Interest Rates—The Runaway Roller Coaster
HIGHER, higher, higher the roller coaster climbs. Then, with a swoosh, it plummets—only to rise again. Is it now out of control? Again a plunge, again a climb. Seemingly, each new rise is more severe than the previous one. Are you on this ride? If you are on the interest-rate roller coaster, you are.
The ride began thousands of years ago. Deuteronomy 23:19, 20 refers to an interest-rate ride 34 centuries ago. Nine centuries later, the Greeks rode at 10 percent to 12 percent. The Romans’ roller coaster of the first century roared along with rates of from 4 percent to 50 percent, depending on where in society men lived. And, yes, the ride continues today.
Interest and Debt—Individual
Throughout the world, people are on the interest-rate ride. For example, the average rate for a new automobile loan in commercial banks of the United States in 1973 was 10.21 percent. By 1982, rates averaged 16.83 percent, only to roll down to the 12.96-percent level in 1985.
Buying a new home in the United States was just as unsettling. The average rate for a conventional home mortgage on a new home went from 7.66 percent in 1971 to 16.71 percent in 1981. By December 1984, our roller-coaster ride on home mortgage rates had fallen to 13.20 percent. But how does this rapid ride affect the borrower? For example, repaying a $50,000 home mortgage at 8 percent interest would cost $132,080 over 30 years. However, this same $50,000 at 15 percent would cost a staggering $227,602. Our ride is very costly, isn’t it?
Has the uncertainty of our ride caused borrowing to slow down? Apparently not. The Federal Reserve Bulletin reports that, in the United States, installment loan debt owed by individuals in 1970 amounted to $105.5 billion. By 1980, this had tripled to $313.5 billion. And according to The Wall Street Journal, installment debt had increased to some $418 billion by May 1984. With debt growing so fast, has our interest-rate ride been safe?
An alarming trend has developed. In 1973, bankruptcies filed in the United States totaled in excess of 173,000. By 1982, bankruptcies had escalated to 527,811. It is interesting to note that during this period of increased bankruptcies, there was a significant increase in interest rates.
Interest and Debt—Governments
The Israelites were commanded not to charge their fellow Israelite interest if he was in need of help. (Exodus 22:25) The developing, or Third World, countries have certainly needed help to strengthen their economies. Wealthier countries throughout the world have extended aid by making loans available.
But has all this money been used to meet needs? Time magazine of July 2, 1984, quotes Argentine president, Raúl Alfonsín, as he discussed the billions of dollars lent to his country. He stated: “The foreign debt’s most irritating feature for the Argentines is that the money was not converted into the expansion of the economy and the creation of capital. Quite the contrary.”
It was further reported that the countries of Brazil and Paraguay cooperated in building the world’s largest dam, Itaipu.a The dam was to produce electricity for both of these developing countries. Nine years have gone into the construction; and after $18 billion has been spent on Itaipu, only Paraguay has received any electricity. Brazil has received none.
Brazil’s minister of industry and commerce, Mr. João Camilo Penna, recently stated: “We have $50 billion worth of incomplete projects with zero degree of usefulness.”
Latin America’s largest borrowers by mid-1984 were Brazil with $93.1 billion and Mexico with $89.8 billion. In addition, Argentina, with runaway inflation of 568 percent, was struggling to make its loan payments. Argentina’s 29 million people were faced with its government’s international debt of $45 billion. The interest-rate roller coaster was expected to cost the Argentines close to $5.5 billion in 1984.
The July 2, 1984, Time magazine makes this observation: “Latin leaders point out that largely because of interest payments, their financial resources are being drained away to countries like the U.S. at the rate of about $30 billion a year. This has become a kind of reverse foreign aid with the poor giving to the rich.”
The roller coaster also affects the wealthier countries of the world. According to the Statistical Abstract of the United States, 1984, the amount of money borrowed by the United States government continues to increase. Money borrowed, or public debt, increased from $43 billion in 1940 to a staggering $1.1 trillion dollars in 1982. Just the interest on this debt increased from $1 billion in 1940 to $117 billion in 1982.
Interest and Debt—The Bible’s View
The nation of Israel of ancient times remained financially stable, provided they obeyed God’s laws. Where these laws were disobeyed, the Israelites truly suffered. The 5th chapter of Nehemiah refers to interest being charged. However, because of the situation, in this case it was completely improper. Homes, vineyards, and even children were being used as interest on money borrowed just to maintain sustenance during food shortages.
Does this mean that a person should not lend or borrow money? No! Psalm 37:21 tells us, “The wicked one is borrowing and does not pay back.” This does not condemn the lending of money but places the requirement on the borrower to repay his debt. An Israelite could even sell himself into service as payment for a debt. (Leviticus 25:39, 40) In one of his illustrations, Jesus himself implied that drawing interest on money deposited with the bankers would be proper.—Matthew 25:26, 27.
God’s laws written to the nation of Israel did not always condemn the charging of interest. Often foreign merchants were in Israel. The merchant’s aim was personal profit. He could certainly be expected to pay interest. (Deuteronomy 23:20) However, interest was not to be charged to an Israelite brother where there was a need. Economic reverses could have caused temporary needs for clothing or food. Leviticus 25:37 states, “You must not give him your money on interest, and you must not give your food out on usury.”
Today’s roller-coaster ride is causing many hardships. As these hardships grow in intensity, are the moneylenders applying Bible principles regarding interest? Have interest rates affected you? Will the world’s financial markets collapse because of an out-of-control roller coaster interest-rate ride? The Bible’s reminder is, “Whatever a man is sowing, this he will also reap.”—Galatians 6:7.
[Footnotes]
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Home-Mortgage-Rate History
1958-83
Percent
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
1960’s
1970’s
1980’s
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Home-Mortgage Cost $50,000 for 30 Years
$ In thousands
250
200
150
100
50
0
Interest
Interest
Loan
Loan
8 percent
15 percent