Re: [SOCIAL CREDIT] reply to Vic2
Vic, Thanks for your, as always, insightful comments. I agree with the second and third sentences in your response below. I have hitherto found it difficult to reconcile the facts embodied in them with your first sentence. However on reflection I think the following sums up in a simple conceptual way what you (and Bill Ryan) have said: No interest is created at the times of either making or repaying a particular bank loan (call this loan A). At the time of loan repayment the lending bank cancels the loan A principal out of existence and simply grabs part of the money supply in order to service its interest requirement. The negative monetary differential entailed in this process does not usually last long because the injection of new profit from the interest received empowers the bank to create new loans (the precise accounting mechanism and whether or not reserves are involved doesn't affect the overall explanation). For the sake of the discussion we may simplify the second stage of the money-creating process by giving it the (collective) label loan B. The principal created by the bank in loan B must be greater than the principal created in loan A by an amount at least as great as the interest differential just referred to. Hence there is a monetary growth imperative, necessary in order to stave off a financial crash. This is obviously a gross simplification of very complicated matters, but might serve as a useful model for discussion purposes. Regards, John At 04:19 PM 27/06/2003 +1000, you wrote: Of course the banking system does create the interest as well as the principal loan. The point is that they do not (a) create it at the time of the loan (b) do not create it as interest at any time after the loan. The interest to be paid on any loan can only be paid by obtaining money from someone else who has obtained another loan, or from someone who has obtained money from someone else who has obtained a loan. ==^^=== This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^^===
RE: [SOCIAL CREDIT] reply to Vic2--continuing discussion
John, the sentences below from Vic are perfectly correct as they stand. It is what you make of them that may or may not be correct. Most definitely, this is not correct: -The principal created by the bank in loan B must be greater than the principal created in loan A by an amount at least as great as the interest differential just referred to.- The reason that it is not correct is that the economic process does not proceed loan by loan by loan. There are many overlapping loans so that the process as a process has no logical beginning or end. The fallacy that has entrapped you--and I won't go into great detail about it in this post--is the very same fallacy so brilliantly revealed by Zeno in his paradox of Hercules and the Tortoise some twenty-five centuries ago. If you break a continuous process into segments, using geometric and algebraic methods alone, it is possible to prove that Hercules will never overtake the Tortoise, or, if it is Hercules who is given the head start, the Tortoise must inevitably catch up! Through reductio ad absurdum Zeno thereby demonstrated the necessary existence of a higher mathematics that was not discovered until Newton two millennia+ later. Zeno through his paradox was following the method of hypothesis of the higher hypothesis. The similar argument is made by the socialists, who ask: How can the capitalist extract from his customers more than he has paid for the goods and services that he sells? That is, if the capitalist throws out salaries, wages and dividends equaling W, how can he sell his goods and services for W plus P? Marx put the argument more elegantly though just as fallaciously as: M - C - M'. Profit = M' - M. In a well-ordered economy it comes down simply to a matter of accounting. It's how the reflux from loans in the aggregate are counted in double-entry accounting. The reflux is identical regardless of the rate of interest. Some of the reflux is counted as principal. Some of it is counted as interest. Nothing is extracted from the flow of commerce by its method of counting. The balances that build up in the firms sector (which include the banks as firms and every other firm) and the balances that build up in the consuming sector are extractions that are functional to trade and commerce. The balances are tools that businesses need to continue as continuing operations. That is to say, if you eliminate them or prohibit them through the prohibition of interest or profit or whatever, you throw a monkey wrench into the mechanism of the free economy. It is possible to understand the process and accommodate it rationally. You can analytically do that through A+B. It is not possible to do so through the stupidity of debt virus. Bill ---original message--- Date: Sat, 28 Jun 2003 09:12:53 +0930 From: [EMAIL PROTECTED] Subject: Re: [SOCIAL CREDIT] reply to Vic2 Vic, Thanks for your, as always, insightful comments. I agree with the second and third sentences in your response below. I have hitherto found it difficult to reconcile the facts embodied in them with your first sentence. However on reflection I think the following sums up in a simple conceptual way what you (and Bill Ryan) have said: No interest is created at the times of either making or repaying a particular bank loan (call this loan A). At the time of loan repayment the lending bank cancels the loan A principal out of existence and simply grabs part of the money supply in order to service its interest requirement. The negative monetary differential entailed in this process does not usually last long because the injection of new profit from the interest received empowers the bank to create new loans (the precise accounting mechanism and whether or not reserves are involved doesn't affect the overall explanation). For the sake of the discussion we may simplify the second stage of the money-creating process by giving it the (collective) label loan B. The principal created by the bank in loan B must be greater than the principal created in loan A by an amount at least as great as the interest differential just referred to. Hence there is a monetary growth imperative, necessary in order to stave off a financial crash. This is obviously a gross simplification of very complicated matters, but might serve as a useful model for discussion purposes. Regards, John At 04:19 PM 27/06/2003 +1000, you wrote: Of course the banking system does create the interest as well as the principal loan. The point is that they do not (a) create it at the time of the loan (b) do not create it as interest at any time after the loan. The interest to be paid on any loan can only be paid by obtaining money from someone else who has obtained another loan, or from someone who has obtained money from someone else who has obtained a loan
Re: [SOCIAL CREDIT] reply to Vic2
Hi John, I am well aware that "fractional reserve system'" is an American term but as there are so many confused by the different explanations with regard to how the banks create credit (money) I have succumbed to its use. As far as Capital Adequacy requirements etc. and the various changes in ratio requirements are concerned, I learned a long time ago that it is immaterial as to what "system" is used to describe how the banks create credit (money). I do not argue any more on what basis they do create credit (money) or what ratio is used, or what other controls that may exist. the simple fact is that they do create the major portion of the nation's money supply and claim it as their own. I am sorry if i appeared to be facetious in my previous comments but as I had been down that road over twent years agoI knew what the result would be. The problem with many who are just learning for the first time about the banking system just want to know all the nitty gritty details and thus the discussion goes on and on and on with nothing ever achieved. Of course the banking system does create the interest as well as the principal loan. the point is that they do not (a) create it at the time of the loan (b) do not create it as interest at any time after the loan. The interest to be paid on any loan can only be paid by obtaining money from someone else who has obtained another loan, or from someone who has obtained money from someone else who has obtained a loan.Thus the last three sentences of your posting are absolutely correct. Vic - Original Message - From: [EMAIL PROTECTED] To: Social Credit Sent: Thursday, June 26, 2003 9:31 PM Subject: Re: [SOCIAL CREDIT] reply to Vic2 Hi Vic,It's good to be in touch with you again. Can't disagree with the essence of what you've written, but I'm not sure the term "fractional reserve system" is an appropriate descriptor for Australia, NZ, Britain or Canada, although I understand the US still uses reserves. Credit creation is now largely implemented on the basis of capital adequacy, which is determined by risk-weighted bank assets (rather than bank liabilities or reserves). Re the RBA and APRA, I gave up tilting at windmills. I simply could not obtain an answer from them which was not evasive, obfuscating or laden with red herrings. The RBA was much worse in this respect than APRA. I understand that many others in Aus and NZ have had the same experience. Unless I have misinterpreted him, it seems that Bill Ryan thinks the banking system creates both principal and interest (the manner of creation of each component is not the issue). I would like to see some concrete evidence based on research to back up this opinion, because I'm not convinced he is right. Other writers on banking issues, who seem reasonably well informed, say otherwise. A case in point is William F. Hixson who, within at least two of his well-known books on banking, makes the point that the size of the money supply always tends to lag the size necessary for all loans to be repaid with interest. In his view, banks are always in a "need to catch-up" situation. Put another way, every year on average the supply of bank-created money needs to be increased by at least the average rate of interest that banks charge on their loans. Hence there is a growth imperative in the modus operandi of the banking system. But the simple fact that the system is dynamic, and that the money and debt aggregates necessarily grow with time, has no obvious implication for the creation or otherwise of interest. Regards,John HermannAt 11:29 AM 26/06/2003 +1000, you wrote: John,Good to see you on line. I have not heard from you sinces I dropped out from ERAnet. Did you ever obtain the information re "on-lending" from the Reserve Bank or APRA ot anyone else? Remember, I said I would flap my arms and fly to the moon if you did.The posting below, because of the Subject line above may give the impression that it is my writing which it is not.I have no more comments to make re bank lending etc. because it is going the same way as the discussion on the ERANet. I simply state that the banks do create the major portion of what is regarded as the nation's money supply and call it their own. They do create it out of nothing on the fractional reserve system. They do charge interest which can only be obtained for repayment by receiving "money" from someone else which was originally borrowed by someone plus interest. It matters not whether the money was borrowed in Australia or anywhere else in the world where they operate on a fractional reserve system. Even export earnings are received from somewhere where there has been money "borrowed " into existence. All that expo
Re: [SOCIAL CREDIT] reply to Vic2
John, Good to see you on line. I have not heard from you sincesI dropped out from ERAnet. Did you ever obtain the information re "on-lending" from the Reserve Bank or APRA ot anyone else? Remember, I saidI would flap my arms and fly to the moon if you did. The posting below, because of the Subject line above may give the impression that it is my writing which it is not. I have no more comments to make re bank lending etc. because it is going the same way as the discussion on the ERANet. I simply state that the banks do create the major portion of what is regarded as the nation's money supply and call it their own. They do create it out of nothing on the fractional reserve system. They do charge interest which can only be obtained for repayment by receiving "money" from someone else which was originally borrowed by someone plus interest. It matters not whether the money was borrowed in Australia or anywhere else in the world where they operate on a fractional reserve system. Even export earnings are received from somewhere where there has been money "borrowed " into existence. All that export earnings on a "favourable balance" means that it has increased the "reserves" of the bank concerned allowsthat bank to lend (create) even more based on whatever reserve ratio is applicable. Regards, Vic Bridger - Original Message - From: [EMAIL PROTECTED] To: Social Credit Sent: Monday, June 23, 2003 11:50 PM Subject: RE: [SOCIAL CREDIT] reply to Vic2 At 10:12 AM 22/06/2003 -0700, you wrote: Let's say the loan is for $100,000 at 5% payable yearly over ten years. At the end of the first year you would owe one tenth of the principal plus five percent of the principal: $10,000 principal plus $5,000 interest. Only if the $5,000 is not paid does the debt compound because of interest. At the end of the second year you would pay $10,000 in principal plus five percent of $90,000. At the end of the third year you would pay $10,000 plus five percent of $80,000, etc.--OK, so in this example the bank credits its own account in the amount of $27,500 up front. Correct? It is merely an example. In this example the banker credits nothing to his account up front. At the end of the first year the banker receives $5000 interest which he then credits to his personal account.The larger point is that, in the economy as a whole, there are many overlapping loans because it is a continuous dynamic process. It works out exactly the same if interest on individual loans is credited to the banker up front, during the amortization period, or at the end. It works out to a simple rate of interest that the financial sector charges the rest of the economy for financial services rendered.I thought we were talking about discounted loans. You have now changed the conversation topic. In the original discussion, it seemed to me that you were making the case that banks (or the banking system, if you like) create the interest that they charge their borrowers. I haven't heard this one before. Can you cite one or more references which would help to put your assertion on a somewhat firmer basis than mere hearsay? JH==^^=== This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^^===
RE: [SOCIAL CREDIT] reply to Vic2
At 10:12 AM 22/06/2003 -0700, you wrote: Let's say the loan is for $100,000 at 5% payable yearly over ten years. At the end of the first year you would owe one tenth of the principal plus five percent of the principal: $10,000 principal plus $5,000 interest. Only if the $5,000 is not paid does the debt compound because of interest. At the end of the second year you would pay $10,000 in principal plus five percent of $90,000. At the end of the third year you would pay $10,000 plus five percent of $80,000, etc. -- OK, so in this example the bank credits its own account in the amount of $27,500 up front. Correct? It is merely an example. In this example the banker credits nothing to his account up front. At the end of the first year the banker receives $5000 interest which he then credits to his personal account. The larger point is that, in the economy as a whole, there are many overlapping loans because it is a continuous dynamic process. It works out exactly the same if interest on individual loans is credited to the banker up front, during the amortization period, or at the end. It works out to a simple rate of interest that the financial sector charges the rest of the economy for financial services rendered. I thought we were talking about discounted loans. You have now changed the conversation topic. In the original discussion, it seemed to me that you were making the case that banks (or the banking system, if you like) create the interest that they charge their borrowers. I haven't heard this one before. Can you cite one or more references which would help to put your assertion on a somewhat firmer basis than mere hearsay? JH ==^^=== This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^^===
RE: [SOCIAL CREDIT] reply to Vic2
Take the case of a simple discount loan: You tender to the banker your personal note for $10,000 payable in one year. He discounts it 5% and credits your account in the amount of $9,500. He credits his own account as a businessman in the amount of $500. You are expected to pay $10,000 at the end of the year. You received only $9,500 but $10,000 does exist in the economy. -- I presume the rules of compound interest would apply if the loan was not fully paid within one year. One year has nothing to do with it. Let's say the loan is for $100,000 at 5% payable yearly over ten years. At the end of the first year you would owe one tenth of the principal plus five percent of the principal: $10,000 principal plus $5,000 interest. Only if the $5,000 is not paid does the debt compound because of interest. At the end of the second year you would pay $10,000 in principal plus five percent of $90,000. At the end of the third year you would pay $10,000 plus five percent of $80,000, etc. -- OK, so in this example the bank credits its own account in the amount of $27,500 up front. Correct? Question: How common are discount loans? That is, what is the aggregate of deposits created by banks in their own accounts from discount loans as a fraction of all deposits created by banks? In simple discount loans banks credit their own accounts up front. They are fairly common though not the majority of loans. They are a component of many loans particularly in real estate transactions, where points are charged and collected up front off the face value of the loan. The larger issue is we are examining the economy as a whole with many overlapping loans flowing all the time. I call it a dynamic non-equilibrium process. The net interest that the financial sector collects from the totality of the non-financial sector is always translatable into a simple rate of interest for financial services rendered. Cannot understand the meaning of this statement. Please amplify. I agree that debt does tend to compound in respect to the economy as a whole. That compounding cannot be explained through interest. Agreed. There is far more debt than there is money (by a factor of three or four), and interest explains only a small fraction of the imbalance. Indeed, those who attempt to explain it through interest self-identify themselves as cranks. That seems a rather severe description of those who might be well intentioned but misinformed. After all, the entire economic orthodoxy is mistaken on several fundamental issues but I don't feel a need to describe them as cranks. Douglas was not one of those. The compounding is explainable through the A+B theorem. -- ...The totality of bank deposits plus currency is approximately 10% greater than bank credit, C1. M3 - C1 devolves from Fed open market operations funding a portion of government spending, and the small residual from the era of gold and silver monetization, and greenbacks. Checking deposits plus currency, M1, is approximately 20% of M3. M1 derives from the composite of Fed open market operations and bank credit expansion. M3 - M1 devolves in the first instance from M1. M3 - M1 constitutes a revolving fund of finance that is a continuing source of lendable funds. Lendable funds in the aggregate derive from the composite of bank credit expansion and the revolving M3 - M1. In a growing economy, M3 - M1 is an expanding nodality with inputs that exceed outputs. But the outputs are funds that are being invested or spent. The stream of increasing spending is therefore funded by bank credit expansion, Fed open market operations, and disbursements from M3 - M1.==^^=== This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^^===
RE: [SOCIAL CREDIT] reply to Vic2
Bill Ryan wrote: Take the case of a simple discount loan: You tender to the banker your personal note for $10,000 payable in one year. He discounts it %5 and credits your account in the amount of $9,500. He credits his own account as a businessman in the amount of $500. You are expected to pay $10,000 at the end of the year. You received only $9,500 but $10,000 does exist in the economy. -- I presume the rules of compound interest would apply if the loan was not fully paid within one year. In reality this operation consists of (a) the creation of a deposit to the tune of $9,500 in the borrower's account with a fixed interest bill of $500, plus (b) the creation of a deposit of $500 in the bank's own account. Question: How common are discount loans? That is, what is the aggregate of deposits created by banks in their own accounts from discount loans as a fraction of all deposits created by banks? John Hermann ==^^=== This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^^===
RE: [SOCIAL CREDIT] reply to Vic2
I presume the rules of compound interest would apply if the loan was not fully paid within one year. One year has nothing to do with it. Let's say the loan is for $100,000 at 5% payable yearly over ten years. At the end of the first year you would owe one tenth of the principal plus five percent of the principal: $10,000 principal plus $5,000 interest. Only if the $5,000 is not paid does the debt compound because of interest. At the end of the second year you would pay $10,000 in principal plus five percent of $90,000. At the end of the third year you would pay $10,000 plus five percent of $80,000, etc. -- Question: How common are discount loans? That is, what is the aggregate of deposits created by banks in their own accounts from discount loans as a fraction of all deposits created by banks? In simple discount loans banks credit their own accounts up front. They are fairly common though not the majority of loans. They are a component of many loans particularly in real estate transactions, where points are charged and collected up front off the face value of the loan. The larger issue is we are examining the economy as a whole with many overlapping loans flowing all the time. The net interest that the financial sector collects from the totality of the non-financial sector is always translatable into a simple rate of interest for financial services rendered. I agree that debt does tend to compound in respect to the economy as a whole. That compounding cannot be explained through interest. Indeed, those who attempt to explain it through interest self-identify themselves as cranks. Douglas was not one of those. The compounding is explainable through the A+B theorem. -- ...The totality of bank deposits plus currency is approximately 10% greater than bank credit, C1. M3 - C1 devolves from Fed open market operations funding a portion of government spending, and the small residual from the era of gold and silver monetization, and greenbacks. Checking deposits plus currency, M1, is approximately 20% of M3. M1 derives from the composite of Fed open market operations and bank credit expansion. M3 - M1 devolves in the first instance from M1. M3 - M1 constitutes a revolving fund of finance that is a continuing source of lendable funds. Lendable funds in the aggregate derive from the composite of bank credit expansion and the revolving M3 - M1. In a growing economy, M3 - M1 is an expanding nodality with inputs that exceed outputs. But the outputs are funds that are being invested or spent. The stream of increasing spending is therefore funded by bank credit expansion, Fed open market operations, and disbursements from M3 - M1. Get advanced SPAM filtering on Webmail or POP Mail ... Get Lycos Mail! http://login.mail.lycos.com/r/referral?aid=27005 ==^ This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^
RE: [SOCIAL CREDIT] reply to Vic2
If nothing in the future exists today it follows that the interest I have to pay in the future does not exist today. Not necessarily. It may or it may not exist today. -- If I am the only person borrowing $1000 at 10% I am required to repay $1100 in one year's time. UNLESS either I borrow another $100 to repay the original loan I cannot do it because the interest does not exist and can only exist through further borrowing (loans) which increases the debt. There are several false assumptions here which I will just touch on. One false assumption is that in one year's time you will have had no earnings. If you have had earnings they will have come from the larger economy based on credit as to progresses through time. If you have had no earnings you could neither pay the principal nor the interest. In steady state further borrowing does not increase the debt. It merely transfers to someone else. In an expanding economy the debt is increasing but so is the credit. -- Vic B - Earnings come from other who have contracted a debt. One may argue that some traders are not in debt but this does not alter the fact that as all money comes into existence as a debt a payment of interest is only possible by drawing upon another debt. The false assumption here is that the economy as a whole must borrow in order to pay interest. The fact is that interest is merely a transfer payment no different than the payment of profit to any businessman. It is the transfer from your pocket to the businessman's pocket, from which he spends on things he needs to purchase or pay. Neither profit nor interest are subtrahends from system flow. You have to differentiate in your mind the difference between bank as bank and bank as business. Principal is paid to bank as bank and is cancelled. Interest is paid to bank as business and is spent. -- If all loans were demanded to be repaid within 24 hours and if all outstanding debtors met their creditors call for payments outstanding eliminating any other factors under current double entry bookkeeping the debits and credits would balance out. This may equal the principal originally borrowed through bank loans but it would not be able to meet the interest required by the bank. You borrow in order to get money to spend, so you spend the money you borrow. If loans are called prematurely very few loans could be repaid by the debtors. That has nothing to do with the fact that interest is charged. Something like this does happen when there are credit contractions so the first order of business is to prevent credit contractions. Let's say that a loan comes due with accrued interest not yet paid. That interest does exist in the form of assets somewhere in the economy. Whether you personally have the equivalent to them or not is a separate issue. Assets are not limited to money but in a rationally constructed system can readily be turned into money as needed. That is the use for financial services and the providers of financial services deserve to be paid for their services. Take the case of a simple discount loan: You tender to the banker your personal note for $10,000 payable in one year. He discounts it %5 and credits your account in the amount of $9,500. He credits his own account as a businessman in the amount of $500. You are expected to pay $10,000 at the end of the year. You received only $9,500 but $10,000 does exist in the economy. -- Get advanced SPAM filtering on Webmail or POP Mail ... Get Lycos Mail! http://login.mail.lycos.com/r/referral?aid=27005 ==^ This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^
