Vatican Paper Supports Islamic Finance - How should We Regard This Position?

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KathleenGee said:
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Point is that our current economic system is one based on credit.
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This is correct. In the congressional hearings to investigate the causes of the Great Depression, members of the committee were astounded when one witness from the Federal Reserve testified that, “money doesn’t exist until it is borrowed.” To illustrate how this is true, consider that the money supply represents the the store of value of the goods and services produced by the nation, and you deposit $100 in a bank, and the bank credits your account with $100. Say further that it is the money supply in this example. Under our fractional reserve system, the bank can loan out a major portion of it, but must hold back a fraction, say 25%. I want to borrow $75, so the bank loans me your $75 and credits my account with $75. Now the total money supply is $175. Where did the other $75 come from? It represents the goods and services I will produce in the future and repay the bank; IOW, money is moved from the future to the present.

This fractional system was invented/discovered sometime in Europe around the time that capitalism was emerging. People would deposit their gold with gold merchants and receive redeemable CDs. The merchants noticed that they didn’t have to keep all the gold on hand all the time and loaned some of it out and charged interest.

The point is that this fractional reserve fuels our economy and enables us to prosper. Of course it is not without problems, but what human endeavor isn’t?

The question I have about Sharia finance is, how does money get created under it? Based on what I’ve read here, I conclude that it appears it must already exist before it can be borrowed. Anyone have an answer?

The other concern I have is that every attempt, it would seem, to work with Islam and find the “common ground” has resulted in Christianity’s loss and Islam’s gain. I firmly believe it is the result of the nature of Islam and the naivete of Christianity and that the existence of the “common ground” is as mythical as the Holy Grail. To pretend otherwise is playing with dynamite.
 
sedonaman said:
This is correct.
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You provided an excellent explaination. I would also point out that the cash money floating around is nothing but a bunch of fancy IOUs. The amount of bullion held by the government of the United States is not nearly enough to back the currency in circulation. Further, the government maintains a fixed value for the bullion that is FAR below market value in order to manipulate and artificially inflate the value of our currency. The government currently values the gold, for example, in it’s reserves at a fixed rate of $42 per ounce while the market, i.e. the real world, values gold at $1,256.80 per ounce. In otherwords, the currency we use on a daily basis is actually quite worthless while it’s fictious value is whatever the people who produce it (the government) and invest in it say it is. Our financial system is a fantasy world in it’s own right.
 
Islamic finance is not what it cracks up to be. It is more expensive to finance your loan through such mechanism than our good ol’ infidel interest rates. Yes, there’s no interest, but the bank makes their money through sharing of profit. Let’s say. In an Islamic mortgagetransaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the bank’s profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction.
 
MugenOne said:
Islamic finance is not what it cracks up to be. It is more expensive to finance your loan through such mechanism than our good ol’ infidel interest rates…
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As opposed to owing a financial institution money that doesn’t exist at rates that can be increased as high and often as that institution sees fit and end up paying the financial institution more than the object is worth?
 
First of all, it is good that the discussion is more on the mechanism behind sharia finance and its effects on Americans.

Following KathleenGee’s post and earlier comment by Genesis315, I went back to view the history on my computer to check on collaborating news to the link claiming that “the Vatican paper supports Islamic financing.” There were two other sites saying the same thing, but I was sure I also saw it on the Vatican site news section, consistent with or confirming the piece. As it was not readily retrievable when I opened the thread, I used the Brussels.com link. Now, in going back to investigate, I could not find it on a direct Vatican source, so I must have been mistaken (in seeing it on the Vatican site).

In re-investigating the matter, I went to the Vatican site, and Zenit and Catholic News, which would be reliable sources, and I still did not find collaboration. L’Osservatore Romano (the Vatican newspaper) sells CDs containing all editions from 1861 to 2008, which I did not order. But I checked news about Giovanni Maria Vian, editor of L’Osservatore Romano since 2007 – made no hits there.

Accepting that my search method is less than perfect, I directly e-mailed the two Internet based papers behind the article provided on this thread, Brussels Journal and Bloomberg.com for verification of their articles. So I am waiting for their replies.

It is possible, even probable, that I stumbled on a disinformation piece on the Internet about the Vatican supporting Islamic financing. Come to think of it, if true, it should have been big news in the Catholic world, even if it’s 15 months old. There should be no need for any sophisticated data mining effort to bring it up.

If this proves to be disinformation from Islamic organizations (they would be the ones to benefit), or misinformation or just personal opinion from the fairly new editor of L’Osservatore Romano (which is possible, as some statements from him are already controversial), I am truly sorry for the gross error in giving any type of credence to the news about the Vatican and Islamic finance.

Indeed, I was surprised in reading that the Vatican seems to be endorsing Islamic finance, hence my question on how we are to regard it. This goes to show that even reliable and conservative Internet sites may contain unreliable news! Lesson learned: consider the source, and always go direct to the source for accuracy.

Fellow CAF Catholic members, I sincerely apologize if I made an error …

Not to be set aside and just as important: the direction our government is on with all these bailouts of “too big to fail” entities is troublesome. The bailout of AIG, and then AIG news that it put out sharia-compliant products since the government takeover, are particularly troublesome!

If you ladies and gentlemen do not mind discussing sharia financing in the U.S., let us please continue with that. My take is that it is not good news, because it advances Islam in our country. And as Kathleen and sedoman basically say in their posts, sharia finance translates to a takeaway from our cherished Christian values and freedom, that sharia finance is dangerous. I concur.
 
InSearchofGrace said:
… Lesson learned: consider the source, and always go direct to the source for accuracy.

Fellow CAF Catholic members, I sincerely apologize if I made an error …
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When you consider all that has been going on [e.g., the USCCB funding ACORN], one could be forgiven if one became subconsciously cynical and believed something bad without checking it out first.
 
EmperorNapoleon said:
As opposed to owing a financial institution money that doesn’t exist at rates that can be increased as high and often as that institution sees fit and end up paying the financial institution more than the object is worth?
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Respectfully, that has always been a fools game and IMO plain old fashioned usury. Which is why I have never and will never have anything but a fixed rate mortgage. Yes, I still pay an apalling lifetime amount of interest, but end up recouping a portion of it and the rest is FAR less than I’d have paid out in rent during the time I would otherwise have to spend saving up to pay cash to buy a house outright.

Mortgages can be extremely helpful or they can be rapaciously usurious. As usual, the buyer must beware.
 
The indispensable condition of the survival of our Judeo-Christian tradition, as well as of our personal spiritual survival, is that we say NO to the increasing demands of Islam and that we keep saying NO.
 
sedonaman said:
The indispensable condition of the survival of our Judeo-Christian tradition, as well as of our personal spiritual survival, is that we say NO to the increasing demands of Islam and that we keep saying NO.
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That does not mean we also have to say yes to the world and to secular banking practices that work to increase the gap between those who have money and those who do not.
 
Advocatus_Fidei said:
That does not mean we also have to say yes to the world and to secular banking practices that work to increase the gap between those who have money and those who do not.
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Pray tell how this conspiracy theory goes.

It appears to me that the more money people have, the more they will have to deposit into banks; the more they deposit into banks, the more money the banks can loan out; the more they can loan out, the more money the banks make. If a bank were to conspire to “increase the gap between those who have money and those who do not,” it would be committing occupational suicide because its competition would devour it. There is only one benefit to banks for limiting the amount of money people have: they don’t have to spend so much on advertising to attract new customers, and the last time I looked, they are still advertising on TV.
 
sedonaman said:
This is correct. In the congressional hearings to investigate the causes of the Great Depression, members of the committee were astounded when one witness from the Federal Reserve testified that, “money doesn’t exist until it is borrowed.” To illustrate how this is true, consider that the money supply represents the the store of value of the goods and services produced by the nation, and you deposit $100 in a bank, and the bank credits your account with $100. Say further that it is the money supply in this example. Under our fractional reserve system, the bank can loan out a major portion of it, but must hold back a fraction, say 25%. I want to borrow $75, so the bank loans me your $75 and credits my account with $75. Now the total money supply is $175. Where did the other $75 come from? It represents the goods and services I will produce in the future and repay the bank; IOW, money is moved from the future to the present.
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It’s because it’s fiat currency; it has no intrinsic value unless we give it one. The gold standard is really no better because we’re backing money with a commodity that has not a lot of intrinsic value. For jewellery maybe, but otherwise it’s has a worth for the same reason fiat money has a worth: because you can use it to buy something else. Think of it as the universal battering item (really, we haven’t left the battering system. Now we just barter money for swag).

It’s really an open secret. I would bet that the large majority of the money in the world economy doesn’t actually exist. That’s why governments practically panicked and did everything to prevent runs on the bank a couple years ago, because the bank doesn’t actually have your money. At this point, it would take a giant team of economics PhDs with a supercomputer (or several) and access to all the world’s financial details to figure out what’s what. Hard paper money doesn’t make a difference either, it’s might be backed up by a t-bill (which also doesn’t have any intrinsic value except that an investor gives to it).
 
I’m not sure what you mean by “intrinsic value” when it comes to money. The intrinsic value of any material thing at any given time is what someone is willing to pay for it. Values are never fixed, since market conditions change. Even gold is worthless if nobody wants to buy it or trade for something else.

Another way of looking at what backs the money supply is this: the value of money is backed the worth of the goods and services produced by the nation at any given time. If the money supply exactly matched the GNP, there would be no inflation, but also no loans or growth.

As to the ban on usury, the Church doesn’t consider all interest to be usury. I’m not guilty of usury by collecting less than 1% interest on my bank deposits. I don’t know of any bank loans now with interest rates that would be considered usurious.

Financial derivatives are more of a concern than the charging of interest. But neither Moses, nor Thomas Aquinas nor moral theologians thought to comment on financial derivatives.
 
JimG said:
I’m not sure what you mean by “intrinsic value” when it comes to money. The intrinsic value of any material thing at any given time is what someone is willing to pay for it. Values are never fixed, since market conditions change. Even gold is worthless if nobody wants to buy it or trade for something else.

Another way of looking at what backs the money supply is this: the value of money is backed the worth of the goods and services produced by the nation at any given time. If the money supply exactly matched the GNP, there would be no inflation, but also no loans or growth.

As to the ban on usury, the Church doesn’t consider all interest to be usury. I’m not guilty of usury by collecting less than 1% interest on my bank deposits. I don’t know of any bank loans now with interest rates that would be considered usurious.
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👍
… But neither Moses, nor Thomas Aquinas nor moral theologians thought to comment on financial derivatives.
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😛
 
JimG said:
I’m not sure what you mean by “intrinsic value” when it comes to money. The intrinsic value of any material thing at any given time is what someone is willing to pay for it. Values are never fixed, since market conditions change. Even gold is worthless if nobody wants to buy it or trade for something else.
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Like it has a value outside economics. Water has a value because you can drink it, wheat has a value because you can make bread with it and eat it, a computer has value because I can type reports on it. It’s a good. Money can’t do anything else besides be used for trade.
 
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