The
problem with a
system that uses interest in this manner is that it creates
poverty.
If money attracts more money, then that money must come from somewhere and debts increase as a consequence, so those who have money will lend it to those who don't, sure in the knowledge that they will be better off. This effectively means that rich people get richer, and poor people get much poorer quicker.
To those who would say that the entire economy rests on the principle of interest, I would point out that it is perfectly possible to run healthy banking systems without interest. Simply look to Arabic countries for numerous examples of this. Also note that as the basic rate of interest in the country increases, the economy slows down, whereas when it drops the economy warms up. This is because the economic system does not reach a homeostatic norm as it would do in a normal economy. There is always an imbalance caused by the rapid distribution of cash up the scale to rich people instead of evenly throughout the system.
The arbitrary control carried out by the central bank or legislative body reflects a poor understanding of the economic system's impact on an evolving country. The economy is a representation of the life energy of the country, it should be allowed to flow freely to areas where it is most needed and irrigate poor communities and businesses, instead of being sent whirling down a plug hole to the richest people, who need it least.
When I lend my neighbour 100 pounds, I want 100 back. I don't want 200 back or any other number. This is right, it is intuitive. If I am really poor, and need money to feed my children while I look for a job, and I borrow say 30 pounds, why, when I have to pay up should I pay 40 or more pounds? Or even a penny above what I lent? Am I the only one in the world who sees this as wrong? It means the loaner is richer than he was at the start, and I am worse off, unless I get a lucky break.
There is no justice in this.
Money collects in a big pool with rich people, and debts collect in a big pool with the poor people. To see an example of this in global terms, just look at African countries. They often have to spend upwards of 80% of GDP just to pay back the INTEREST ALONE of loans that were taken out decades ago. This means that there isn't enough money left for food, imports, education, or health or social benefits. This obviously makes the country weaker, and poorer and less likely to be able to pay. Meaning more interest, until finally the whole state is crippled. The jubilee project realised the fundamental injustice of this, and tried to forgive those debts. But they are just a symptom of a problem that affects all of us.
When I go to the bank and ask for a loan, the thing I am most worried about is the interest, and how much I have to pay back. If the project I am borrowing money for is worthy, why should I have to pay more than I borrow? If for example it is personal, then why not pay an upfront fee, with penalties for late payment instead of the torture of interest? That way at least I know there is a cap to how much I have to pay back should things go badly wrong.
What about return on investment, you say? If the project is good, and I pay the money back, the bank could ask for the right to buy a share of the business as it is lending the cash. Not too much, but it would ensure that there is benefit all around. There are many alternatives to interest, many of which don't have the potential pitfalls of an ever deepening hole that you have to climb out of in the current system. I would think again.
Debt is a bad thing, and I personally intend never to borrow any money from the bank at all. Ever. It's just not worth it.