No-Interest Contracts

In order for a contract to be legally binding, both parties most contribute something of tangible economic value.

Suppose I write a contract to sell you my car for $0, and you offer me nothing in return. That isn't a legally enforceable contract. You can't sue me and demand I give you my car. This is a "no-interest contract".

With fiat debt-based money, *ALL* loan contracts with a bank are no-interest contracts.

What happens when you take out a mortgage or loan? The bank literally prints new money and loans it to you. The bank isn't performing any real work. The bank pretends to "screen your creditworthiness". Once you "qualify", the bank does no real work when it writes you a check.

What about the individual who takes out the loan? He doesn't have the banks' magic money-printing power. In order to repay his loan, he must work. In order to repay a loan, an individual must produce tangible goods and services. Even worse, due to the Compound Interest Paradox, an individual can repay his loan only because other individuals are making bigger loans.

Contrast this with a gold standard. In that case, the bank *IS* providing you with tangible goods. It is lending you gold, or paper promises that are convertible to gold. Banking regulations encouraged fraud by banks. In a *TRULY* free market, banks that make gold-based loans are providing tangible goods and services.

According to common law, all bank loan contracts are invalid no-interest contracts. The bank doesn't provide tangible goods or services when it makes the loan. Unfortunately, a corrupt legal system recognizes these no-interest contracts as valid. If you default on a bank loan, monopolistic State police will violently seize your property.

During the Great Depression, some bankers famously wrote about the importance of enforcing illegitimate debt contracts. Seizing foreclosed property is a fundamental aspect of a corrupt monetary system. The people who lost their homes due to the Subprime Mortgage Problem did not lose their homes legitimately. Such periodic crises are built into the rules of the US monetary system. It is a statistical necessity that a certain number of defaults occur in each economic bust. Unfortunately, it isn't feasible to make such an argument when State police are violently kicking you out of your home.

That doesn't mean you should borrow money from a bank and then default. The correct way to boycott a corrupt monetary system is agorism. Use sound money, refuse to pay taxes, and ignore stupid regulations.

Having a mortgage is actually beneficial, because real interest rates are negative. You can invest the proceeds elsewhere for a profit. However, you don't know when the next economic bust will occur. Large banks assume no risk due to economic cycles, but as an individual you can lose everything due to margin calls during an economic bust.

Sensible use of leverage, via the Kelly Criterion, allows individuals to profit from a corrupt monetary system somewhat. An individual can't profit to the same extent as a bank, but you can still use leverage to earn a positive inflation-adjusted return.