Archive for December, 2014

Perhaps there is a level of futility to some of these exchanges, however I favour such dialogue if only to expose the falsehoods raised by those who promote Islamic Finance and to allow readers to decide for themselves.

Read the following exchanges between Abdassamad Clarke (a UK Scholar) and Mohammad Amin (a prominent tax practitioner, and member of the MCB);

Are Islamic Banks Islamic Enough?

Clarke’s response is linked in the above but here is the link to his original letter

Suffice to say, Mohammed Amin’s argument that many scholars have endorsed this practice does not hold water for me. If it quacks like a duck and it moves like a duck, I’m not going to believe a vet that tells me it’s not a duck.

Please also read this excellent article from Clarke, with some pertinent highlighted sections shown below;

The Falsity of the Concept of the Islamic State

They mistakenly assume that Muslims can regain some power by taking those elements from the West which they think led to the apparent demise of Islam politically. Thus we have ‘Islamic’ economics, ‘Islamic’ constitutions, ‘Islamic’ science, and ‘Islamic’ banks, etc., etc….. The flaw in this is because there is a total misunderstanding of the nature of Western society and the modern state.

The very essence of the modern state is that it is a body which borrows enormous sums of money from banking institutions. This is needed desperately by the banks because they are in great need of large borrowers who will create grand projects and return the interest they owe their shareholders and depositors. There is tremendous pressure on bankers to put their funds to profitable use. Today those large borrowers are the different nation-states and the great multinational corporations. Then the state taxes its citizens to maintain the interest payments on the loans – the national debt [which must never be repaid].

The most fundamental mistake we make is when we think that the state taxes in order to pay for all its services. Rather the state taxes to keep paying the interest on its debts. Many of the huge state-services: for example, infrastructure, are paid for from loans.

It should be noted that a great number of matters: health services, education and social security were traditionally paid for by Islamic awqaf. The awqaf were genuine ‘sadaqah jariyah‘ – permanent sadaqahs. The awqaf were properties which had been returned to the ownership of Allah by private individuals and were administered by other private individuals for the benefit of whatever purpose they were dedicated. Thus in nineteenth century Turkey, over sixty percent of land was waqf property. Of course, Attaturk nationalised all of it, i.e. stole it for the purposes of the state. The rest of the muslim world has followed his lead

.. I object seriously to the use of the term ‘Islamic State’, just as I object, if possibly even more strenuously, to terms such as ‘Islamic economics’ and ‘Islamic banks’. All of these concepts are based on the idea that we can Islamicise things which are fundamentally alien to Islam, and Allah knows best.

Central banks have been mandated to keep the level of consumer prices rising at modest levels. In the UK, this level is set at 2% per annum; what this means is that it is their duty to destroy the value of the money you hold by a small amount each year.

But have you ever wondered why economists favour the need to have any inflation at all, even at modest levels? What are the theoretical reasons taught to all pupils of this field which enforce the desire to do this as opposed to doing nothing?

Consider this extract from Wikipedia, stating just one of the positive effects of Inflation

Financial market inefficiency with deflation The second effect noted by Tsaing is that when savers have substituted money holding for lending on financial markets, the role of those markets in channeling savings into investment is undermined. With nominal interest rates driven to zero, or near zero, from the competition with a high return money asset, there would be no price mechanism in whatever is left of those markets. With financial markets effectively euthanized, the remaining goods and physical asset prices would move in perverse directions. For example, an increased desire to save could not push interest rates further down (and thereby stimulate investment) but would instead cause additional money hoarding, driving consumer prices further down and making investment in consumer goods production thereby less attractive. Moderate inflation, once its expectation is incorporated into nominal interest rates, would give those interest rates room to go both up and down in response to shifting investment opportunities, or savers’ preferences, and thus allow financial markets to function in a more normal fashion.

Let us decode this

The role of the financial markets is undermined when savers choose to hold funds. We shouldn’t hold our own cash, why would we not trust the ‘Markets’ (the elite, the powerful, the manipulators)? If we hold our cash, prices can’t rise – the prices of goods we don’t need, that we have been told to want, and have been hoodwinked into consuming as if they are a scarce resource, enabling corporate shareholders to profit at our demise.

No price mechanism, perverse movements in physical asset prices. As is arguably happening with property prices in certain regions, particularly London. But the effect of these has not been caused by consumers hoarding their cash, and we are still experience positive inflation rates – it has been the commercial and central banks creating too much money through additional debt, flooding assets with funds which are chasing a higher yield than available from deposits. This is not to mention the decades of under investment by the public and private sector to increase the supply of new homes, and of the government to liberalise planning red tape.

When have price mechanisms ever been wholly reliable? With so much behavioural science at play, larger institutional players able to sway bigger portions of the market with their heavyweight capital, ratings agencies rubber stamping firms with a questionable seal of approval, on top of an Efficient Market theory which took a huge bruising in the wake of the 2008 crises. We all have to question what fair value really means? If reality isn’t as rosy as some make out, then how can a price accurately reflect the fundamentals.

Consumer goods less attractive. God forbid we arrive at a point in time when producers truly act upon what is needed, not what we are told and coerced into buying. True freedom would dictate that we should be free to not consume if we choose, regardless of the loss of ever-increasing profits, the loss of tax generated and the freeing up of labour to put our minds and talent to use doing what we are best suited to, not being part of a workforce until we die in service, or develop chronic mental and physical issues directly related to our lifetime of fruitless effort.

Rates have room to go up or down, thus allowing markets to function in more normal fashion How do we define what is ‘normal’ There is huge subjectivity in use here. I can’t help but think the normal function has more to do with setting the pieces on a game board, dictating the rules of play, and watching it all unfold, bust after boom, after almighty bust. Play on…

Consider the following two articles about some growing disruptive trends, which we should all be at least slightly familiar with in our everyday lives;

We must unleash the sharing economy to help drive living standards

Farewell Corporate Power: How the rise of the blockchain could change everything

Of course, as long as there is money to be made, we will continue to be exploited for the goal of maximizing shareholder returns. However I posted these to enlighten us about the realm of possibility in our modern age, and how, if used for different reasons than those prevalent today, we already have the means to shape a fairer, more just world.


Islamic peer-to-peer cryptocurrency


My appreciation goes to a blog reader for forwarding this link;

Bitcoin for Islamic Finance

I am personally highly dubious of any thought of assessing Bitcoin or any crypto-currency as sharia compliant. However the article raises some fair points, in my humble opinion. One argument would be that this is still a medium created by Man, unlike a real commodity.

Moreover, given the impact of the ‘Sharing Economy’ now taking hold via peer-to-peer websites, we need to ask whether money as we know it is essential to all transactions anyway. More on this in an upcoming post…

Make up your own minds, send me your comments


MoneyWeek-History of Money

Please view this document, pages 5-7 only, as a supplement to the already documented history of Money which has been posted on this blog and elsewhere.

The key points I noted from this account, are as follows;

  • “Debt is the slavery of the free..” Publilius Syrus, Roman Author. Again, this brings into question the entire notion of the ‘Free World’ and our understanding of contemporary freedom. This, together with the enormous volume of man-made law and rules, in countries that are often seen as beacons of liberty, expose our false reality.
  • When covering the early days of Goldsmith banking practices, the report includes mention of how depositors demanded a share of the profits, or what became interest received on assets held by the ‘bank’. I highlight this point as it is an essential component in the risk-reward mechanism within capitalism; the risk of losing ones holding is compensated by these interest receipts, thereby an acknowledgment that your deposit is being lent and it is not fully guaranteed to be returned if requested
  • The fallacy of reserve ratios: the fraction which must be held in reserve, or not lent out, is still far larger than anything tangible that can back it up. Therefore it can never control the act of lending out multiple amounts, which continue to expand the money supply, and thus asset prices and inflationary pressure.
  • This piece reiterates the ‘false’ gold standard that existed pre-1971, where only a percentage of the money supply in certain regions was backed by Gold. During this era, nations were effectively dabbling in a mixture of fiat and commodity money, which didn’t stop the USA from printing freely when the need arose in the 1960’s.
  • ‘The greatest credit bubble in history’..‘The modern monetary system relies on ever-expanding debt to function..’ Put simply, how can this be a preferred system to live by, when we are all living on borrowed time and our reality is being carefully managed and MANIPULATED constantly to keep the bubble afloat. How can trust ever count for anything.
  • As the piece continues it states..‘as debt grows, so the cost of servicing it rises and you have this never-ending bubble of expansion that requires people to work harder and harder and business to expand and expand..’ put this in perspective when Governments talk of deficit and debt reduction, austerity measures, GDP growth, ageing populations, quality of life. This is an inter-generational struggle which will continue until it collapses


Ever wondered what it would be like if the issue of commercial banks creating money were to be discussed in the corridors of the highest power in the land? Well here you are…not a great turnout it seems.

If you want to appease the masses, listen to them. But not too much.

Positive Money have been campaigning to raise awareness of this issue with MPs across the country, here is a response I received from a local MP, with the Positive Money email question template included at the bottom. Visit the positive money site for full results of all the responses gathered to see how much our ‘leaders’ are aware of this long running debate.

MP Letter

Far be it for this blog to refrain from shedding light on the opposing camps’ views on all things monetary, paper-based and sound. As the UK Parliament have just recently debated the issue of money creation by commercial banks, here is one broadsheets view on why we should retain the status quo….

It would be nice to think that merely by reforming the way money works we could magic away our economic problems, abolish the credit cycle, tame the bankers and generally cure the world of all known diseases.

Yet there is no such thing as a free lunch. The reason we have fractional reserve banking, and a monetary system hedged around with taboos and constraints, is that warts and all, these things basically work. All alternatives are a giant leap in the dark, with likely disastrous consequences to judge by historical precedent.

I am not an utopian. I do not believe that solutions come at little cost. It is the underlying principle that to strive to make things fairer and just is worth the upheaval in order to shape a better future for all, on balance, regardless of creed, cast or colour.

I reject outright the notion that the risk and uncertainty of chaos should keep us from taking the necessary steps to alleviate our lives from the grip of those less accountable. The world is already in chaos. After all, can the lid be kept on a volcano which has been rumbling from before many can remember, how long can the current fix be maintained, trimmed to fit a new trend and then repackaged for another generation? Like it or not, change is inevitable, it is simply a question of who retains power. And those who favour the current power structure, make suggestions such as this. I highly question that the current fiat money system ‘basically works’.