• "God invented war so Americans could learn geography" -- Mark Twain.

Monday, March 4, 2013

The 1% and the 25%

A report over the weekend in the New York Times, described how pay-day lenders were circumventing New York's "strict" usury laws by charging up to 800% interest and, with bank connivance, repeatedly debiting a borrower's overdrawn checking account thereby running up over-draft fees in hundreds and even thousands of dollars to the banks' delight.

New York's "strict" anti-usury laws limited interest to 25%. 


There was a time when most states in the Union limited interest to 6 or 7 percent.  The California Constitution limited it to 10 percent per annum; ancient Roman law to 12 percent yearly.

There was a time when virtually every religion considered the charging of any interest to be morally wrong.  Jews were forbidden to charge interest among themselves.  Christianity denied the Sacraments to anyone who charged interest to anyone.  Most people regarded usury as repugnant.  Said Cato

"And what do you think of usury?" — "What do you think of murder?"

And it is a form of murder, as much as it was murder to force concentration camp inmates to work for under 1000 calories a day.    Usury is the equivalent of a starvation wage.

It is the generally accepted view that government borrowing at rates in excess of 7 percent is unsustainable in the long run.  In other words, when a government is forced to pay more than 7 percent interest will be unable to to meet its domestic obligations and the country will go into starvation mode or, as it is called these days, "austerity".

If 7 percent interest is unsustainable for a sovereign state, how in the world is 20 percent sustainable by a working stiff?  It isn't.  It is a prescription for homelessness and starvation.  Cato was right: usury is murder.

The point here is not to provide a comprehensive analysis of interest, opportunity costs, usury and the various calculations of debt to income or gross domestic product. The basic fact is that credit has become an essential lubricant to world economies and charging for the borrowed use of money is regarded as an equally necessary aspect of credit.  In a complex global finance-economy, the types of interest, their modes of calculation and their short or long term sustainability are subject to hundreds of permutations.

But the fact also remains, that over the historical long term, interest rates in excess of 7 to 12 percent have been regarded as usurious because they are not sustainable, even when regarded in isolation and without regard to a borrower's other costs of living and obligations. 

New York's "strict" usury law of 25% already allows for the progressive extermination of the working class. Charges of 800% and overdraft penalties at equivalent rates are murder. This is the blood that feeds the 1%