What is the Necessity of Charging Interest Under a Government Run Banking System?

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Executive Summary

Private banking interests don’t want anyone to know that charging interest under a government-run banking system is optional.

Introduction

If the government issues its own money, it becomes “the bank.” (and any government has the ability to recapture its money creation function from private banking interests) The costs of administering a government bank are meager. A government could cover those costs of operation as a service to the citizens and not charge interest. Or it could charge interest and collect less in taxes. The real need for taxes is not to pay for items the government needs (recall, the government can create the money it needs) and reduce the system’s purchasing power. Interest can reduce purchasing power, or taxes can lower purchasing power.

All of the options are on the table when the bank (in this case the government) is free to look out for the public interest rather than profit-maximizing. For example, there would be no payday lending stores or 400 to 800% interest under a government-run banking system.

The Problem With Interest

Interest is a problem because of its compounding nature and the fact that it is being charged for something that is free for any government that can issue its own money to create. This interest makes those that receive loans have to go out and strip mine their opportunities to pay back that interest. The very creation of charging interest often quickly gets out of hand.

The private banking interests lobby for increasingly compensating interest levels, changes to bankruptcy laws. Interest creates an incentive to use banking as a profit maximizing area rather than as a public service. This was the argument against usury by the (early) Catholic Church and other religions.

The Unending Problem with Private Banking

Private banking greatly increases the costs and inefficiency of any banking system, and the banking system is constantly seeking to extract the maximum amount of money out of a borrower.