TURMEL: Good idea

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John Turmel

Dec 8, 1999, 3:00:00 AM12/8/99

>Date: Fri Dec 3 17:36:15 1999
>From: m...@vko.com (Mike)
>Subject: Idea
>Hello John,
>I've been thinking a lot about this LETS system. Obviously the
>government of Canada is not biting nor are the people flocking to it
>en-mass. The reason for this is because it is unconventional and
>requires critical mass.
JCT: People may not yet be flocking to L.E.T.S. en masse but poor
people are flocking to it all around the world. Assume for an instant
that the Y2K bug causes the orthodox banking system to collapse and
throw the world into a great Great Depression. As Edward Goldsmith and
Perry Walker make the point that people who belong to a community
currency are insulated from outside financial perturbations and can
continue to do trade even though there is no federal money available.
See: http://www.cyberclass.net/turmel/gold.htm

>Here's one possible solution. Just open up a commercial bank that
>works somewhat like the other banks, lend "book" money just like the
>other banks, BUT don't charge interest for it. The bank would charge
>service fees for dispensing money and maintaining accounts --
>somewhat like the LETS system.
JCT: Yes, that would be wonderful. Brian Lutes suggested exactly
the same thing while I was in Vancouver. While countries that have
reserve requirements, you have to have a lot of money to act as
reserves to start a bank. Now that reserve requirements have now been
eliminated in Canada and there is no longer any need to have a
deposit of old savings before lending out new money, the cost of
starting up a new bank may now be much reduced. So the elimination of
reserve requirements now makes an interest-free chartered bank
feasible for the first time in Canada's history.

>I don't know if you can start a bank that lends money interest free
>and get away with it. But it sure would be popular. I think people
>would rush over to this bank and open up an account. One obstacle to
>overcome would be the fact that you don't pay interest to depositors
>-- you charge them for transactions. They would have to realize that
>you don't lend their money to anyone, you just manage it for them for
>a nominal fee. In return they would have access to interest free
JCT: Not paying interest to depositors wouldn't be an obstacle
because we wouldn't need their deposits before we can lend because we
wouldn't be lending their deposits. Banks don't lend their depositors'
funds so there's no reason for them to take in deposits either other
than to fulfill any reserve requirements. But now that Canada has
phased out reserve requirements, they don't need deposits in order to
lend anymore. Without reserve requirements, it's now pretty obvious
that banks lend out new money, not old savings.

>That being said, there is another way to do this, but it's slightly
>more complicated. You would pay them interest on their deposits (IF)
>they took out a loan. You would charge them interest on the loan BUT
>(in a sneaky way) you would pay it back to them by paying them 'high'
>interest rates on their deposits. Again, the bank would make its
>money on modest service charges.
JCT: Again, deposits are no longer necessary in countries which
do not have reserve requirements. Banks now can now lend out new money
exactly like L.E.T.S. lends out new money.

>As far as I can see, this is already what is happening with the banks
>today. They lend funny money and charge interest for it, then they
>take some of this interest and pay depositors interest on their bank
>balance, thus making the depositors feel as if the bank lends their
JCT: Right. And it makes everyone think that banks lend their
depositors' money. But now that Canada no longer insists that there be
a deposit of old money before they lend out new money, that fallacy
now stands completely exposed to everyone except economists who have
always believed both that banks lend out their depositors' old savings
and lend out new money at the same time.

>The only difference is, this new type of bank would pay out
>interest to the depositors based on how big a loan they took out.
>This interest would be based on some sort of derivative of their bank
>balance and the total interest paid back etc.
>I must confess that I have not worked out all the details but I think
>this type of system would encourage people to take out loans thus
>injecting credit into the system which would start things moving. The
>beauty of this type of bank is that it 'looks' somewhat like a
>conventional bank, therefore, it would not be such a hard sell. This
>type of bank would be set up like the PC bank. There would be no
>tellers or branches.
JCT: There is no more reason to deal with interest every again.
Such a creationary bank would operate exactly like a L.E.T.S. which is
the reason I keep advocating that banks upgrade their software to

>In my opinion, this is how to fix the little red wagon of the
>fractional reserve system. Play by their rules and beat them at
>their game. Given the times, I think it is easier than ever to start
>a bank because of competition laws.
>So what do you think... am I crazy, or does this have merit.
JCT: Without reserves, Canada's banks can no longer be classed as
a fractional reserve system since the fractional reserve is now zero.
Your idea of having a chartered bank lend the new money it creates
interest-free with only the service charge to finance the bank
activities is quite possible and does have merit.
Perhaps you or Brian could look into just what the requirements
now are to start a chartered bank in Canada? If there is some
financial condition, perhaps a group of concerned individuals in the
Jubilee 2000 movement or COMER (Committee On Monetary and Economic
Reform) could be convinced to apply to start up such a bank. And it
could be started on the Internet without any bank branches necessary.
Canada already has such an Internet-only bank and it would be the best
way for a new interest-free bank to start up.
As I told Brian, if my efforts to get interest-free software
installed from the top down doesn't work soon, it might be time to
work on getting it installed from the bottom up and yours is the very
best idea on how to go about doing it.
John C. "The Engineer" Turmel, Founder, Abolitionist Party of Canada
915-2045 Carling Ave., Ottawa, K2A 1G5, Tel/Fax: 613-728-2196
LETS Abolish Interest Rates http://www.cyberclass.net/turmel
For TURMEL topics http://www.egroups.com/group/turmel

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