclusion that seems to present itself is that it may be impossible to oppose the plan of God. There may be a script and your thoughts may be controlled so you may still act according to the plan even when you try to oppose it. And you might find yourself on the losing side if you do. You have been warned.

Featured image: Eva Braun and Adolf Hitler

1. 1 Thessalonians 4:17 [link]
2. Revelation 20:1-6: [link]
3. WWII Adolf Hitler profile suggests ‘messiah complex’. BBC (2012). [link]
4. Leviticus 25:23 [link]
5. Blood and soil. Wikipedia. [link]
6. Eva Braun. Wikipedia [link]
7. Nazi loyalist and Adolf Hitler’s devoted aide: the true story of Eva Braun. The Guardian (2010). [link]
8. Assassination attempts on Adolf Hitler. Wikipedia. [link]
9. The Six Million Jews. Naturalmoney.org (2012). [link]

Beautiful countryside in southern California

Capital for the future

Making the economy sustainable may require an unprecedented amount of capital in the form of knowledge and outfits like solar panels, sustainable farms and energy-efficient transportation systems. It is hard to imagine that it can be done. And imagining it is still a lot easier than really doing it. It is going to require some economic magic to divert investment capital from destructive activities to the future of humanity. We may need more useful capital and less consumption.

Perhaps the invisible hand can be of some help. It is easier to finance a great endeavour from investments than from taxation because nobody wants to pay taxes but everybody is happy to invest. It is the secret of the success of the European empires that conquered the world after the Middle Ages. England, France, Spain and the Netherlands were much poorer and smaller than China, India or the Ottoman Empire, but they didn’t finance their conquests with taxation, but with the use of investment capital.1

Europe won out because European conquerors took loans from banks and investors to buy ships, cannons, and to pay soldiers. Profits from the new trade routes and colonies enabled them to repay the loans and build trust so they could receive more credit next time.1 The same logic may need to be applied to making the economy sustainable. The challenge is so enormous that it may never be possible to finance it by taxes. Nowadays interest rates are so low because there is plenty of investment capital.

It’s the economy stupid!

It is often argued that the economy is unsustainable because of short-term thinking. The economy must grow in order to have positive returns on investments. And it is believed that returns on investments need to be positive otherwise the economy would collapse. The economic time horizons of individuals are reflected in their time preferences. The time horizon of the economy as a whole is reflected in the interest rate.

The lower the interest rate, the longer the time horizon of the economy could be. The following example from the Strohalm Foundation can illustrate this:

Suppose that a cheap house will last 33 years and costs € 200,000 to build. The yearly cost of the house will be € 6,060 (€ 200,000 divided by 33). A more expensive house costs € 400,000 but will last a hundred years. It will cost only € 4,000 per year. For € 2,060 per year less, you can build a house that lasts three times as long.

After applying for a mortgage the math changes. If the interest rate is 10%, the expensive house will not only cost € 4,000 per year in write-offs, but during the first year there will be an additional interest charge of € 40,000 (10% of € 400,000).

The long-lasting house now costs € 44,000 in the first year. The cheaper house now appears less expensive again. There is a yearly write off of € 6,060 but during the first year there is only € 20,000 in interest charges. Total costs for the first year are only € 26,060. Interest charges make the less durable house cheaper.2

Without interest there is a tendency to select long-term solutions. Interest charges make long-term solutions less economical. Interest promotes a short-term bias in the economy. It may explain why natural resources like rainforests are squandered for short term profits. If interest rates are high, it may be more profitable to cut down a rainforest and to put the proceeds at interest rather than to manage the forest in a sustainable way.

Only, things are not as simple as the example suggests. For example, the building materials of the cheap house might be recycled to build a new house. And technology changes. For example, if cars had been built to last 100 years, most old cars would still be around. This could be a problem as old cars are more polluting and use more fuel. Nevertheless, the example shows that long-term investments can be more attractive when interest rates are lower.

This also applies to investments in renewable energy. For instance, a solar panel that costs € 100, lasts 15 years, and generates € 150 worth in electricity in the course of these 15 years, is feasible at an interest rate of 5% but not at an interest rate of 10%. Many investments in making the economy sustainable may have low returns and are only feasible when interest rates are low. Low and negative interest rates can also deal with low economic growth. That may be needed for living within the limits of the planet.

Living within the limits of the planet

When interest rates are negative, the time horizon of the economy could go to eternity so that it makes sense to invest in making the economy sustainable. A few examples from history can illustrate this. In the Middle Ages some areas in Europe had currencies with a holding fee like Natural Money. As there hardly was economic growth, interest rates were negative. It was the era of Europe’s great cathedrals. These cathedrals were built for eternity. As better investment opportunities were absent, wealthy towns people spent their excess money on cathedrals.3 For similar reasons, the people of Wörgl planted trees as the proceeds of the wood were expected to occur in the distant future.3

A bit of calculus shows why. At an interest rate of 5%, putting € 1 in a bank account turns into € 1,05 after a year, so you would rather have € 1 now than in one year’s time, even when you need the money in one year’s time. That’s because you can put the money on a bank account at interest. At an interest rate of 5%, € 100 in one year’s time is worth € 95.25 now. The distant future has even less value. The same € 100 in one hundred year’s time is worth only € 0.59. And € 100 after 1000 years has no value at all in the present.

At an interest rate of -5%, you would prefer to have the money when you need it, otherwise you would end up with less. At an interest rate of -5%, € 100 in one year’s time would be worth € 105. The same € 100 in one hundred year’s time would be worth € 13,501 now. And € 100 after 1000 years would be worth more than everything there is in the present. This peculiar logic may help us to come into terms with the limits our planet poses on human activities.

Living within the limits of the planet may require unprecedented investments in the future. These investments may require low or even negative interest rates as their returns may be low. Only low and negative interest rates can make these investments economical. Everyone who has money to save can help by shifting money from consumption to saving and investing. The more people act like capitalists, the lower interest rates may go, and the more sustainable the economy may become.

Capitalists think that money spent on a frivolous item is money wasted, because when you invest your money, you will have more money that you can invest again. Capitalists hardly care about interest rates. They will save and invest anyway because of their capitalist spirit. Rich people may be encouraged to save even more if luxuries that use a lot of natural resources and energy aren’t available any more. One can think of luxury yachts, private jets, but also of travel by airplane for holidays. When energy becomes a constraint, local products may replace long-distance trade.

Featured image: Beautiful countryside in southern California. James McCauley (2005). Wikimedia Commons. Public Domain.

1. A Brief History Of Humankind. Yuval Noah Harari (2014). Harvil Secker.
2. Poor Because of Money. Henk van Arkel and Camilo Ramada (2001). Strohalm.

German and Dutch police cooperating

Development aid for every nation

The use for development aid may be greatly underestimated. No country is so great that it can’t learn from others. For many issues some countries have found better solutions than others. And so development aid may be extended to every nation in the world, including the countries that consider themselves to be developed. This aid can be about anything, for instance improving democracy, health care, the police force, urban planning or dealing with drug addicts. It is already happening, but it can be done far more often. That isn’t always easy because the aid can fail on cultural issues.

Technological innovations spread much easier than social innovations. For instance, nearly everyone who can afford it owns a smartphone. That took only ten years. History and culture play a huge role in how countries came to handle social issues. Development aid can only be successful when those who receive it are capable and willing to work with new ways of thinking. So if a certain country is planning to copy an idea from another country, it may be good to think of how the solution fits within existing customs and beliefs within the country itself, or how those customs and beliefs can be altered.

Developed countries like the Netherlands may also benefit from development aid. For instance, the Dutch police have difficulties solving crime for decades. In 2002 the University of Nijmegen compared the police performance of the Netherlands and Nordrhein-Westfalen, a German state that is comparable to the Netherlands with regard to the number of inhabitants and the number of crimes committed. The research showed that the Dutch police only solved around 20% of the reported crime while the German police solved around 50%.1 In 2016 this issue still persists.2

As of 2007 registered crime rates in the Netherlands went down. Dutch prisons are underutilised while Belgium and Norway were renting excess Dutch prison space. Government bureaucrats are eager to frame this positively but the question remains why so much crime remains unsolved. Police officers believe that incentives to under-report crime are built into the system so that the statistics aren’t reliable.3 As a consequence many citizens don’t bother to report small crimes as they feel that the police won’t take action. This makes the statistics appear even better.

Perhaps it is time for a different approach. Why not let the Germans help to improve crime detection? That may be easier said than done. It affects politics, police organisation as well as police culture. The German police have more crime detectives than the Dutch. Political choices determine police force priorities and these differ in the Netherlands and Germany. Still, it may well be that the Dutch police and politicians can learn a lot from Germany. After all, solving crime is one of the most important tasks of the police, and society may be safer when criminals are in prison rather than on the streets.

Featured image: German and Dutch police cooperating. NOS Dutch public broadcasting society.

1. Duitsland-Nederland en de afdoening van strafzaken. WODC.nl (2002).
2. Rapport geeft onthutsend beeld recherche: ‘Probleem zit heel diep’. RTL (2016).
3. Politie manipuleert misdaadcijfers, zeggen agenten zelf. Jolanda van de Beld, Aldert Bergstra, Eline Huisman, Anouk Kootstra en Linda van der Pol (2019). De Groene Amsterdammer. [link]

Graffiti near the Renfe station of Vitoria-Gasteiz

The monster called financial system

Is the financial sector overtaking the real economy?

Less than 1% of foreign exchange transactions are made for trading goods and services. More than 80% are made for exchange rate speculation. Every three days an entire year’s worth of the European Union’s GDP of € 13 trillion is traded in the foreign exchange markets.1 So is the financial sector overtaking the real economy?

Financial industry share of total nonfarm business profits. Evan Soltas (2013)
Financial industry share of total non-farm business profits. Evan Soltas (2013). Economics and Thought.

In the United States financial sector profits grew from 10% of total non-farm business profits in 1947 to 50% in 2010.2 This figure excludes bonuses. It is explosive stuff and the original research has been removed from the Internet. The findings could give us the impression that the financial sector is a big fat parasite that feeds on us. And who would have guessed that?

What a scary monster the financial system has become. This terrible creature could easily wipe out human civilisation as we know it. That nearly happened in 2008. And it can still happen. We are hostage of this monster. It is too big to fail. But what created it? It wasn’t Frankenstein for sure. The answer is already out there for thousands of years. It is interest on money and loans. In the past this was called usury and often forbidden.

The core problem is that incomes fluctuate while interest payments are fixed. This causes instability in the financial system. And if the investment is more risky, lenders demand a higher interest rate, which contributes to the risk. Limiting interest would reduce leverage and make financial system more stable and less prone to crisis.

It’s the usury, stupid!

Fraud in the financial sector contributed to the financial crisis of 2008. To what extent the fraud or the size of the financial sector are to blame is less clear. Financial crises are not a recent phenomenon. They have caused economic crises in the past. For instance, the stock market crash of 1929 and the subsequent bank failures caused the Great Depression of the 1930s. Back then the financial sector was not as large as it is today and there was no large-scale mortgage fraud. Hence, there must be another cause.

Charging fixed interest rates on debts causes problems as incomes fluctuate. So if some person’s income or some corporation’s profit suddenly drops, interest payments may not be met. When the economy slows down that happens to a lot of people and corporations simultaneously, which makes the financial system prone to crisis. And interest is a reward for risk. Creditors may be willing to lend money to people and corporations that are already deeply in debt, but only if they receive a higher interest rate. So if interest was forbidden, that might not happen, and there could be fewer financial crises.

Banning interest has been tried in the past and it failed time after time. That is because without interest lending and borrowing wouldn’t be possible and the economy would come to a standstill. Until now there was a shortage of money and capital so interest rates needed to be positive, but that may be about to change. The increased availability of money and capital pushed interest rates lower. Money and capital may soon be so abundant that interest rates can go negative. That could be the end of usury.

The scary monsters in the financial system

Apart from exchange rate speculation there are frightening creatures like quantitative easing, shadow banks and derivatives. These things will be explained later in this post. Some experts believe that the financial sector is out of control. That may not be the case. Usury created this monster so Natural Money, which is negative interest rates and a maximum interest rate of zero, could make many of these seemingly hard-to-solve issues disappear, and perhaps shrink financial sector profits too.

Leverage, shadow banking and derivatives make the financial sector so profitable for its operators because of interest and risk. Interest is a reward for risk but interest also increases risk because interest charges are fixed while incomes aren’t. But more risk means more profit for the usurers because all that risk needs to be ‘managed’. That provides opportunities to profit for those who make the deals. Usury is the main cause of financial crises and generates most financial sector profits.

Quantitative easing

Quantitative easing means that central banks print money to buy debt with this newly created money. Trillions of dollars and euros have been printed so central banks now own trillions in debt. In this way the financial crisis of 2008 was stemmed. Investors and banks wanted to get rid of debts and preferred cash because there was a risk that some of these debts would not be repaid in full. This caused the crisis.

But what if there was a tax of 10% per year on cash and central bank deposits? Losing a few percent on bad debts suddenly doesn’t seem such a bad deal any more. Investors may have kept these debts and the crisis would not have occurred. The losses on bad mortgages turned out to be a lot less than 10% per year. That was also because the crisis was halted with central bank actions like quantitative easing.

If there had been a tax on cash and central bank deposits there would always have been liquidity. The crisis may never have happened in the first place and quantitative easing may not have been needed. And if this tax is going to be implemented in the future, investors may gladly gobble up the debt on the balance sheets of central banks, so that quantitative easing can be undone, and most likely at a profit for the taxpayer.

Shadow banks

In order to protect depositors, banks are subject to regulations. Regulations are bad for profits because they limit the risks banks can take. Bankers who were looking for bigger bonuses came up with a scheme that is now called shadow banks. Shadow banks don’t offer deposit accounts to ordinary people so regulations don’t apply. And so shadow banks can take more risk and generate more profits.

A shadow bank borrows money from investors and invests it in products like mortgage-backed securities. A mortgage-backed security is a derivative that looks like a bunch of mortgages. The owner of the security doesn’t own the mortgages themselves, but is entitled to the interest from the mortgages but also the losses when home owners fall behind on their payments. Not owning the mortgages themselves makes trading a lot easier because mortgages involve a lot of paperwork.

Shadow banks can be dangerous because bank regulations don’t apply. Ordinary banks are required to have a certain amount of capital to cushion losses so that depositors can be paid out in full when some loans aren’t repaid. The balance sheet of an ordinary bank might look like the one below:

debit
credit
mortgages and loans
€ 70,000,000
deposits
€ 60,000,000
loans to other banks
€ 10,000,000
deposits from other banks
€ 20,000,000
cash, central bank deposits
€ 10,000,000
the bank’s net worth
€ 10,000,000
total
€ 90,000,000
total
€ 90,000,000

But shadow banks don’t need to comply to these regulations because they don’t have depositors. And so the balance sheet of a shadow bank might look like this:

debit
credit
mortgage-backed securities
€ 500,000,000
short-term lending in money markets
€ 490,000,000
insurance and credit lines
the shadow bank’s net worth € 10,000,000
total
€ 500,000,000
total € 500,000,000

What is so great about shadow banking, at least for bankers? If banks borrow at 2% and lend at 4%, the ordinary bank can make € 1,400,000. The bank’s net worth is € 10,000,000 so the return on investment is 14%. But the shadow bank can make € 10,000,000 and the return on investment is 100%. And you can imagine how great this is for bonuses. Only, if something goes wrong, there is little capital to cushion losses. That’s not a problem for the bankers because by then they have already cashed their bonuses. But it could become our problem as shadow banks can blow up the financial system.

If the loans drop 10% in value because some home owners fall back on their mortgage payments, the capital of the ordinary bank can cushion the loss of € 8,000,000, while the shadow bank goes down in flames leaving an unpaid debt of € 40,000,000. And now we get to the point where financial system blew up. It is the insurance and credit lines part on the balance sheet of the shadow bank. There is no value attached because credit lines so insurances don’t show up on balance sheets or only for a very low amount.

Ordinary banks guaranteed credit to shadow banks just in the case investors like money market funds didn’t want to invest in shadow banks any more. The great thing of credit lines for bankers is that they get a fee for these credit lines while they don’t appear on the balance sheet so that banks don’t have to cut back their lending. When homeowners fell behind on their payments, investors didn’t want to invest in shadow banks any more, and these credit lines had to be used. This means that ordinary banks had to step in and suddenly their capital wasn’t sufficient to cover the losses. Also going down in flames, were the insurers of mortgage-backed securities.

The United States had a government policy of stimulating home ownership. Under the guise of this policy mortgages were given to people who couldn’t afford them. Behind the scenes usury was to blame. If there was doubt whether the borrower could afford the mortgage, a banker could charge a higher interest rate to compensate for the risk. This made the mortgage even less affordable to the borrower. The solution for that problem was giving ‘teaser rates’, meaning that the interest rate was low during the first year so that the home owner could afford the mortgage payments at first. Meanwhile the mortgage was packaged in a mortgage-backed security so the banker was already off the hook when the home owner fell behind on his or her payments.

And there is more. Shadow banks offer higher interest rates to their investors. Shadow banks don’t have a lot of capital so investing in them is a more risky than putting money in a bank account of a regular bank. Investors in shadow banks need a compensation for that risk. That’s no problem because the enterprise is very profitable. It is therefore possible for shadow banks to pay higher interest rates. This might not be possible if interest was forbidden, unless shadow banks had a lot more capital to cover their losses, but that would solve the problem of them being too risky. It is usury that allows for risky schemes like shadow banks to exist.

The multi-trillion-dollar derivatives monster

In 2016 the notational value of all outstanding derivatives is estimated to be $650 trillion. This is the so-called multi-trillion derivatives monster. This figure is more than eight times the total income of everyone in the world.3 Some people are spooked by the sheer size of that number. And indeed, derivatives can be dangerous. In 2003 the famous investor Warren Buffet called derivatives ‘financial weapons of mass destruction’.

Five years later derivatives played a major role in the financial crisis. An improper use of derivatives nearly brought down the world financial system. But derivatives can be useful. Most banks use derivatives to hedge their risks. Banks that managed their risks well using derivatives fared relatively well during the financial crisis compared to banks that didn’t.4 Therefore, derivatives are probably here to stay.

But what about the multi trillion monster? The number is a notational value, not a real value. Derivatives are insurance contracts, often against default of a corporation, a change in interest rates, or home owners falling behind on mortgage payments. You may have a fire insurance on your house to the amount of € 200,000. This is the notational value of the contract. You may pay the insurer € 200 per year. That is the real value of the contract, until something happens, that is.

If your house burns down, the contract suddenly is worth € 200,000. Insurers often re-insure their risks, which is a prudent practice. But re-insurance makes the notational value of the outstanding derivatives increase. So if your insurer re-insures half of your fire insurance to reduce its risk exposure, another contract with notational value of € 100,000 is added to the pile of existing insurance contracts.

So what went wrong? If suddenly half the houses in a nation catch fire because there is a war, insurers go bankrupt. The cause of the financial crisis was many home owners falling behind on their payments at the same time so that insurers of derivative contracts like mortgage-backed securities went bankrupt. The American International Group (AIG) was the largest insurer of these contracts and it was bailed out with $ 188 billion. The US government made a profit of $ 22 billion on this bailout, but only because the financial system wasn’t allowed to collapse.

In a financial crisis a lot of things go wrong at the same time. The financial system can’t deal with a major crisis. If it happens, it may cause the greatest economic depression ever seen, and in retrospect it may herald the collapse of civilisation.

The usury issue

Money circulation in the economy is like blood circulating in the body. It makes no sense for a kidney or a lung to keep some blood just in case the blood stops circulation. The precautionary act makes the dreaded event happen. It is a self-fulfilling prophecy. A financial crisis is like all parts of the body scrambling for blood at the same time. When the blood circulation stops, a person dies. An if the money circulation stops, the economy dies. Hoarding is to blame for that.

A tax on cash makes negative interest rates possible. It can also keep investors from hoarding money. If money keeps on circulating, there may never be a crisis. The crisis happened because investors scrambled for cash when they feared they might lose money on bad debts. But if they expect to lose more on cash, they might keep their debts. And there may have been fewer bad debts in the first place if there had been no interest on debts as interest is a reward for risk.

Featured image: Graffiti near the Renfe station of Vitoria-Gasteiz. Wikimedia Commons. Public Domain.

1. The rise of money trading has made our economy all mud and no brick. Alex Andreou (2013). The Guardian. [link]
2. The Rise of Finance. Evan Soltas (2013). Economics and Thought. [no link because the information has been removed]
3. Here’s What Makes the Derivatives “Monster” So Dangerous (for You). Michael E. Lewitt (2016). Money Morning. [link]
4. Financial innovation and bank behavior: Evidence from credit markets. Lars Norden, Consuelo Silva Buston and Wolf Wagner (2014). Tilburg University. [link]