Tuesday, December 09, 2008

Islamic Finance-U.S. Style

The U.S. government today sold 4-week Treasury bills for 0.00%, yeah that's right zero, and afterwards it was actually trading at a negative 0.01%. Why anyone would want to pay to put money in something beyond me, but these are really crazy times of course. Even so, this is likely basically as low as it gets.

This is one explanation for why the interest cost for the U.S. government actually fell during the first two months of fiscal 2009 despite a soaring debt level.

Zero interest rates should mean that financing of the U.S. deficit has now become at least partially sharia-compliant (Islamic Sharia law forbids the taking of interest, in case you didn't know). I don't know if this will really make al-Quaeda and similar groups much less pissed off at the U.S. government, but it is interesting to see how the U.S. government is now introducing a new version of Islamic finance (usually in Islamic finance, interest is de facto charged, only it is formally made to look like rent or profit)


Anonymous Anonymous said...

Or as The Medeci family called it "Plus Valia" similar to "Capital Gains" or "Increase in Valu" instead of interest rate.

One may wonder why the dollar does not drop like a stone? That says a few not verry nice things about the other currencies, does it not?

All currencies fall against gold at any rate.


9:18 PM  
Blogger Flavian said...


People stupid enough to buy US bonds should be brought to a psychiatric clinic!

9:48 PM  
Anonymous Anonymous said...

A 100% reserve system would also give negative interest rate on deposits. Rothbard could have been head of the Treasury.


12:04 AM  
Blogger stefankarlsson said...

Johan, that is not really the same thing as it is a fee for payment services and not negative interest.

8:32 AM  
Blogger Flavian said...

And what is the difference between a rothbardian bank and a vault?

11:14 AM  
Blogger Wille said...

Some would argue that all means of holding wealth has negative real interest rates associated with them, unless they are backed by an increase in actual production/productivity (a company producing and selling more etc):
Fiat currency has inflation, real estate has maintenance costs, gold and other precious metals have cost of storage and safe keeping etc.

One could argue though that gold probably has a lower expense ration/negative interest than fiat currency does, measured in real terms over time.

I'm not sure I buy into this thesis to 100% (mainly because I have not considered all the implications and definitions too deeply), but I think it has it's points to a certain degree.

12:24 PM  
Blogger flute said...

Actually, the Bible also forbids interest:
Deuteronomy 23:19:
"You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest."

1:24 PM  
Anonymous cglace said...


Actually the bible only prohibits charging interest(or any extra payment) to the poor brother of faith. The king james says it this way,

"Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury: Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it (Deuteronomy 23:19-20)."

The hebrew word that translated to usury means bite (not excessive interest) and the passage only applies to charitable loans to the poor which was morally mandatory and differed from commercial loans.

12:53 AM  
Blogger stefankarlsson said...

Flute, yes the Bible forbids interest taking too, and that is why until the 16th century money lending were restricted to Jews. Thanks to protestantism, christianity thereafter started to accept interest.

10:24 AM  
Blogger Brian Macker said...

"Why anyone would want to pay to put money in something beyond me, but these are really crazy times of course."

The people doing this aren't "stupid" , they are probably running funds that have certain legal requirements. They are not allowed to hold cash. It's the law that's stupid.

5:56 PM  
Anonymous Anonymous said...

Taking interest is forbidden in all three Abrahamic faiths. Jews went around this and said to themselves that charging interest to non Jews was ok. Christians did what they did and Muslims do what they do. The fact for Muslims is that the seller must first take possession (ownership) of the item before selling it at a profit. This is not a de facto method of charging interest. The wisdom lies in its inherent method if done properly.

4:25 AM  

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