Scripture address both, and you may find yourself on one side or the other. No matter what side of the equation you are on, or want to be on, you need to understand how this equation works.
If a man borrows anything of his neighbor, and it is injured or dies, the owner not being with it, he shall make full restitution. If the owner was with it, he shall not make restitution; if it was hired, it came for its hiring fee.
Exodus 22:14–15 (ESV)
Today it would be like borrowing a car that get’s damaged or destroyed on your watch. Borrowing then is a calculated risk for which you must be prepared to make restitution.
If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him.
Exodus 22:25 (ESV)
So don’t take advantage of the poor.
In other contexts, it is expected to earn a return on your investments. And lending in those contexts is an investment.
Why then did you not put my money in the bank, and at my coming I might have collected it with interest?
Luke 19:23 (ESV)
This is referring to being faithful in managing what God has given us in all forms of capital.
This may mean lending, which is a calculated risk knowing you could loose your investment. Or it may mean borrowing in a strategic manner.
Today it is impossible to avoid each side of this equation, because our entire society’s monetary system is based on credit. If you hold or trade U.S. Dollars, you participate in this credit based system.
Bank Notes
Look at a dollar bill right now.
At the top is written “FEDERAL RESERVE NOTE” and at the left is written “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE”.
When you hold a U.S. dollar, you are holding in your hand a bank note. You ought to understand what this note is, how it was created, its financial properties, and how or why it does or does not retain its value compared to other forms of capital.
The Dollar use to be a silver certificate, where the bank would certify that you had 1 silver dollar deposited at the bank. This bank note idicated “THIS CERTIFIES THAT THERE IS ON DEPOSIT IN THE TREASURY OF THE UNITED STATES OF AMERICA, ONE DOLLAR IN SILVER PAYABLE TO THE BEARER ON DEMAND.” You could use it as “THIS CERTIFICATE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.”
The dollar was a certificate of deposit. No wonder our grandparents generation was much more inclined to save U.S. dollars.
But now, it is simply a bank note of the Federal Reserve. And since the Federal Reserve can create more dollars whenever they want, they can dilute the purchasing power of your dollars, and basically take that purchasing power right out of your pocket.
Unavoidable Credit
When you deposit U.S. Dollars at the bank, you are lending your money to the bank. They will in turn lend it out to a borrower, at a higher rate of interest than they pay you. That positive spread is called “Positive Arbitrage” which is their profit from using your money.
If you’re a depositor, you’re basically a lender to the banks. And further, you lending to the banks to lend to someone else. And the banks take a majority of the profit. Is it any wonder why that have the tallest high-rise buildings in the city? And a branch in every town?
You could also be on the receiving end of that money flow. The money flows from the depositor to the bank to the borrower.
Because the dollar is loosing value over time, once the money flows back the other direction, it has lost much of it’s value, and given enough time, depositor will be found holding an empty bag.
No matter what side you stand on, you participate in the credit based system.
Play the game
Rather than letting the banks profit on your money, the borrowers spending your money, then paying it back once it’s worth less, why not learn how to create positive arbitrage for yourself?
If you stand on the borrowing side and buy an asset that pays a yield higher than the bank loan, now you’ve created positive financial arbitrage. You’re now doing what the banks do. Borrow at a lower rate, put the money to work at a higher rate, and pocket the difference.
One way to do this is buying cash flowing real estate. You borrow money from the bank (other people’s deposits), you buy a house, rent it out, and pay the mortgage with the rental income.
You’ve done what the banks do. You’ve created positive financial arbitrage.
As an investor, you use other people’s money and put it to work in a way that works. In doing so, you create value for everyone involved. The depositor, the bank, the seller, and the renter (among others). For this you get paid.
Since you won’t ever fully avoid the credit based system, why not learn to take advantage of it instead?
