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Thread: why do banks charge interest

  1. #1 why do banks charge interest 
    Forum Freshman Janina1's Avatar
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    Hello everyone new question to ponder about. We all know that banks are out new churches and greatest disaster. Today I am questioning about banks. Here are some questions:
    -why do banks charge interest, and what are the effects?
    -give examples of how the system of money today influences the life ofrich and poor?

    - do you think itis possible to create a world without interest?


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  3. #2  
    Forum Radioactive Isotope cosmictraveler's Avatar
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    In the USA banks charge interest primarily to make a profit but also to pay their employees and maintain the buildings they are working in. Bank regularly raise and lower interest rates due to the amount of interest they must pay to the Federal Government to borrow money from them. That's where banks get most of their money from.

    There are countries in the Mid East that do not charge any interest but you'll have to look them up because I don't know them all.


    Last edited by cosmictraveler; October 1st, 2014 at 05:21 PM.
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  4. #3  
    Samurai of Logic Falconer360's Avatar
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    Quote Originally Posted by Janina1 View Post
    We all know that banks are out new churches and greatest disaster.
    Very negative view of both churches and banks. What is your intent in this statement? That we worship banks? Or that churches are a scam and so are banks?

    As for your questions, I think Cosmic answered the first one quite well. I shall give my two cents on the others.

    How the system of money influences the lives of the rich and the poor? - Banks create an incentive for people to store larger sums of money by offering to pay the customer interest. So obviously rich people stand to gain more by storing more money. Some can even life off of the interest alone.

    Do you think it is possible to create a world without interest? - Sure but why would I want that?
    "For every moment of triumph, for every instance of beauty, many souls must be trampled." Hunter S Thompson

    "It is easy to kill someone with a slash of a sword. It is hard to be impossible for others to cut down"
    - Yagyu Munenori

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  5. #4  
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    Have you ever borrowed money and paid interest? Most people have. Why? Because they need something now, and are willing to pay more for it later. That's all you really need to understand about it.

    Often the money is worth more now because you can use what you buy to make money in the future (like buying a car so you can get to get to work and earn money).
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  6. #5  
    Forum Professor river_rat's Avatar
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    AS Harold said, money now is worth more than money later - so if you want me to swap my now money for later money (i.e. lend it to you) then you have to compensate me for that. In normal times, the longer you want me to wait to get my money back, the more compensation I require. Also, there is a chance you may not pay me back and I need to be compensated for that as well else the deal is not fair. This fact is true for people, companies and countries - the time value of money, the period over which they are borrowing and their own credit worthiness are all reflected in the interest they are charged.
    As is often the case with technical subjects we are presented with an unfortunate choice: an explanation that is accurate but incomprehensible, or comprehensible but wrong.
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  7. #6  
    exchemist
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    Quote Originally Posted by Janina1 View Post
    Hello everyone new question to ponder about. We all know that banks are out new churches and greatest disaster. Today I am questioning about banks. Here are some questions:
    -why do banks charge interest, and what are the effects?
    -give examples of how the system of money today influences the life ofrich and poor?

    - do you think itis possible to create a world without interest?
    No.

    If someone wants to borrow someone else's money, with the risk that some or all of it may be lost, as is the case when you start a business for example, how will they persuade anyone to make them a loan?
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  8. #7  
    Forum Ph.D.
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    I think the interest rate, at any particular time, is the price one pays for money.
    Money, like all valuable commodities, has a price.
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  9. #8  
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    I understand that the first recorded banking actions were done by the Knights Templar (KT) on route from Europe to the Middle East. The KT lead thousands of peasants on crusades and these armies had to be sustained on route to the Middle East and on the return journey. In order not to risk all their finances, money was left at secure points down the route to the Middle East and these secure houses were , I believe, attached to the Catholoic Church, the start of the Vatican Bank The KT and their armies were on the march to the Middle East and back for many years and thereby lies a problem as there became two concerns a) Payment for the service to hold the money for these long periods and b) possible inflation.
    Today, we place money in a bank and we expect to withdraw the same amount , however, whilst the money is in the bank it is losing value due to inflation, accordingly banks need to pay an interest rate to the depositor to offset the inflation loss typically a small percentage as determined by the central bank of last resort.
    What has made the system so unjust is that the money deposited with the banks for safe keeping is then transferred to businesses with risk and the depositor does not know that. The KT would not be impressed with that arrangement and heads would roll
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