Everyone understands that what matters is reality and not the name and yet we seem to have forgotten accounting in real terms and especially for dues. profit and loss all accounting and accounting standards relate to accounting in nominal terms. why?
It allows the system of interest to continue to dominate and transfer wealth from poor to rich.
For example if we had real currency or we had been accounting in real terms the net return that capital can be justly assigned will be around 1%. This 1 % rate of interest is too small to motivate capital owners to lend money to investors and system of interest will not be able to drive the economy and author has shown that if economy is run on basis of interest but free from monetary manipulation the rate of unemployment of resources will be around 50%. Thus it is clear that system of interest cannot run with real money or accounting in real terms. If accounting is done in real terms the rate of return will be mostly between 0 to 4%. Thus spread that is major source of income for banking and financial institutions will be not above 1% while it is normally above 3 to 5%. Similarly gain to owners of business less interest (around 1%) will be mostly between slightly negative to 3 % as against its value while accounting in nominal terms which varies mainly between 2 to 20%. Please note that inflation is cause of the differences that varies too much and what is reported here are estimated for inflation between 3 to 10 percent. May Allah guide us to see reality as it is and to form opinion about it according to its reality. Aameen.
if accounting is done in real terms normally average net rate of return is around 2 to 3 %. Maximum rate of interest that business will be able to support will be around 1%. This leaves 1 to 2% profit to business owners and they will not agree for anything less as they have to bear the risk. Spread that bank and financial institutions can earn will be around 0.7 % and rate of unemployment around 50%. thus the system of interest will become unsustainable and inflation as a means of financing will not be sustained.
Now if accounting is done in nominal terms and if rate of inflation is say 6%. then average nominal rate of return will be 8 to 9 %. then banking and financial institutions can easily charge about 4% nominal interest. Thus profit to business owners is around 4 to 5 %. Spread for the banking and financial institutions will be 4 to 5%. Thus total return to business owner capital provider will be about 9% while total gain to economy is only 2 to 3 % and thus this mechanism of accounting in nominal terms raises return for the rich by a factor of almost 3. then who bears the loss, as is well known this loss is borne by the poor as cost of inflation.
Clearly inflationary economic management is a mechanism to deceptively suck the blood of the poor and transfer it to rich. thus inflation and nominal accounting are means to perpetuate gross injustice against poor and this fraud is responsible for growing injustice and exploitation, poverty and deprivation.
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