Rei Murasame wrote:That seems to lead to complete economic annihilation.
That is because having an interest rate of zero percent forever, would mean that you have set an interest rate which is below the rate of inflation.
Having no interest rate does not actually preclude banking fees, though I suspect he would have a problem with those too. Moreover, the terms of payment could be linked to inflation without it being an interest rate. There is also a point to be made that were this the only banking system, there probably wouldn't actually be any inflation. One cannot assume that there would always be inflation once the mechanisms that cause inflation are removed.
That is almost like paying people to lend and borrow from each other. At the beginning, people would be democratically voting to support all sorts of grand and showy projects all over the place,
Possibly, possibly not. Believe it or not, people are actually capable of establishing sensible priorities by voting. This doesn't happen in political systems mainly because those systems are explicitly designed to prevent such behavior.
and eventually they will have created a number of bubbles so large that when they burst - and they would indeed burst - there would be basically nothing that you would be able to do to prevent the entire system from falling apart.
Where's the motive to create the bubbles once the profit and interest is removed? Generally speaking, bubbles only get pumped when there's a structural origin for the bubble--tax law makes it preferable to invest in housing, the government's doing a land grab so there's opportunities to buy in at below market rate, etc. If people are just doing whatever they want to do, there wouldn't be the kind of focused investment that's required to pump a bubble.