Thursday, November 17, 2005

Why is Usury a Crime?

When we talk about the price we have to pay to borrow money (credit), we are talking about the interest rate. The price for credit is determined by supply and demand in the marketplace just like any other commodity. Therefore, when you set a cap on prices for a particular good, the likely effect is a shortage when demand outpaces supply.

To solve for the shortage of available credit caused by government-mandated limits, we have the Development Bank of American Samoa (DBAS). In other words, the government causes a shortage with usury laws, and then uses the DBAS to alleviate the very shortage it caused in the first place.

But the money it uses to undercut market interest rates has to come from somewhere (usually from the citizenry). If the money doesn’t come from taxes then it is either from newly printed money from the Federal Reserve’s fiat money supply [causing inflation] or from more debt financed by the very foreigners we constantly chase away (regretfully) and by investors of U.S. Treasury securities.

In effect, an interest rate limit doesn’t lower the price for credit, it just changes the way we pay for it. Moreover, since a limit discourages some from lending, it essentially raises the costs of supplying loans over the long run, which we would then have to pay through higher taxes, more dollars printed [inflation] or more debt.

Hopefully, one can see the dangerous downward spiral of destruction that we will fall into by trying to avert risk and responsibility in the marketplace.


Post a Comment

Subscribe to Post Comments [Atom]

Links to this post:

Create a Link

<< Home