Everything you know about interest is wrong

To understand interest rates, we have to get nuanced about credit

Real vs. Nominal Spending

Before we can talk about credit, we have to understand the difference between real and nominal spending. Any activity of credit involves allocating real resources to a person or project, and it may also involve allocating money in order to compensate those involved.

• Real Spending — Required Physical Resources
• Nominal Spending — Monetary measurements of resources

The Three Kinds of Credit

There are 3 basic kinds of credit:

• Interest Sharing Loans
• Money Creation
• Grants

Interest Sharing Loans: Real lending measured nominally.

An interest sharing loan is the typical type of lending that is performed today. A borrower receives a lump sum of cash to do a project, such as build a house or start a business. The project itself servers as collateral for the loan, and the balance of the loan is paid back with interest over time.

The way we understand interest sharing loans is actually flawed. It is presented that borrowers are competing for a limited amount of nominal savings, and thus they must pay lenders for the privilege to have access to that savings. This is…