Supporting those alumni who expressed solidarity with Occupy Princeton (Inbox, Feb. 8), I raise a major, much-neglected issue relevant to their concerns. We have seen from the 2008 financial meltdown how abusive our largest banks and other powerful financial institutions can be. But is not the routine functioning of our money system, to which we have become accustomed, also highly abusive?
We entrust our private banks with creating out of nothing in their process of making loans nearly all our money supply – about 97 percent. Having demanded collateral from borrowers, banks create money for the principal of their loans, but not for interest they require to be paid. Does this not produce enormous, overlooked problems? Borrowers must compete with all of us users of this money supply, including those who owe nothing, to find enough money, created only as principal, to pay back both principal and interest. How can that extra money for interest be obtained? Ultimately, from further borrowing at more interest – an obviously unsustainable process. Economically vulnerable borrowers inevitably increasingly default, bringing recession. Banks then seize collateral, impoverishing many while further enriching a few.
Governments also borrow at interest from banks and other sources, running up debts with compounding interest. This provides justification for the current austerity agenda involving attacks on public services, thus bringing still further poverty. If private banks can create money at interest for their own benefit, why can’t governments create money interest-free for public benefit? Does this really have to be inflationary – more so than bank-created money? Given our current debt crisis, is it not time for the option of government-created, interest-free money for public benefit to be explored in open public discussion?