In major civilisations, bans on usury have been one of the most universal of principles.
Aristotle argued against making money from money through interest because he viewed it as a barren commodity meant for exchange – a dead thing that does not reproduce on its own.
The Roman empire initially banned it, as did early Christian societies. Jewish societies banned it with other Jews, although they allowed it with non-Jews. Islam still proscribes it. While Buddhism and Confucianism have not had complete bans, they strongly discourage its harmful aspects, especially the inevitable impoverishment of borrowers and the consequent divisions of wealth.
So what does it mean when the entire Western world, and Japan, are mired in system-wide usury? Over 95 per cent of the money in these systems is credit: debt with an interest rate on it.
The problem with this is simple arithmetic. Interest payments compound, increasing geometrically. Economic activity increases only linearly. Over time, as the economic historian Michael Hudson has documented extensively, debt-based financial systems break – something that has been happening for thousands of years.
Einstein described compound interest as the “eighth wonder of the world”. He should have said “one of the first banes of the world”.
The financial system, driven by private banks that were unleashed by the so-called ‘financial deregulation’ of the 1980s – a contradiction in terms because finance is regulations – has so far not completely collapsed because of the usury. It is more a case of being on life support.
The debt is out of control and unpayable. Total US total credit market debt, private and public, is $US113-114 trillion. The monetary base is only $US6 trillion, which is all the money available to pay the debt. The sums do not add up.
Europe is in a similarly impossible situation. The government debt of Britain and France are so bad there are suggestions they will need bailouts from the International Monetary Fund – which, if past experience is any guide, will only make matters worse.
In the UK, according to journalist John Lanchester, only 3 per cent of lending is to firms or individuals engaged in the production of goods and services. The City of London is the world’s biggest money centre.
In Australia, credit – money with an interest rate – has more than tripled since the 1980s. The Reserve Bank puts it at over 150 per cent of GDP. Physical cash is only a tiny proportion of the total.
Australia’s version of the usury trap is its absurd housing bubble, which has completely divided the country along generational lines and led to household debt levels of about 110 per cent of GDP.
Government debt is more modest, largely because of debt reduction under John Howard and Peter Costello which briefly removed Australian federal government debt completely.
Australia’s property boom is routinely blamed on factors like immigration levels or land availability, but the changes in these areas are nowhere near big enough to account for the size of the price inflation.
Rather, it is banks’ lending aggressively, in effect catalysing a bidding war in housing to make more profits. The banks then turn around and say it is safe because the property prices they helped inflate are high enough to appear to constitute sound asset backing. Their ‘stress tests’ are simply a measure of the very excesses they created – an exercise in circularity.
Yet, in all the discussion of the social harm of high property prices, there is no discussion of what the banks have done. The whole society is so mired in usury it is barely noticed.
There is another level that deepens the usury matrix. The financial markets have developed techniques of what might be called ‘meta-usury’: ways to create debt to lay bets on financial instruments like currencies, bonds or shares. Traders in these markets – called ‘derivatives’ because the trading is derived from conventional assets such as currencies or shares – use a technique called leverage (another word for debt) to increase their returns.
When a hedge fund manager or foreign exchange trader places a bet on a financial asset, they might put down $10,000 but they can then leverage it up to $1 million by borrowing the money from a broker. That way they are able to amplify the profits (or losses if they lose) with a relatively small outlay.
Australia’s version of the usury trap is its absurd housing bubble, which has completely divided the country along generational lines…
Unsurprisingly, such gambling over the last three decades has repeatedly caused crises, the first major one being the collapse of Long-Term Capital Management in 1998, which almost brought down the Western banking system. The 2007-2008 global financial crisis was an even bigger derivatives-created crisis.
In a system in which most of the money is credit (debt), in order to pay the interest it becomes necessary to create more debt, which in turn increases the debt and the interest costs. The result is a downward spiral.
In the 2010s the consequence was briefly avoided while interest rates were near zero. But as interest rates have risen in recent years the problem has had to be confronted. As financial analyst Michael Howell notes, three quarters of transactions in the financial markets now involve debt refinancing rather than businesses going to the markets to get capital. He said: “We are in a world dominated by debt and debt refinancing.”
To counteract the harm, central banks have had to invent money – called ‘liquidity’ – to stop the debt markets, especially bond markets, from imploding.
To give some idea of how big that has become, in 2008 the bail out of the banks, the Troubled Asset Relief Program (TARP), was about $US700 billion. But the US Federal Reserve created $US29 trillion of liquidity to keep the global financial system afloat.
As Howell points out, looking at the ratio of government debt to GDP only furnishes part of the picture. Just as important is the ratio of central bank liquidity to GDP.
What can be done? One option is defaults and debt forgiveness, a response that has been used for thousands of years to deal with the fact that real economic activity cannot keep pace with compound interest. But that is not a realistic choice for private banks, which would quickly become insolvent.
It is, though, a possibility for state-owned Chinese banks which have funded the biggest property overbuild in history, resulting in mass non-performing loans. Meanwhile, the other great military superpower, Russia, whose banks are also state owned, has no usury problem. Private and government debt are comparatively low.
A more malign possibility, but perhaps the most likely outcome, is hyperinflation, which reduces the real value of the debt but is socially catastrophic.
A third option in the past has been to start wars to steal the resources of other countries that can then be used as collateral for another debt cycle.
This seems to be what Europe and the United Kingdom are positioning for. They are both banging the war drums against Russia, in what is an extremely puzzling move given their lack of military capability.
But, for centuries, war has routinely been used as a reason for debt default; it may be considered the only escape route.
A more constructive strategy is what is termed a debt-for-equity swap, whereby a government arranges for its debt (bonds) to be converted into shares or a share of an asset (equity). This approach was used with patchy effect in the Latin American debt crisis of the 1980s. It seems most possible in the United States, which has the largest stock market.
In this approach, the government issues a bond holder with a coupon to purchase shares in a listed company. The bond holder buys the shares, and then the company takes the coupon to the government and gets reimbursed. The argument is that the amount of money in the system stays the same but the interest payments are removed.
In the longer term, what seems inevitable is a rethinking of money itself. Many societies have used money that has no interest rate. Many states have not relied on raising money by issuing debt and having tax payers pay the interest. At the very least, the proportion of debt-based money can be reduced and limited.
The emergence of cryptocurrencies is perhaps a first step in the move away from debt. They provide no income so cannot be used to pay interest costs. The obsession with gold is the same. Gold provides no income.
It is hard to escape the conclusion that the financial system resembles what the poet W. B. Yeats described in his poem The Second Coming:
…the centre cannot hold;
Mere anarchy is loosed upon the world…
For thousands of years a descent into anarchy has been the price paid for usury. But there are other possibilities.
Published 9 September 2025.
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Photo by Igal Ness on Unsplash.
