Does Usury Result In Problems Other Than Debt?
Poverty and Crime
Environment
Undesirable Resource Allocation
Developed World
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Does Usury Result In Problems Other Than Debt?

As we have discussed in earlier articles, usury can be considered as one of the primary causes of debt. It increases the sum that one has to pay back over a period of time and it can be difficult to meet these demands especially if the rates of interest are very high, or one's ability to repay sums borrowed becomes compromised due to a change in circumstance. Does usury cause other problems as well?

It may appear that the immediate problem associated with usury is debt, however even debt has many associated implications not only for the individuals but also for society as a whole, whether this happens to be a third world country or a developed nation like Britain.

This section of the web site examines the wider impact of Usury on a global scale.

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Poverty and Crime

High levels of interest and repayment in U.S dollars makes it difficult for third world countries to meet the demands of their debt as these countries are vulnerable to external forces. For example an increase in U.S interest rates means that third world countries would need to earn more foreign exchange as the U.S dollar appreciates in value.

The social implication of usury is felt greatly in the third world by the poor, as they have to sacrifice the most and bear the brunt of the responsibilities of their nation's debt. Most of these people live in poverty and hardship, but even then governments may be forced to reduce public spending when agreeing the terms of further borrowing, from the IMF for example. This may in turn mean that a government must spend even less on such vital areas as education and health services.

With money being exported to foreign lenders, the domestic economy can easily suffer a severe and semi-permanent recession. Competition for scarce jobs forces wages down and employers, particularly foreign corporations, can more easily drive hard bargains when establishing new manufacturing operations in the country. High levels of unemployment and low wages make it difficult for individuals to accumulate savings for the future. Child labour can then become common, as children have to work in order to support their families.

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Environment

In increasingly desperate circumstances, governments may borrow further amounts at unattractive terms, or may undertake environmentally destructive projects, simply in order to avoid default on their debts and to have the minimum amount of funds necessary to import the basic needs of their people. Political and economic decisions made under these circumstances are unlikely to be for the best.

Cutting back on the costs of environmental conservation is perhaps the easiest option to implement when finding ways to save money. Multinational corporations will often locate new factories in developing countries where the laws are more relaxed.

More worrying is the trend for developing countries to exploit their natural resources in ways that are highly unsustainable simply in order to meet the requirement of generating foreign currency with which to repay their international debts. For example, in the 1990's, the countries with the highest debt burden tended to be the countries with the highest rates of deforestation. But even in the rich world, economists have linked the depletion of fish stocks to the use of interest in financing the fishing industry.

It has also been argued that the interest-bearing monetary systen forces economic growth upon societies. Because debt must grow under such a system, the consequence is that the new amounts of money thus borrowed must be invested into some form of economic production. The continual drive to invest over time has produced huge increases in energy consumption and resource depletion. It is quite possible that "global warming" is the most major and serious consequence of usury in our world.

"Only after the last tree has been cut down,
 only after the last river has been poisoned,
 only after the last fish has been caught,
 only then will you find that money cannot be eaten."

 Cree Indian Prophecy (Ref:http://www.xat.org/xat)

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Undesirable Resource Allocation

(Ref:http://www.xat.org/xat)

Imagine a situation where a choice exists between two investment projects. One is purchase of a government bond yielding 5% interest, the other choice is for an investment into a hospital construction project that returns an expected profit of only 3% per year. Financially speaking, the government offers a rate of interest that makes a socially beneficial project (construction of the hospital) look undesirable. Why would an entrepreneur take the risk and make the effort of pursuing his hospital project if, for no risk and no effort, he can buy a government bond and earn more financial returns in the process?

"People who will not turn a shovel full of dirt.. Nor contribute a pound of material, will collect more money than the people who supply all the material and do all the work. That is the terrible thing about Interest (Usury)".
(Thomas Alva Edison)

Since financial institutions more often than not demand collateral from borrowers, as a guarantee should repayment of the loan become impossible, it is people who are already rich that stand the best chance of obtaining finance from the banks. Those who are poor, even if they have good business ideas, have little existing wealth to offer as collateral. Interest-based lending practices therefore encourage wealth to circulate among the rich of a community.

Furthermore, if lenders know that they can reap their rewards by seizing collateral then it may in fact become their policy to lend on the basis that collateral exists, not on the basis that the underlying project is beneficial or potentially profitable. In contrast, Islamic principles of finance ensure that if an investment is to be made it is implemented on the basis of profit-sharing. This helps to ensure that lenders look to the quality of the project being financed, and not to the existence of collateral. This is a strong incentive to align the interest of lenders and entrepreneurs in the same direction.

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Developed World

It may seem that debt and other problems associated with usury only affects the third world, however this is not the case. It may come as a surprise to learn that 1 in 4 people in the U.K (nearly 13 million people) live in poverty.
(Ref: http://www.oxfamgb.org/ukpp/poverty/thefacts.htm)

It is easy to see the causes and the effects of poverty in the third world, however when poverty is on our own doorstep it is difficult to see its causes and the impact it has on those who live in poverty. It can be easy to blame poverty on laziness, but this is not always the case. It may seem that the welfare structure in this country is enough to ensure that people do not live in poverty; however those on benefit receive less than £100.00 per week for everything except housing costs and council tax for a single unemployed person.
(Ref:http://www.oxfamgb.org/ukpp/poverty/thefacts.htm)

Thus getting out of poverty in the U.K is not as easy as it may seem, even with the introduction of the national minimum wage by the Labour government, this may not be enough to reduce the numbers of those living in poverty in this country.

Living in poverty has many social implications especially for children. It can easily lead to a life of crime as they will see this as chance to earn quick cash so that they can live the kind of lifestyle they see in movies and television, which implies that being rich is all that matters in today's society.

Not only are children likely to fall into a life of crime, they also have less chance of being employed or achieving high levels of education. The introduction of £30 a week for attending college as an incentive to continue in higher education, particularly for children from low income backgrounds may be enough to improve their lives. However it's a different case when it comes to university education as the cost involved can deter potential students especially with the new top-up fees to be introduced in 2006.

It is currently estimated that students will leave university with a debt of around £12,000 and this figure would increase over the years as student loans are repayable based on inflation, while any bank loans are to be repaid with interest.

The social implications of usury are great as it causes many injustices and it seems to widen the gap between the rich and poor everywhere. Large corporations are unlikely to admit to this as they benefit more than anyone else from usury. However they may provide alternative products and services that do not involve usury as there is a niche market for them and great financial benefits to be had from offering them. This does not mean that these companies are interested in reducing social injustices; they are more concerned with increasing their profit margins and keeping the shareholders happy.

It may appear that the immediate problem associated with usury is debt. However, even debt has many associated implications not only for the individuals but also for society as a whole, whether this happens to be a third world country or a developed nation like Britain.

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