Jump to content
House Price Crash Forum
mansoor_h_khan

Newly Created Money – Should It Be A Private Or A Public Asset?

Recommended Posts

One of the basic assumptions of our economic system is that most new money is assumed to be a private asset created by commercial banks. If you don’t understand how this is then see my earlier post: Modern Monetary System: There Is Another Way (http://seekingalpha.com/author/mansoor-h-khan/articles)

Commercial banks simply issue a loan which creates the new money by crediting the borrower’s bank account. As this money is spent by the borrower it draws on the economic output of the economy at large.

Of course the new money when it is spent creates slight inflation or creates less deflation than there would have been otherwise had the new money not been spent. And in the United States (and most countries) the deposits (which are liabilities of the private banks) are implicitly or explicitly backstopped by the government (i.e., the tax payers).

Take an example of an entrepreneur who applies for a $1 million loan with 5 year term at 8% to build a shoe factory. The bank’s loan officer who is a highly skilled business analyst reviews the business plan and approves the request. The loan is funded by the bank by simply crediting the entrepreneur’s checking account. Money is created out of thin air.

The biggest flaw in the above scenario is that the citizens of the nation had no say in how the re-directed resources by the new money are being utilized. Furthermore note that the biggest banks create most of the private money. The benefits of this new money are of course shared between the banking industry, the borrowers and the economy at large.

How else could this be done?

Another way to do this (I think much more fairer way) is for the government to determine how much new money should be created in the economy to match the growth of goods and services and the level of inflation on a periodic basis. The government can then simply credit each citizen’s bank account the appropriate amount of cash per capita per citizen. The citizens can determine how to deploy this new money. This new money can then be spent by a citizen or saved. Saved money can then be aggregated by the private banks and loaned to our example entrepreneur above.

Why is this seemingly more complicated way better? Because it is fairer. Note that:

a. New money will redirect and/or draw on the nation’s resources as it is spent.

b. All citizens of a nation (in most countries) are required to use that country’s money to conduct business transactions on that country’s soil. This restriction is certainly placed on any entity doing business in the U.S.A. This restriction is enforced via legal tender laws. This restriction alone gives the citizens the right to the benefit of any newly created money and/or right to determine how it is spent in democratic way.

c. The current way of having banks create most new money is less fair especially because the largest banks tend to create most of the new private money (this is true in the U.S. economy). Private money creation is very concentrated to large banks with large deposit bases.

The best way to stop private banks from creating their own money is to:

a) Remove government bank deposit protection insurance schemes (e.g., FDIC deposit insurance) and allow “Free Banking”. Allow banks to fail. This will greatly reduce the ability of banks to create bank deposit private money.

B) Give the public the option to “store” money electronically risk-free in a government owned bank which can only “store” electronic money and clear checks but not lend it out. 100% reserve credit risk-free money storage for a small fee.

c) Allow new money creation in all forms (coins, paper bills or bank deposits) by the treasury department.

For the future (5 to 10 years or even more) I believe we will have deflation and not inflation (like Japan since 1990). Businesses and individuals are very indebted and even the credit worthy don’t want to borrow because of fear of deflation (money to be paid back will be harder to earn as wages and business incomes go down). Also, average labor hour productivity keeps going up. This means that the number of unemployed persons will continue to increase. We could easily implement the above thinking in a broader sense to fight deflation and keep increasing the amount of cash distributed until the economy is more balanced between savings and spending. That is correct, contrary to popular belief; there can be too much savings. Also, we must look at this balancing act (between savings and spending) with a global perspective. It is global savings that matters at least to the U.S.A. America is a popular destination for global savings.

I can already hear my critics screaming why we would want to encourage more consumption? I see absolutely no issue with encouraging more consumption. Lower income strata of our society have not had their incomes increase in tandem with huge productivity increases created by globalization and greater use of information technology. This re-balancing will greatly help these people and stop deflation in its tracks. It is exactly such people (in the lower income strata of our society) who are most likely to spend and stimulate demand which will help all businesses and create more employment.

Share this post


Link to post
Share on other sites

this is just a re-statement of the old social credit ideas.

google 'social credit C H Diuglas' and then tell me what new stuff you are adding to the defunct notion of social credit and the 'ab theorem'.

Share this post


Link to post
Share on other sites

this is just a re-statement of the old social credit ideas.

google 'social credit C H Diuglas' and then tell me what new stuff you are adding to the defunct notion of social credit and the 'ab theorem'.

I did read it and the rebuttal is pasted below. But I don't really understand the rebuttal. Can you please state it in simpler terms?

Critics of the A + B theorem and rebuttal

Critics of the theorem, such as J.M. Pullen, Hawtrey and J.M Keynes argue there is no difference between A and B payments. Other critics, such as Gary North argue that Social Credit policies are inflationary. "The A + B theorem has met with almost universal rejection from academic economists on the grounds that, although B payments may be made initially to “other organizations,” they will not necessarily be lost to the flow of available purchasing power. A and B payments overlap through time. Even if the B payments are received and spent before the finished product is available for purchase, current purchasing power will be boosted by B payments received in the current production of goods that will be available for purchase in the future."[24]

Douglas replied to this type of criticism by stating in a reply to Dr. Hawtrey, "I merely wish to establish that every manufacturer can and does both distribute costs in the form of wages and salaries and allocate costs which are not distributed as wages and salaries. These latter costs can only be distributed after he had sold all his goods, and collected both the distributed and allocated costs, and he does not distribute enough before they are sold to buy them. There is only one additional distribution to the public – dividends. He would obviously have to distribute simultaneously through the agency of dividends, etc., the average amount of the allocated charges, and apart from semi-manufactures, this average in Great Britain is probably between 125 and 150 per cent. and in the United States between to 250 and 300 per cent. It is only necessary to realize that the equilibrium to which Mr. Hawtrey refers would require the steady distribution by every single producing concern, probably not excluding farming, of dividends at the rate of 125 per cent. on turnover, or probably 500 per cent. per annum, to realize how far his contention is from representing the case. It is probable that the average dividend on industry does not exceed 2 per cent. It may not be out of place to remark that the increase in overhead charges in relation to direct charges is a direct measure of industrial progress."[25] And in a reply to Dr. Hobson he stated, " To reiterate categorically, the theorem criticised by Mr. Hobson : the wages, salaries and dividends distributed during a given period do not, and cannot, buy the production of that period; that production can only be bought, i.e., distributed, under present conditions by a draft, and an increasing draft, on the purchasing power distributed in respect of future production, and this latter is mainly and increasingly derived from financial credit created by the banks. [26]

Incomes are paid to workers during a multi-stage program of production. According to the convention of accepted orthodox rules of accountancy, those incomes are part of the financial cost and price of the final product. For the product to be purchased with incomes earned in respect of its manufacture, all of these incomes would have to be saved until the product’s completion. Douglas argued that incomes are typically spent on past production to meet the present needs of living, and will not be available to purchase goods completed in the future—goods which must include the sum of incomes paid out during their period of manufacture in their price. Consequently, this does not liquidate the financial cost of production inasmuch as it merely passes charges of one accountancy period on as mounting charges against future periods. In other words, according to Douglas, supply does not create enough demand to liquidate all the costs of production. Douglas denied the validity of Say's Law in economics.

The criticism that Social Credit policies are inflationary is based upon what economists call the quantity theory of money, which states that the quantity of money multiplied by its velocity of circulation equals total purchasing power. Douglas was quite critical of this theory stating, "The velocity of the circulation of money in the ordinary sense of the phrase, is – if I may put it that way – a complete myth. No additional purchasing power at all is created by the velocity of the circulation of money. The rate of transfer from hand-to-hand, as you might say, of goods is increased, of course, by the rate of spending, but no more costs can be canceled by one unit of purchasing power than one unit of cost. Every time a unit of purchasing power passes through the costing system it creates a cost, and when it comes back again to the same costing system by the buying and transfer of the unit of production to the consuming system it may be cancelled, but that process is quite irrespective of what is called the velocity of money, so the categorical answer is that I do not take any account of the velocity of money in that sense."[25] The Alberta Social Credit government published in a committee report what was perceived as an error in regards to this theory: “The fallacy in the theory lies in the incorrect assumption that money 'circulates', whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption."[27]

Other critics argue that if the gap between income and prices exists as Douglas claimed, the economy would have collapsed in short order. They also argue that there are periods of time in which purchasing power is in excess of the price of consumer goods for sale.

Douglas replied to these criticisms in his testimony before the Alberta Agricultural Committee:

"What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation."[22]

Share this post


Link to post
Share on other sites

I did read it and the rebuttal is pasted below. But I don't really understand the rebuttal. Can you please state it in simpler terms?

sure. if you give people ALL the purchasing power they need to purchase all output then there is no room left for profits.

so producers raise prices to try and make a profit.

then, your money council gives consumers the money they need to meet higher prices.

INFLATION

Share this post


Link to post
Share on other sites

sure. if you give people ALL the purchasing power they need to purchase all output then there is no room left for profits.

so producers raise prices to try and make a profit.

then, your money council gives consumers the money they need to meet higher prices.

INFLATION

So, how did businesses make a profit 1000 years ago? There was no fractional reserve banking (very little maybe). The money (gold) was scattered underground (mostly) and people simply mined it and used it (100% reserve currency!). People steadily found more and more currency (gold) and just used it. How did the producers make a profit then?

Mansoor Khan

Share this post


Link to post
Share on other sites

So, how did businesses make a profit 1000 years ago? There was no fractional reserve banking (very little maybe). The money (gold) was scattered underground (mostly) and people simply mined it and used it (100% reserve currency!). People steadily found more and more currency (gold) and just used it. How did the producers make a profit then?

basically there was a underhuge class of slaves serfs and peasants who were forced (either by force or necessity) to work for basically nothing, or were forced to remit taxes to local landowners (your 'businessmen') . This is where the profits from classic times up until about the 18th century came from.

your mistake is that you are focussing too much on money and the mechanics of it. You need to go back and ask yourself what it is that keeps civilisations from simply disintegrating. What are the characteristics of the sociological forces that exist in a sucessful urbanising civilisation. Pick a few examples from Ur onwards and identify the common features while leaving money out of the equation.

Share this post


Link to post
Share on other sites

basically there was a underhuge class of slaves serfs and peasants who were forced (either by force or necessity) to work for basically nothing, or were forced to remit taxes to local landowners (your 'businessmen') . This is where the profits from classic times up until about the 18th century came from.

your mistake is that you are focussing too much on money and the mechanics of it. You need to go back and ask yourself what it is that keeps civilisations from simply disintegrating. What are the characteristics of the sociological forces that exist in a sucessful urbanising civilisation. Pick a few examples from Ur onwards and identify the common features while leaving money out of the equation.

Thank you for your reply. I am really learning a lot about the world. I started learning about money, banking and credit after the Lehman collapse. I am IT person by profession but I have an MBA. So I will do my best to enumerate the features needed by a sucessful urbanising civilisation as I see it:

1) specialization of skills

2) market for specialized skills

3) Usually a ruling class exists with political control (control of the military)

4) Major assets of the society are owned or controlled by a small fraction of the population

5) The ruling class has taxing powers

6) Has a mostly market economy

Mansoor Khan

Share this post


Link to post
Share on other sites

1) specialization of skills

2) market for specialized skills

yes

3) Usually a ruling class exists with political control (control of the military)

it would seem so. However what we know about the indus valley civilisation may call that into question.

is it possible that a civilisation exists which is highly specialised without a ruling class? could that happen?

4) Major assets of the society are owned or controlled by a small fraction of the population

it would seem so. But perhaps this follows from 3. or is it the other way round?

5) The ruling class has taxing powers

That must be the case, since 'ruling' provides no direct income of its own.

6) Has a mostly market economy

no. I would not characterise the classical civilisations as market economies. nor would I characterise the high middle ages as such. The high middle ages was based on the manorial system, and was very successful, until it wasn't, and the population crashed from 1340. These economies may have had markets, but the market was not ascendant as a cultural or technological force. What then binds these civilisations together?

BTW, please stop leaving comments on my home page. Send me a message via the message system instead.

Edited by scepticus

Share this post


Link to post
Share on other sites

yes

3) Usually a ruling class exists with political control (control of the military)

it would seem so. However what we know about the indus valley civilisation may call that into question.

is it possible that a civilisation exists which is highly specialised without a ruling class? could that happen?

4) Major assets of the society are owned or controlled by a small fraction of the population

it would seem so. But perhaps this follows from 3. or is it the other way round?

5) The ruling class has taxing powers

That must be the case, since 'ruling' provides no direct income of its own.

6) Has a mostly market economy

no. I would not characterise the classical civilisations as market economies. nor would I characterise the high middle ages as such. The high middle ages was based on the manorial system, and was very successful, until it wasn't, and the population crashed from 1340. These economies may have had markets, but the market was not ascendant as a cultural or technological force. What then binds these civilisations together?

BTW, please stop leaving comments on my home page. Send me a message via the message system instead.

Ok. I will ask a question directly. Is it possible to have a viable, thriving economy like the USA had or China has now without dealing in interest? This question is from Islamic point of view which prohibits giving or charging interest (at least according to some interpretations).

Share this post


Link to post
Share on other sites

Ok. I will ask a question directly. Is it possible to have a viable, thriving economy like the USA had or China has now without dealing in interest? This question is from Islamic point of view which prohibits giving or charging interest (at least according to some interpretations).

yes it is possible. there are plenty of historical examples prior to the general advent of monetary economies in which the civilisation is urban, expanding and increasing technological level and specialisation.

http://en.wikipedia.org/wiki/Indus_Valley_Civilization

Share this post


Link to post
Share on other sites

yes it is possible. there are plenty of historical examples prior to the general advent of monetary economies in which the civilisation is urban, expanding and increasing technological level and specialisation.

http://en.wikipedia.org/wiki/Indus_Valley_Civilization

Ok. Is it possible to modify the modern monetary system in such a way as to not have to charge interest?

BTW: I tried to find out how to use the messaging system but don't see how do it?

Share this post


Link to post
Share on other sites

Ok. Is it possible to modify the modern monetary system in such a way as to not have to charge interest?

if there is money, it will get lent. interest will be charged.

if it is lent it will create credit derivatives of the money which will affect prices.

the only way to avoid the use of interest, is therefore to not have any money. By money I mean a token item which is both a medium of exchange and a store of value.

if one considers Islamic banking, then it can be seen that there are various ways in which that system gets around the fat they are not allowed to charge for the time value of money in other ways, however it is true to say that most of them result in the intermediary taking more risk than is the case in a non islamic system.

however I imagine that most of these if described mathematically would all reduce to charging for the time value of money. the only way for money not to have a positive time value is to not have any money.

I would say that our current system fits this description (government debt is not money in the strict, historical sense since its value depends on democratic process so cannot really be considered a store of value), with the exception that the interest rate cannot be set below nominal 0.

Share this post


Link to post
Share on other sites

if there is money, it will get lent. interest will be charged.

if it is lent it will create credit derivatives of the money which will affect prices.

the only way to avoid the use of interest, is therefore to not have any money. By money I mean a token item which is both a medium of exchange and a store of value.

if one considers Islamic banking, then it can be seen that there are various ways in which that system gets around the fat they are not allowed to charge for the time value of money in other ways, however it is true to say that most of them result in the intermediary taking more risk than is the case in a non islamic system.

however I imagine that most of these if described mathematically would all reduce to charging for the time value of money. the only way for money not to have a positive time value is to not have any money.

I would say that our current system fits this description (government debt is not money in the strict, historical sense since its value depends on democratic process so cannot really be considered a store of value), with the exception that the interest rate cannot be set below nominal 0.

So. What is bottom line?

In your opinion is it possible to have a money system where "lending is not REQUIRED" but still fulfill needs of a large, complex, ubanized civilization like we have today in U.S.A, , GERMANY or CHINA. Note that I understand people will always lend as long as money exists but the question is: Is lending REQUIRED to have a thriving, vibrant, modern, technologically complex society?

Share this post


Link to post
Share on other sites

if you click on my profile there should be an option to send me a message?

Only thing I saw was:

Contact Information

E-mail:

Private

which does not do anything when i click on it.

Or Is there another way on the profile page?

Share this post


Link to post
Share on other sites

Is lending REQUIRED to have a thriving, vibrant, modern, technologically complex society?

yes, if that society uses money (NOT credit), and uses the price level to distribute consumption rights. bear in mind that the surplus produced by humanity cannot really be stored so if one person wishes to defer consumption another must prepone consumption otherwise there will be an excess of production which if it occurs regularly will dis-incentivse production.

so bottom line is that output cannot be stored, so it must all be consumed - by someone or some entity. As long as this basic requirement is met by some means that is socially acceptable and in keeping with dominant cultural memes of the society then it would support a complex technological society (assuming of course no environmental limits).

Share this post


Link to post
Share on other sites

Only thing I saw was:

Contact Information

E-mail:

Private

which does not do anything when i click on it.

Or Is there another way on the profile page?

perhaps that means you are not an approved member of the forum - which is why you are restricted to posting on the economic forum

Share this post


Link to post
Share on other sites

yes, if that society uses money (NOT credit), and uses the price level to distribute consumption rights. bear in mind that the surplus produced by humanity cannot really be stored so if one person wishes to defer consumption another must prepone consumption otherwise there will be an excess of production which if it occurs regularly will dis-incentivse production.

so bottom line is that output cannot be stored, so it must all be consumed - by someone or some entity. As long as this basic requirement is met by some means that is socially acceptable and in keeping with dominant cultural memes of the society then it would support a complex technological society (assuming of course no environmental limits).

Ok. I am a little confused:

This requirement (storage of output) CANNOT be met in equity only (economy with money but no debt). Is this your conclusion?

Share this post


Link to post
Share on other sites

This requirement (storage of output) CANNOT be met in equity only (economy with money but no debt). Is this your conclusion?

yes. output cannot be stored so can only be carried forwadr ni time (saved) by having another use your today allocation of consumption on the understanding you get their tomorrow allocation.

call it equity, lending, full reserve, fractional reserve whatever you like, the above is the only way to save surplus besides burying tins of beans in the soil.

if equity, then equity must still be transferred from one to another to be returning in the future, which is still lending. If done on the understanding full principal may not be returned, then that is equivalent to debt/credit without a 0% bound on interest rates.

Share this post


Link to post
Share on other sites

yes. output cannot be stored so can only be carried forwadr ni time (saved) by having another use your today allocation of consumption on the understanding you get their tomorrow allocation.

call it equity, lending, full reserve, fractional reserve whatever you like, the above is the only way to save surplus besides burying tins of beans in the soil.

if equity, then equity must still be transferred from one to another to be returning in the future, which is still lending. If done on the understanding full principal may not be returned, then that is equivalent to debt/credit without a 0% bound on interest rates.

OK. Thanks. You really have a clear understand of these things.

Again, thank you it all makes sense now. From Islam's point of view 0% bound limit is a lie (this is my interpretation of Islam). It is not in accordance with the real world (again, my interpretation). That is why equity investments are encouraged and debt investments prohibited in Islam (again, my interpretation).

I don't see equity as lending as much as you see it. I know there are similarities (market value of debt can fluctuate). But here is the main difference:

1) In a liquidation or bankruptcy or a foreclosure or even decline in asset value situation the debt holders get to satisfy their claims first (before the equity holders). Interest payments must be made before dividends can be paid even if is no liquidation is involved.

2) If the capital structure involves no debt then in a liquidation or bankruptcy or a foreclosure situation the remaining market value is proportionally divided between the joint owners.

Equity investments involve (my observation) more deliberation on the part of the investor before investing then the same investor making a debt investment in the same project.

Mansoor H. KHan

Share this post


Link to post
Share on other sites

Again, thank you it all makes sense now. From Islam's point of view 0% bound limit is a lie (this is my interpretation of Islam). It is not in accordance with the real world (again, my interpretation). That is why equity investments are encouraged and debt investments prohibited in Islam (again, my interpretation).

this is exactly how I see it. The 0% bound is certainly a lie. In fact in terms of international investments it doesn't exist. People call it exchange rate risk rather than calling it by its real name, which is a variable nominal rate that can be negative.

I don't see equity as lending as much as you see it. I know there are similarities (market value of debt can fluctuate). But here is the main difference:

no I didn't mean that. I meant that if you had an equity only economy then there would need to be a lending of equity to maintain an equilibrium of supply and demand.

I agree that equity and debt are not the same as currently defined.

Equity investments involve (my observation) more deliberation on the part of the investor before investing then the same investor making a debt investment in the same project.

I think you would find if there was an equity only economy that your average joe would not have time to do due dilligence and would therefore use an intermediary. In fact this is already happening, with ETFs, mutual funds etc.

Elimination of intermediaries is not a feasible goal for an economy relying on very high level of division of labour.

Share this post


Link to post
Share on other sites

no I didn't mean that. I meant that if you had an equity only economy then there would need to be a lending of equity to maintain an equilibrium of supply and demand.

I agree that equity and debt are not the same as currently defined.

Can you please elaborate on "need to be a lending of equity to maintain an equilibrium of supply and demand."?

Suppose we had only Full Reserve Banks and we did not want inflation of deflation and:

1) inflation is be controlled by taxation (money destruction).

2) deflation -- can the government just print and spend and maintain the balance between supply and demand (money creation)

Is lending REQUIRED in this model? Is this model workable?

I understand that lending will happen but is it REQUIRED to maintain the balance between supply and demand?

Is #1 and #2 sufficient to maintain the balance?

I think you would find if there was an equity only economy that your average joe would not have time to do due dilligence and would therefore use an intermediary. In fact this is already happening, with ETFs, mutual funds etc.

Elimination of intermediaries is not a feasible goal for an economy relying on very high level of division of labour.

I am NOT thinking of eliminating intermediaries. Islam does not prohibit intermediatries who deal in equity only (i.e., both profit and loss are possible without the lender getting the right to first claim in the event of liquidation, where the liquidation claim is proportional to ownership).

The issue is Lending money (or actually any commodity) for a fixed time and expecting more of the same commodity back without regard to sharing both in both loss and profit in the project where the "value" was invested by the borrower/investee.

Intermediaries are not an issue.

Mansoor H. Khan

Share this post


Link to post
Share on other sites

Is #1 and #2 sufficient to maintain the balance?

the printing of money to make up for private saving IS lending. Because the private savers money has gone dormant (no velocity), the government prints the equivalent and gives it to someone else. Then later when the saver withdraws and spends his money the government must tax a similar amount elsewhere to destroy it.

Now if we have a glut of saving the government prints up lots of money and spends it. Then later when the saving glut goes away, the government must suddenly find a lot of taxes, which likely have to be raised at lest in part from people not having benefited from the original print and spend process. Then what iof you have a change of government with different priorities?

In this case private saving is matched by entirely by public debt - because the printed money must be removed by taxation at some point in the future thr printed money is basically public debt. Thus all you have done here is ensure that private debt has been replaced by public debt. You have not eliminated lending, just altered who is on the hook.

That ofc doesn't even address the question of how a company which needs to raise short term financing can do so without going to the government - because the full reserve banks are not going to be able to accommodate choppy demand for short term financing assuming much of their deposits are instant withdrawal.

All this does is to turn the government into the only fractional reserve bank that merely serves to match private savers with public borrowers. This public bank will be no better at managing risks that individual private lending institutions.

A better scheme is to leave lending in private regulated businesses (banks), but use a negative nominal interest rate when deflation sets in. In this case deflation is never fought off by deficit spending but merely accepted when demand declines. As the money supply declines the interest rate is negative and as it increases it is positive.

If you wish to add an islamic element to this you can simply require that all bank depositors select a deposit or savings account type in which a portion of the deposit (defined up front) converts to equity in the event of the bank falling short of its capital requirements. Likewise there would be an option to convert to equity where the bank has made a profit, thus increasing the value of ones deposit and benefiting from sound bank management.

Now with this I think that we can still have lending but that all savers (lenders) are exposed to loss (and profit), no 0% bound and so in my understanding now compatible with islam.

Share this post


Link to post
Share on other sites

If you wish to add an islamic element to this you can simply require that all bank depositors select a deposit or savings account type in which a portion of the deposit (defined up front) converts to equity in the event of the bank falling short of its capital requirements. Likewise there would be an option to convert to equity where the bank has made a profit, thus increasing the value of ones deposit and benefiting from sound bank management.

Now with this I think that we can still have lending but that all savers (lenders) are exposed to loss (and profit), no 0% bound and so in my understanding now compatible with islam.

OK. The system design is getting closer but I have some questions:

1. I assume that in this scenario the bank would still be lending money (rather than buying equity) to businesses and individuals (which means it has a legal right to "get paid first" in a bankruptcy or a liquidation event). This would not be compatible with Islam (my interpretation).

2. Would there be government backstopped deposit insurance? Again. This would not be compatible with Islam (my interpretation).

3. Also, how would a negative interest be implemented practically? When would the bank start "dinging" depositors for not spending the money? Would the government measure inflation and force the banks to charge negative deposit interest rates? How do you propose to control the public's attempt to convert deposits to physical paper cash at the onset of negative deposit interest rates?

Mansoor H. Khan

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.