TURMEL: On Social Credit vs Greendollars

[John Turmel]

Subject: Re: TURMEL: On Social Credit vs Greendollars

On Nov 27 1995 in Article #115731 in can.politics,
huy...@qed.uucp (Timothy Huyer) wrote:

:I will attempt to deal with Turmel's positions by trying to cover briefly
:the various issues that he raises:
:
He then goes into a detailed explanation of why

:at very low rates of
:interest, B is not willing to lend (since B's utility would then be below
:5000) and at very high rates of interest A would not be willing to
:borrow.
:Therefore, situations can occur under which mutual gains are made with
:positive interest rates.
:
Again he's basing his rationale for the fact that borrowers
should pay interest because the savers wouldn't lend without it. But
my model shows and I repeated stress:

::(II) Banks do not loan depositer's money.
:
:The bank system is basically
:a means of making the above market more accessible. By loaning or
:borrowing money through the intermediary -- the bank -- risk and
:transaction costs can be reduced.
:
I keep repeating that a credit union or a savings and loan or a
private piggy bank work as intermediaries lending out their
depositors' savings. But chartered banks do not.

: In a previous post, I attempted to demonstrate to some extent how
:money flows in the banking system. I will attempt to quickly repeat
:(and possibly improve on) that here.
: Let there be one central bank and one charter bank, and all
:individuals deposit all of their money in the charter bank (no one keeps
:any cash). All borrowing also occurs from the charter bank. The charter
:bank keeps a set fraction of deposits in reserves, i.e., a reserve ratio
:of r, 0 < r =< 1 and loans out the remainder. For the example, we will
:set r = 0.1
:
Repeatedly I've pointed out that the bank does "NOT loan out the
remainder." If it were lending out the remainder of the money in the
piggy bank, the money supply would not go up. Since it does go up when
banks make loans, they are not lending out the remainder but they are
lending out new money.

: Let the central bank buy a bond from any individual for $1, and
:pays for the bond by the creation of new money, $1 (all central bank
:operations on the open market involve creation/destruction of new
:money). That person deposits the $1 in the charter bank. The charter
:bank puts $0.10, or r*$1 in reserves, and loans out the remainder,
:$0.90. That loan is used for some transaction and the recipient(s) of
:the money deposit it in the bank. This process repeats infinitely.
:
And as I pointed out with the flows which Tim seems to have
failed to follow, it doesn't loan out the remainder. Seems we've been
over this umpteen times but it does prove my point that the question
is one of the major double-thinks of Economics, guaranteed to keep
them permanently confused.
Then he spent time telling us about the reserve ratio which
limits how much the banks can expand the loan supply.

: Note that deposits in the charter bank is the series
:t=0->infinity, [$1*(1-r)^t], which, with r=0.1, has a value of $10.
:Reserves are necessarily r*deposits, or $1. Loans are the series
:t=0->infinity, [$0.90*(1-r)^t] or $9. Thus, liabilities of the bank
:(deposits) are $10 which equals assets (loans + reserves). All loans are
:covered by deposits and then some.
: Boundedness of r. I assumed earlier that r is in (0,1]. Note
:that it is impossible to maintain greater reserves then deposits, since
:all reserves come from deposits. Hence r is bounded above by 1. Note
:that the two series converge only if 1 - r < 1, which thus requires that
:r > 0. If the reserve ratio is zero or negative (the latter if banks
:created their own money), the money supply would be infinite.
:
With zero reserve ratio, the money supply COULD be infinite.
That's how LETS and casino cages work with zero reserve ratio. No one
needs deposit old chips to the safety deposit section in order for us
to loan out new chips from our infinite supply in the cage.

: With infinite money pursuing a finite amount of goods and
:services, it follows that prices, i.e., inflation, is also infinite.
:
Having an infinite supply in the cage doesn't mean that an
infinite supply is issued. It's always fixed to the finite amount of
goods and services so it follows that prices, i.e., inflation, is
zero.

:Additional comment on the reserve ratio. The assumption that depositors
:keep no cash is very strong. In fact, people keep some function of their
:total wealth in cash on them;
:
The amount of money people keep in cash on their person is
minimal. The bulk of the volume of transactions is done by check from
one account to the other.

:i.e., if wealth is w, cash held is
:f(w|e), 0 =< f(w|e) =< w (f(w|e) need not be linear), where e is some
:environment. e can be conceived as needs for cash not tied directly to
:wealth, i.e., if planned major expenditures are occuring or other
:environmental considerations. From the perspective of the bank which
:cannot perceive e, aggregating over all depositors gives an estimate of a
:random variable which represents the unknown demand for cash.
:
He talks about the banks needing to have cash on hand and looks
at it from the point of view of one bank imagining that all the
depositors take out their money leaving his accounts all empty. The
point is that all those deposits go into other similar bank accounts.
If banks were all branches of one system, there would be no such
concern since monies taken from one account end up in another.
The problem, therefore, stems from the fact that accounts have
been sectioned off into separate banks which, if viewed alone, can end
up with all their accounts empty while other separate banks show the
increase.
And even though nothing would have happened if all the deposits
had ended up back within the same bank, having them all leave would be
cause for termination of the operation hurting the economy as a whole
even though savings simply splashed from one bank's accounts to
another bank's accounts rather than from one bank's accounts back to
it's own bank's accounts.

: Since banks must meet the demand for cash they keep reserves in
:order to cover the expected demand plus extra to cover risk.
: How do banks then choose r? Obviously, it depends on the
:expected value and variance of e. However, the charter banks also can
:borrow money directly from the central bank (the loaner of last resort) at
:the bank rate. Thus banks choose to minimize the cost of holding
:reserves (measured in terms of possible income from loaning out the
:money) and the costs of borrowing from the central bank (measured in
:estimated short-fall of reserves*bank rate).
: Clearly, as the bank rate falls, so too falls the cost of
:borrowing from the central bank, and thus charter banks are less inclined
:to keep reserves -- reserve ratio falls, money supply increases. The
:reverse if the bank rate rises.
:
No. As the bank rate falls and the cost of borrowing from the
central bank falls, the reserve ratio does NOT fall and money supply
increase.
The reserve ratio doesn't change. It is set by legislation. What
really makes the money supply increase when the cost of borrowing from
the central bank falls because the bank rate falls is the decision of
the bankers to open the taps to nearer their capacity.
Just because the depositor puts $100 into the bank, $10 are sent
off to central reserves, $90 are put in the bank and $90 new dollars
out of the tap may be lent out doesn't mean the whole new $90 is lent
out.
If they did that and a depositor withdrew $10, the amount legally
allowed out of the tap would be reduced from $90 to $81 and the bank
would have to call in part or the whole loan. For this reason, the
banks leave themselves a float of reserves upon which the tap may be
operated in case of a "run on the bank."
If, when someone deposited $100, I sent $10 to the FED and stowed
the savers' $90 while lending out not the allowable $90 but only $70,
if someone now withdraws $10 and my allowable limit becomes $81, I'm
still quite safe having only lent out $70.
But if it's a big run and my savings reserves dip below $70, then
I am compelled to start calling in loans. The problem is that they're
not calling those loans to replace what they gave to the withdrawer.
The loans they're calling in go straight down the money system's drain
and are extinguished.
The only reason a run on savings forces them to call in loans is
simply to satisfy their reserve requirement, not because it went to
the withdrawer.
This remains hidden to all who think that the banking system
doesn't have a tap. Those of you who have written appreciating reading
about the hitherto unexplored areas of banking system plumbing can
now readily see how bank runs work and how people are led to believe
they have to pay off because the saver needs his money are being
scammed.
But to Tim and all those who have suffered the Economics
brainwashing that led to the double-think that loans can be both new
money and old savings at the same time, this all seems like some alien
language.
It is interesting to note how not knowing that loans are from the
tap becomes alibi for so many of the systems
Imagine a system which works fine for splashes within your bank's
little pools where you splash funds back and forth with no ill effect
but which can break down from too large splashes between different
banks.
It does allow the larger banks to prey on the weaker banks since
most bankers don't know that Loans out are from the tap and Loans
called in go to the drain. They just figure their accounts ran empty
as they worked feverishly to call in those loans down the drain
thinking it was satisfying depositors' demands.
So now the necessary question arises again. If the banks are
making loans out of the new tap, why do they need depositors' savings
or why do they need to borrow from the central bank?
You have no answer if I'm correct and loans are coming out of the
tap. It's the reason you keep insisting that the banks lend out
the money they've borrowed. If they didn't lend out the money they
borrowed, why did they borrow it?

: It is much more complex to establish, although many of the
:necessary conditions have already been established, that the rate of
:interest is such that reserves cover interest, which, if I follow
:Turmel's arguments correctly, contradicts his claim that there is a
:shortage in the money supply.
:
I'll try to paraphrase:
It is harder to establish that the interest rate is such that
reserves cover interest which contradicts a shortage in the money
supply.




The (charter) banker here has not added any money to the pot,
:which is a correction of an error that I had made many many weeks ago and
:one which Turmel repeatedly brings up.
:
But you chose balancing the interest growth in the debt with new
chips to the money supply as the solution. That's my point. When faced
with the 11 for 10 dilemma in my game-theoretic model, you chose the
same solution chosen by the Socreds in real life.
Since debt is more than money, up the money to match it.
So the interesting point is not that your analysis of how bankers
solved the interest problem today was wrong but that analysis of the
problem and your solution did result in repair in a less-than-optimal
yet totally sufficient way. The old-Socred way.
If you don't believe me, search out any Socred and explain how
you'd balance the interest demanded by adding chips to everyone's pot
and he'd call it the Socred's National Dividend. Tell him you'd add
extra chips as an incentive to get into productive enterprise and he'd
call it the Socred's Compensated Discount.
It's so sad to see someone score a bull's-eye on first try and
never hit the target again. But Tim's first bull's-eye has managed to
draw forth some pretty fundamental information on old Social Credit.

I don't think anyone could reduce Social Credit theory to shorter
than this:

Because interest makes the debt grow beyond the amount of money,
we'll balance the money to the debt by:
1) having government cover its expenses with new chips;
1) adding an equal share of chips to everyone's monthly pot;
2) adding a few extra chips to a industrialist's pot.
This is it. This is all those books and courses on Social Credit
reduced to one problem and 3 solutions.

:(III) Turmel proposes, in effect, abolishment of the charter banks and
:private lending (via the banks or otherwise) in favour of loaning
:directly from the central bank at zero interest. Since the central bank
:can literally create money, it does not need any deposits to cover the
:loans.
:
I do not propose the abolition of chartered banks and private
lending.
You're a petroleum engineering graduate with a few new theories
to test out in the discovery of oil.
Your nation is producing another 80 oil rigs this year but there
are 100 petroleum engineers bidding for them not with money but with
their qualifications.
It's not a question of "Which engineer will qualify for the credit for the
rig?" settled by bankers upon nebulous specifications, it's a question
of "Who will qualify to get the rig? settled by technologists and
politicians. Upon qualifying for the rig, credit is automatically
allocated.
This shows the kind of limits that will be placed on adult
credit. Student credit for life-support can pretty well be open.
Adult credit for machinery and industrial capital will be limited by
the capital available, not the credit available.

The most remarkable turnaround is in the thinking on taxes.
In my world, I want to pay as much taxes as possible. I'll call
the current system "Tax-up-front then spend." I'll call my system the
"Spend then tax-at-end" and I'll use the Tally system as my example.
Today, governments tax, borrow-at-interest and steal to get the
money up-front for what they will spend.
With tallies, governments spent and got it back at-end. Since all
the subject's taxes were going to people service, doctors, police,
administrators, the King, and none to debt service, what they had
spent was always in circulation to get back. Tallies spent = Taxes.
Not only were tallies spent on services from the state but they served
as medium of exchange on services to and from individuals.
Yes, sir. Tax-at-end rather than Tax-up-front hummed along with
total stability for seven centuries. That's a topic that really lies
at the root of government woes. They're taxing us backwards. And it
hurts.

: Note that as in (I), there is no incentive for anyone to loan at
:0% interest (besides altruism).
:
Actually, now we're back to Rockefeller's billions which works
like Islamic banking. If you scored 81st on your Petroleum Engineering
Project application and you'll have to wait, you can approach
Rockefeller and invite him to take part in your gamble and share in
the possible proceeds if your calculations are right. Islamic banking
allows Rocky to share in the profits as long as he's willing to share
in the losses. If Rocky feels like throwing resources into a new kind
of eatery while always keeping it profitable for the regular workers
who could be on their own, I see no reason he shouldn't in the success
of the venture even if he didn't cook.
I think this example points out a need to invest some actual time
rather than mere credit. Somehow I feel that Rocky's billions won't
help him and they won't hinder him.

:Even changing B's utility function to
:something like U_B := (C_B1)^0.4*(C_B2)^0.6 would mean that B would
:simply choose to save his/her own money at 0% interest and has no
:incentive to loan that money out (and with positive risk on default,
:incentive exists to not loan money out).
:
He's back to the incentive to loan out money. Tell me about the
incentive of the TAP, this inanimate object, to turn on. He keeps
trying to point out the inherent necessity of interest between one
person and another while ignoring the not-inherent necessity of
interest between one person and his TAP.

: Turmel restricts the infinite supply of money case by holding the
:supply of money equal to collateral.
:
Keep this in mind. It is the fundamental theory of "No Inflation
Ever."

:In a sense we can view collateral
:to be (real) GDP -- if money supply always equals real GDP, then there is
:no inflation -- there is neither too much money chasing too few goods or
:too few goods chasing too much money -- and similarly no deflation.
:
That's right. If chips equal collateral in the cage, there is
just enough chips chasing just enough goods all the time. With no
deflation. Unless thieves rob the cage. Thieves adding collateral to
the cage is not a problem.

: This
:is already what central banks attempt to do when they decide by how much
:to increase the money supply, and the inflation that we have is simply
:the error resulting from incorrectly estimating the growth of real GDP
:(the error is consistently biased positive since too little money causes
:a recession, which is much worse than a little inflation).
:
Again, he's referring to what I call "Shift A" in my Mathematics
of Usury. 10 guys put up their watch as collateral and all get 10
chips. If the banker gives them all one extra chip, then the chips
inflate because 110 chips still by only 10 watches in the cage.
Shift B is where 10 guys put up their watches as collateral, get
10 chips and promise to repay 11. At the end of the game, only 9
watches are bought out of hock. Their chips have inflated.
I therefore disagree that inflation is the central bank adding
too much money for which debt is added to even more. Inflation is the
result of foreclosure on collateral. Both shifts feel the same but
evidence of stores full of goods and people's empty wallets argue for
Shift B.

:Since
:estimation procedures are unlikely to be better under Turmel's system
:than present, inflation would still exist.
:
Right after pointing out that Turmel's fundamental theory of
linking collateral to money issued made both inflation and deflation
impossible, he now says that because of estimation errors, because he
can't focus, he says it doesn't necessarily land on zero. Sorry but
when a man claims 100% accuracy, you can't claim your inability to
focus to the limit to be any possible argument against the claim.

: Is there an equilibrium in Turmel's model? Note that in (I),
:with the original utility for B, both A and B would want to borrow money
:at 0% interest. Note that in (I), any equilibrium would have C_Ai + C_Ai
:= w_Ai +w_Bi, i=1,2; consumption equals supply in each period. With both
:A and B being net borrowers in period 1, C_A1 + C_B1 > w_A1 + w_A2 and
:the reverse for period 2. Demand exceeds supply in period one and the
:reverse in period 2. Simple economics notes then that prices will rise
:in period one and fall in period 2. But if the agents take prices as
:given, then there still would not be an equilibrium. If agents
:understand their impact on prices, then the change in prices is
:implicitly equivalent to interest and an equilibrium is possible. Note
:that when I commented on the LETSystem and implicit interest within
:prices a similar argument holds for that.
:
That's my point. The prices might change with interest but the
amount of money in my hand doesn't also change to match chose prices.
10 Industrialists all borrow 10,000 and owe 11,000. The spend the
10,000 in production, inflation their prices to 11,000 or fail to pay
the bank. 100,000 goes into circulation. With a debt of 110,000,
prices demanded must be raised to 110,000. Only 100,000/110,000 gets
sold and one of the industrialists is foreclosed upon and assets
seized for the bank.
But the agent has no effect on the relationship between the chips
in my hands and the collateral I'm going to be getting at the cage.
There is nothing the users of the machine can do to alter the function
of the machine. Values cannot change. No matter how many times you
theorize how interest must be, I tell you there are models where it
does not have to be.

: The above paragraph follows from the simple reality that
:consumption is specific to certain time periods. Note that money
:borrowed in period one is backed by collateral from period two.
: Should the central bank restrict the money supply such that the
:total supply of money in each period is backed by goods and services
:within that period, then no borrowing from the central bank can occur - the
:model (I) already has that equality established in both periods.
: However, we shall allow for the supply of money to be less than
:the supply of goods and services. For simplcity, then, assume that the
:supply of money is zero.
: First, note that the exchanges of goods is still entirely
:possible as a barter system. Let any good which has non-zero value
:(i.e., is demanded by some individuals) be considered the numeraire, the
:good by which all other good's prices are established. I.e., if we let
:apples be the numeraire, then other goods are worth x apples. Under the
:barter system, the solution in (I) still occurs. I had mentioned before
:in other posts that with n goods, prices form an n-1 dimensional simplex,
:and this is the logic that holds true. Simply, it is only the relative
:prices that matter, not the absolute prices.
: But let everyone borrow $5000 from the central bank each period at 0%
:interest. Note that from that point, both A and B can make mutual gains
:by loaning to each other following exactly the same logic used in (I).
:
Tim's has failed to follow the fundamental theory of no inflation
chips. Before everyone takes out $5,000 in chips from the cage at 0%
interest, you have to determine what a chip is worth.
Here we are off onto a detailed economic examination having
issued $5,000 in chips to all participants but not having fixed a
value for the chips.

:A note on rationality.
:
That's right. It's irrational borrow $5,000 in chips even at 0%
if you don't know what the chip is worth.
I snip parts on how agents influence the chips.

: I called Turmel's watches and toothpick model irrational
:
Yet, when 10 people all put up their homes promising to repay 110
for every 100 they received, that's what's going on. It's not the
model that's irrational. It's the predicament shown by the model
that's irrational. And it it irrational for the group to promise to
all repay 11 when they all only got 10. Ask any child.

:since,
:in a perfectly random game, each agent expects to get 10 toothpicks back
:(what they started with) and thus not be able to buy back their
:collateral. That is to say, each agent expects to be strictly worse off
:as a result of playing the game.
:
Take a poll of all Canadians who have ever played the game and
borrowed at interest to see how many were strictly worse off as a
result of playing the "11 for 10" game. This stupid game is going on
in real life. Ask anyone around you. The whole world is your test
tube. The effects of interest and insufficient money are all around
you. Open a newspaper. Imagine how tallies would have helped the 90%
of the stories there on poverty.

: Clearly, some people can be foolish enough to not realize that
:the game is stacked against them.
:
But you insisted on your right to pay the interest demanded if
your refusal meant not getting your loan. So how foolish is it? People
do it every day since they don't get the loan if they won't sign their
mort-gage death-gamble. I think they're more at peace than those who
do realize the deck is stacked as they sit down to the game?
Everyone's predicament is that in order to get your loan, you have to
sign this clearly stacked death-gamble mort-gage. And as long as
you're convinced you're borrowing someone else's savings, you can
never get up the resentment of someone who realizes he's paying
interest to somebody's TAP.

:However, over time, more and more
:people will realize that playing the game is stupid, and the equilibrium
:result will be no one plays the game.
:
You realize the game is stupid but you were ready to sign.
Everyone plays the game because if they don't, they get no chips to
play the game at all. Everyone is forced to play the 11 for 10 game if
they want their loan or there is no economic game other than barter.

:Thus, if the mortgage system
:really behaves as Turmel suggests in that model, then it can be expected
:that, within a reasonable learning time, everyone will stop playing, and
:there would not be any mortgages undertaken.
:
No it can be expected that within a certain number of cycles,
people will be removed from play by foreclosure and sold to new players ready to
buy the collateral and try themselves. And the others can't stop
playing once they're hooked.

:Turmel thus needs a very
:compelling reason why agents will continue to play the game -- i.e., a
:reason that makes playing the game rational.
:
The compelling reason is that if you try to stop paying 11 for
10, they'll come and take your house and assets away. I can't think of
a more compelling legislated reason than that.

:Finally, on the creation of money. Note that fundamentally, the creation
:of money first occurs when the central bank creates money in an open
:market transaction. One could state, technically, that only the amount
:of money created by the central bank actually exists.
:
Not true if private banks have their own taps, the issue in
question here. In that case, the money created by the central bank
represents only 2% of the money that actually exists. Since economists
have determined that the central bank does only create 2% of the money
that exists, one can deduce that the remaining 98% of the money is not
created by the central bank and those taps remain undetected to
believers that the 2% is "technically" the only amount that actually
exists.

:But the amount of
:money in deposits (and the amount loaned) greatly exceeds the amount of
:money physically in existence.
:
To say that this liquidity and that liquidity is greater than
both of them is silly. The amount of old money in deposits (and the
amount of new money loaned) exactly equals the amount of money
physically in existence. That's how money exists, as savings, and
comes into existence, as loans.

:Hence the various definitions of money,
:M1, M2, M2+, M3, etc.. One could also argue that, since the money
:circulates multiple times through the charter banks and that, each time
:it loops back, deposits and loans increase, that the charter banks are
:also creating money, although they are not creating any physical currency
:or M1.
:
We did the looping through your piggy bank model and found new
the same $100 and new IOUs to balance the new deposit slips but no new
money. He says that the chartered banks create money but he won't
identify the tap and how it connects to the economy.
And sure they create money without creating currency because the
money is created as credits within the software and the cash supply
are simply monetary tokens, chips if you will, for the electronic
money supply. That new money is created though the actual paper money
doesn't change is one of the greatest financial sleights of hand ever
devised.
It's nice to identify the TAP but one must remember that taps are
electronic money to computer bank accounts. I'll call new money E-
money. Taps do not inject cash into circulation.
The bank buys some cash coins or paper from the mint or the
central bank and when you want to take your E-money out for a walk
with you, they take it out of your account and sent it to their
cashier who liquefies your E-money with paper currency much like
casinos liquefy your paper currency with plastic currency.
When I get back, I return the remaining money chips to the cage,
they give me back my E-money and now someone else buys in with their
E-money to get the same physical dollars I had just borrowed and
returned. Paper money is simply a physical cloak for our real money,
our bank credit E-money.
So it a really really devious shell game. Keep the marks thinking
the cash is moving while invisible credit flows go unnoticed in the
background.
So again he admits that chartered banks are creating money but
refuses to start with a tap and show to which pipe it's linked.

: This is probably why the explanation as to who creates money is
:often vague. Fundamentally, it is always the central bank.
:
This if fundamentally untrue. It is always both central and
fractional reserve banks who create money. In one breath he admits it,
in the next he denies it. Another double-think, the ability to accept
two contradictory points of view as both true at the same time.

:Even stating
:that charter banks create money since, after the money goes through a
:charter bank deposits (a measure of money) increases,
:
After something the chartered banks does, the money increases!
Right after saying that fundamentally, it is always the central bank.
Same double-think again. Maybe repetition reinforces the effect.

:the total money
:supply is still determined as a/r, where a := the amount of money created
:by the central bank.
:
Right. where a = the central bank amount. But the rules say that
whatever a the central bank creates, the fractional reserve banks can
create 49 times a. To say this gives the central control in the
creation of money is to underestimate the value being able to create
the other 98% of the money supply can supply. After all, they are but
loansharks allowed to multiply loans by 49 times whatever the central
bank loansharked out.

:: Pretty good argument for linear service charges for our loans.
:: Now we pay $100 on the $1,000 transaction and $100,000 on the
:: $1,000,000 transaction. Every year. I'd rather pay the $15 service
:: charge one for both.
:
:If the linear service charge is r*loan, 0 < r < 1, charged per period,
:say, annually, then over multiple years we have exponential, or compound,
:interest. Thus either your system is not linear or the current system is.
:
First of all, it wouldn't r*loan. I actually stated the opposite
above that the cost of the banker's time would be independent of the
size of the loan.
Cute, eh? I say "$15 service charges for both" and he says "If we
charge more for this one..."
What I call a linear service charge because it's independent of
the loan, he links to the loan and points out it's exponential, like
interest. But if you keep it independent of the size of the loan, it
stays linear unlike interest.
An interest-free system is quite different from an interest-
bearing one.
No, the service charge is not based time either. It's a one-time
charge for the time of the worker who helped you with your forms. If
you don't pay it off for 10 years, nothing changes with no charges per
period since there was no work to be done on the account.

:: And if it's only part of the problem, why would I not still be
:: correct in criticizing economic systems? Why does the problem have to
:: "_simply and only-" the lack of money and not just a component of the
:: problem. Shall it be discarded because it doesn't solve everything all
:: at once but only one small part of the market mechanism? Actually, it
:: does solve everything all at once.
:
:I was simplifying myself. I will allow, if the scarcity of money --
:distinct from the scarcity of goods and services -- is part of the
:problem, then Turmel's criticisms have at least some validity.
:
And you'll never be able to accept that validity until you
connect your loans pipe to the TAP like it should be. Until you see
that, you'll never be able to accept how the system really works.

:: To say scarcity occurs in nature and therefore not in the money
:: supply needs remedial Boolean algebra. Scarcity can and does occur in
:: both real life and in the money supply. One is real, one is
:: artificial. Looking at the real scarcity will not help you in your
:: examination of the artificial one we're discussing here.
:
:Well, take the (among economists) famous Fisher equation:
: M*V = P*T
:Where M := supply of money, V := velocity of money, P := prices, and T:=
:transactions.
:
Here we go into Price theory and again, the casino chip model is
perfectly analogous:
GNP = Money * Velocity = Prices * Number of deals
Volume = Chips * Velocity = Pot size * Number of deals

: The equality holds obviously --> all goods and services that are
:sold are sold at some price and that price must come from some money.
:Since money circulates, each dollar is used in more than one transaction,
:and hence the velocity of money is important.
: If V is constant, as it normally is, and M is set by the central
:bank as it always is, we can use d to represent delta, for discrete changes.
:
In a casino bank or LETSystem, M is not set by the central bank
but left to rise or fall to its most comfortable level since there is
no reason to keep V constant.
I've done this before explaining how one could play 100 $1
gambles in an evening and if I started with 100 $1 chips, I could use
a new chip for each gamble for a velocity of 1.
If I've started with 50 $1 chips, I could use each chips twice
for a velocity of 2.
How many chips I choose to buy-into action is not a function of
the cage by my perception of an acceptable velocity. I know when I sit
down to a $10/$20 Poker game, that buying-in for $500 means I'll have
to buy-in for more one time in 10. If I buy-in for $200, I'll be
rebuying one time in five. With $500, an evening's gambling rolls it
over several times, with $200, it rolls it over a few more times. But
why I take $500 instead of $200 is strictly based on my convenience.
If there were interest charged, everything changes. I'd only
borrow as much as I needed and only when I needed it. Like businesses
today won't pay interest to borrow to hold stock, without interest,
they'd hold as much stock as their shelves could hold just as I'd be
limited by the number of trays of chips I could comfortable hold.
Going to the limit, if I were in a wheelchair, I wouldn't want to
go back the cage at all and I'd the want the lowest velocity possible
by buying-in for everything I had.
So seeking constant velocity is a needless limitation.

: If dM > dT, then dP > 0 (too much money chasing too few goods
:causes prices to rise). Clearly the reverse also holds. Note similarly
:for changes in transactions being the first result.
:
Why not keep the change in prices dP = 0 and let the velocity
fluctuate?

The above of course skips whether T is a function of M, but that
:is not relevant in this simple case.
: Note that for any finite T and any V > 0, infinite money (i.e.,
:no scarcity in money) only results in infinite prices.
:
No scarcity of money doesn't mean infinite money generating
infinite prices. Please. No scarcity of money can also mean just
enough out of an infinite source. And my version of no scarcity of
chips is just that. And just enough results in stable prices, never
infinite prices.

:In fact, for any
:fixed T and V, increasing the money supply necessarily only increases
:prices -- which is why I claimed that scarcity of goods and services is
:the only problem and not supply of money.
:
Here he is fixing the velocity or the number of pots and asking
what increasing the number of chips does to the size of the pots. Yes,
fixing those factors results in larger pots. Big deal. Why fix those
safely fluctuating factors?

:: No, lowering the interest rate does not lower the bank's reserve
:: ratio. Yes vice versa. The reserve ratio has been defined in
:: legislation by Parliament. Cutting it allows for more and therefore
:: cheaper borrowing into circulation. But whatever then happens in
:: circulation has no effect on the rate the Banker sets.
:
:Subsequent to the last amendment of the Bank Act, which occured under
:Mulroney's govt, the minimum legislated reserve ratio was abolished.
:This was done in part since charter banks were always maintaining
:reserves greater than the minimum ratio.
:
Great news!
So the TAP can now be turned on independent of the savings, just
like a LETSystem issues Greendollars, with no savings base. How does
Tim feel finding out that his loan is based on nobody's savings but
his TAP's?
Pretty well cinches my point, doesn't it? No depositor walks in,
he walks in and comes out with a loan. Even his piggy bank model can't
do that. It needs the first $100 to start rolling over with IOUS. Now
that he starts getting his loan without there having been any
depositor, it might become even more obvious that loans were never
depositors' savings!!
So the bank taps to the nation's money are now totally
independent of any limit at all. I don't know if that's bad. It seems
to take away the trigger mechanism forcing them to call in loans when
depositors withdraw too much.
Since this sounds good, I would have to question it as a given
and ask Tim to cite some documentary proof before I breathe a sigh of
relief that the decision to foreclose is now off automatic pilot and
firmly in the hands of bankers we can grovel to.

:: But you don't comment on whether I used my plumbing model
:: correctly enough to have a pedagogical value in economics. We know it
:: works for engineers. You tell us it also works for economists. Did it
:: work for John The Engineer?
:
:Models only work if reasoanable assumptions are made and if the math is
:valid. Certainly a plumbing model can have valid mathematics and is thus
:of potential pedagogical value. However, I have attempted to note many
:of the fundamental failures in Turmel's analysis which makes those models
:incorrect. Now incorrect models can still have pedagogical value (i.e.,
:assignment question: Is the following a correct model -- explain
:fully), and, as such, Turmel's models might still find their way into an
:economics classroom.
:
I see no reason that the technical veracity of my very elementary
models should elicit a grudging probability. If properly modelling the
system to enable you to connect to a TAP of interest-free credit has
really been accomplished, you should be dancing in the streets.
Wouldn't an interest-free credit card go good for you and your buddies
now. You're a switch of a disk away from global financial heaven and
you even have a do-it-yourself Local model of financial heaven to try
it out.
I see no reason to be sad about financial life-boats springing up
all around the world. I'm ecstatic. I had heard on the Web about them
setting up the Greendollar software in Britain in 1992. I had heard
about explosive growth. I found out this year from university
professor doing a paper on LETS that there were now 350 Greendollar
branches serving over 30,000 Greendollar accounts.
And I had a major hand in getting that new financial software to
them. And I'm bursting with pride on having bet on such a winner when
it was on the ropes and almost out of the game. You can ask Michael
Linton. My financial contribution saved his ass but I bet on him
because he'd designed a winner. And it's paid off. I got to be guest
speaker at the New Zealand Greendollar National Meeting and take a few
bows for having backed a winner. No matter what anybody thinks about
my views on the evils of interest, they know I backed a winner system
which designed around those evils.

: In fact, I hope that Turmel is clever enough to see that a
:plumbing diagram could be constructed from the model that I presented of
:the banking system.
:
As a matter of fact, that's exactly what I had done. I called the
piggy bank model.

:Let money be injected from a tap, the central bank,
:into a charter bank. Let the reserve ratio of the money go to the
:reserves, the rest goes to loans which loops back into the charter bank.
:
That' how I showed it. The depositors savings actually went out
and were replaced by the IOUS for the loans.

Using liquid to represent money, if we measure the volume of liquid that
:enters the bank either from the central bank or from deposits (allows
:liquid to be double-counted) and the volume that is loaned out,
:
And double-counting doesn't create new liquid.

:we will
:find that the volume of liquid deposited is 1/r, the volume of liquid
:loaned is (1-r)/r, the volume of liquid in reserves (which is the
:reservoir of all money) = 1.
:
No new money. 1. The same.
But in reality, with a tap, when $100 goes in and $90 is loaned
out, there is now 1.9 the amount of money in circulation.
Only with a tap can you create new liquidity. It is a fundamental
fact of plumbing. It is also a fundamental fact of banking. And as
long as he keeps saying that the loans are coming from the rest of
their savings and not the tap, he's wrong, wrong, wrong. And no matter
how many times he says his savings are double-counted into new money,
no new liquidity is created.
I can take in 10 quarts, lend out 9, take in 9, lend out 8, take
in 8, lend out 7, and if the suckers want to believe there are 90
new quarts into circulation when I don't have a tap in my plumbing, I
don't know how to explain it. It's the double-think. Plus the
inability to recognize that the actual presence of the 90 quarts could
exist only with a tap.

:I haven't used any fancy diagrams, but I
:figure most people who can use internet can handle that much for themselves.
:
:: And who to better understand the usury banking system than the
:: engineer who first drew its Laplace Transform Control Circuit? Check
:: it out in my Mathematics of Usury. Other engineers have vouched for
:: it.
:
:I commented a while ago that mathematics + bullshit = bullshit. The same
:holds true for economics. I have no doubts that the math in your models
:is correct, it is the underlying economic assumptions which I am challenging.
:
There is only one simple underlying assumption. 11 for 10 is
evil. 11 for 10 has deadly repercussions.
The rest of my models are strictly technical examinations of the
underlying assumption that the usury mortgage creates a deathgamble
with real world consequences.

:: You're not supposed to continue to not understand when there's a
:: working model for you to get on and pedal.
:
:I would have to say ditto for the current system.
:
I see 5,000 years of testing on the current model with the same
series of malfunctions reported generation after generation. I see 700
years of testing of the Tally model with no malfunctions reported
generation after generation. I see the tally model inherent in the
LETSystem creating gardens out of alleys around the world today. To
even hint that the current slavery model is "working" is in an
abasement of the word "working."

:: If the non-existence of interest cannot be sufficiently
:: demonstrated when it's been designed out of the blueprint, then
:: you've got your eyes closed. I call this "judicial disease."
:
:Economics, at the very least, attempts to follow scientific methodology.
:Scientists like to isolate out other possible causes in order to
:sufficiently prove that two things are positively related.
:
They might like to isolate the causes but they have not isolated
the interest to consider what would happen if it were set to zero.
It's an experiment that has never been considered because interest is
an economist's given.

:Economists
:don't often have the normal luxury of doing experiments with control
:groups, but nevertheless attempt to use the same concept in our
:methodology.
:
This experiment you can do with just a few buddies. Get them to
put up their watch as collateral for some tokens, make them all try to
pay back more in some kind of game and keep taking the watches of the
losers until you have all the watches. This is a trivial of game
theory at work, so trivial, anyone can do and understand it.

:Hence, the cateris paribus (all else being equal) statement
:that we use.
:
You mean "I'm not convinced and all else being equal, Turmel
could be wrong half the time."

:Hence models that unambiguously show the isolated effect.

He's way past us plumbers. We're trying to locate the source of
the TAP and he's talking models that isolate effects. Well, isolate
the effect of new liquidity and show us plumbers the TAP.

:Because of scientific methodology, science is generally more reliable
:than speculation or opinion.
:
And your Economic science had better concord with the plumbing
because I'm trusting the plumbers and not the guys checking the dial.

:If Turmel wishes to merely use opinion
:versus economic science and claim that opinion carries more weight, then
:I see no reason for continuing in this thread.
:
No. I wish to use plumbing versus economic science and claim that
plumbing carries more weight. And if you want to treat plumbing with
the same disdain as opinion, I have to agree. You have nothing to
gain. I've been trying to pin you on the connection between the loans
and the TAP for cycles now. I keep hitting you with the same plumber's
objection. Before I believe that your bank machine is creating new
liquidity, show me the tap. Otherwise, I'll always believe that you're
running up deposits by rolling the same money over and over again.
I understand your aversion to accepting that the loans pipe is
connected to the tap. It goes against the cover stories which have
been bred into you. "I must pay interest or he won't lend it to me" is
easier to imprint than "I must pay interest or the tap won't lend it
to me."
But I must say your discussions have provided a wealth of new
examinations of this intricate usury slavery device. It would be a
shame for you to duck out without at least verifying or not that the
plumbing model is right. Leaving it up in the air when it would seem
elementary to ask your Economics prof if the diagram helps him in his
presentation implies that you're afraid of what you'd find out. And
afraid of how you'd have to handle explaining how your profession
could have been so silly in its study of something as elementary as
poker chips.
I would note that the repetitive condemnation of the money
madness caused by interest in the Holy Books would have been a clear
clue that usury is not a subject to be treated lightly. As the
greatest sin of all time, discounting any connections between it and
all the death around us seems less than prudent.
How can so many people race to their graves defending interest?
With death and extinction all around him and zeroing interest rates as
the only suggestion that's showing positive results with LETS, how can
he not be riveted on the topic? Won't he want to follow and see if the
Calgary LETS grows to help substantial numbers of people. With that
result or even before, won't he not think of starting one on his
school's database?
It's like sitting with a new key that's fallen through your
prison window and not trying it out because nothing's ever worked
before.
The fact that Tim perceives these exchanges as distressing means
he's concentrating more on the pain of the destruction of his
philosophy and less on the good times of his own interest-free credit
card.
One last note of optimistic news. In the Nov. 26, 1995 Ottawa
Sun, Peter Stockland a study which pointed out that the Earth's
resources are sufficient to 35 to 105 billions people. We've hardly
scratched the Earth's crust in our quest for minerals, we've hardly
put our agricultural resources to use.
It's quite nice to think that there's nothing standing between us
and the harvesting of abundance but the collaboration of 50 of the
world's richest men. That is unless they want to keep it all for
themselves in case of scarcity.
Seeing all those starving people on TV fosters the false notion
that scarcity is the cause. That's it's only a scarcity of money which
manifests itself even in rich societies where homeless sleep outside
palaces, if abundance were acknowledged, why are there so many poor
people which reflects right back on the guys who were running the
economic system, economists?
Imagine believing that there was scarcity in a Garden of Eden by
an artificial scarcity in the accounting supply. We've been slaves
yoked to our debts through centuries where abundance was available for
all. What a crying shame. And what a crying shame it's still going on.
Like Christ said: Earth could be Heaven is we get rid of the
Alleys where men weep and gnash their teeth caused by usury." I'm a
firm believer that someday, I'll wake up and Death-gamble will be
over. But each day of delay costs lives. Usury is our greatest
question of life and death. If we master it, we live. If it masters
us, we die a slow and horrible ecological death.
I'm for switching money software rather than suffering a slow
horrible ecological death. If you think about it, aren't you really
for upgrading the buggy bank software to stabilize the value of money
before getting to use some yourself?
Final note. I'd like you to tell me about the next TV drama or
tragedy that isn't motivated by insufficiency of money somewhere.
Without such automatic insufficiency of money, such tragedies would
never again be shown on the news. I do believe these movies detailing
the money madness prevailing during our generations will continue to
be shown in the study of how usury tricks men into accepting life
under "kill-or-be-killed" elimination mort-gage rat race rules.
--
John C. "The Engineer" Turmel, Leader, Abolitionist Party of Canada,
2918 Baseline Rd., Nepean, ON, K2H 7B7, Canada,Tel/Fax: 613-820-8656
All TURMEL topics cross-posted to newsgroup: can.politics

[Timothy Huyer]

John Turmel (bc...@FreeNet.Carleton.CA) wrote:

: huy...@qed.uucp (Timothy Huyer) wrote:
:
: :I will attempt to deal with Turmel's positions by trying to cover briefly
: :the various issues that he raises:
: :

: He then goes into a detailed explanation...

:-) I guess I should always avoid the word "briefly" since I never seem
to be able to make anything brief.

: I keep repeating that a credit union or a savings and loan or a

: private piggy bank work as intermediaries lending out their
: depositors' savings. But chartered banks do not.

And, as I had attempted to show in the banking model in my previous post
that you are incorrect. Please re-refer to that post.

: Repeatedly I've pointed out that the bank does "NOT loan out the

: remainder." If it were lending out the remainder of the money in the
: piggy bank, the money supply would not go up. Since it does go up when
: banks make loans, they are not lending out the remainder but they are
: lending out new money.

I had mentioned regarding the definitions of money supply, although,
since my field is not money and banking, I was admittedly terse and
possibly vague. In the model of the banking system in my previous post,
M1, which would be cash and reserves, was $1, precisely the amount of
money created by the central bank. M2 is the amount of all deposits,
$10. So, since M2 > M1, one could state that the money supply has gone
up. However, the charter banks do not affect the size of M1, and M2 is
fundamentally limited in size by the size of M1.
I had also word wise created a possible plumbing diagram. In it,
with liquid injected from the central bank (tap) to the charter bank
which siphons a fraction to its reserves and loans out the remainder
which cycles back to the charter back, the reserves eventually become the
reservoir of all liquid. However, the volume of liquid that is deposited
in the bank, allowing some liquid to be double (and triple...) counted,
was 10 times the actual amount of liquid physically in existence. This
is caused since the model is dynamic and the liquid has, for want of a
better term, velocity.

: And as I pointed out with the flows which Tim seems to have

: failed to follow, it doesn't loan out the remainder. Seems we've been
: over this umpteen times but it does prove my point that the question
: is one of the major double-thinks of Economics, guaranteed to keep
: them permanently confused.

If charter banks didn't loan out money deposited into them, they would
have a hard time making any deposits. I.e., we have positive transaction
costs (the costs of tellers et al) and the costs of paying interest on
deposits. Obviously banks need revenue somewhere. If it did not come
from deposits (i.e., from loaning out deposits) then it would be strictly
more profitable for banks to NOT accept deposits and loan out their
alternate source of money only. Given that banks can be quite reasonably
assumed to be profit maximizing or even approximately profit maximizing,
one must conclude that some profit is generated for banks by using
depositors' money.

: With zero reserve ratio, the money supply COULD be infinite.

: That's how LETS and casino cages work with zero reserve ratio. No one
: needs deposit old chips to the safety deposit section in order for us
: to loan out new chips from our infinite supply in the cage.

Actually, with positive reserve ratios, the money supply could be
infinite, iff (if and only if) the central bank created infinite money.
The central bank effectively does have unlimited money (corrollary, never
worry about a cheque from the Bank of Canada bouncing!) just like the
infinitely well supplied cashier in Turmel's casino model.

: Having an infinite supply in the cage doesn't mean that an

: infinite supply is issued. It's always fixed to the finite amount of
: goods and services so it follows that prices, i.e., inflation, is
: zero.

As is what the central bank attempts to do. There is some error involved
in estimating what the amount of goods and services are, hence, there is
some inflation as a result.

: The amount of money people keep in cash on their person is

: minimal. The bulk of the volume of transactions is done by check from
: one account to the other.

Granted, but note that, given wealth w and environment e, f(w|e) > 0 in
general (and at worst is non-negative). All that the analysis requires
is that if F is the aggregate demand for cash and W aggregate wealth,
F(W|e) > 0 for at least some environments e.

: He talks about the banks needing to have cash on hand and looks

: at it from the point of view of one bank imagining that all the
: depositors take out their money leaving his accounts all empty. The
: point is that all those deposits go into other similar bank accounts.

(1) I never made a claim that all deposits are withdrawn. In fact, I
made almost no assumptions regarding the cash demand function f (i.e.,
it need not be everywhere differentiable, for one). Note that f(w|e) is
necessarily bounded, as noted above.
(2) It can be assumed, but is not necessary, that all cash eventually
ends up in banks. However, at any particular point in time, banks
perceive demand for cash to be some random variable over the bounded range.
I.e., all money in anyone's wallet is, at that precise moment, not in a
bank. This does not depend upon the number of banks in existence.

: And even though nothing would have happened if all the deposits

: had ended up back within the same bank, having them all leave would be
: cause for termination of the operation hurting the economy as a whole
: even though savings simply splashed from one bank's accounts to
: another bank's accounts rather than from one bank's accounts back to
: it's own bank's accounts.

Somewhat correct. Since reserves are only a fraction of deposits, if
demand for cash exceeds reserves, banks cannot meet that demand. In the
1930s, this caused runs on banks with the infamous collapse of banks as a
result. Subsequent to that catastrophe, central banks have become
"lenders of last resort". That is, even if a charter bank does not have
sufficient reserves it can borrow unlimited money from the central bank
at the bank rate. Since borrowing from the central bank costs money,
charter banks choose to maintain strictly positive reserves.

: The reserve ratio doesn't change. It is set by legislation.

I repeat, pursuant to the last change in the Bank Act (I am not certain
of the year, could be 1990, definitely under Mulroney's govt), the
minimum reserve ratio was abolished. In fact, even prior to that point,
the legislated reserve ratio was merely a minimum, and banks could be
allowed to adjust their reserve ratios provided they remained above the
minimum. One argument for abolishing the legislated minimum was that it
was never binding; charter banks were always maintaining reserve ratios
strictly higher than required by law.

: If they did that and a depositor withdrew $10, the amount legally

: allowed out of the tap would be reduced from $90 to $81 and the bank
: would have to call in part or the whole loan. For this reason, the
: banks leave themselves a float of reserves upon which the tap may be
: operated in case of a "run on the bank."

Correct. This is a reason why reserve ratios will typically fluctuate
within a given range. If reserves drop too low, banks will stop issuing
loans (it is very rare that a bank will actually call in a loan), and
increase interest rates to discourage borrowers and encourage people to
deposit money. Through controls like this, banks will maintain control
over their reserve ratios.
Banks, however, will always try to keep the minimal reserves
possible. This is because reserves earn no revenue and the deposits that
created the reserves cost the bank.

: But you chose balancing the interest growth in the debt with new

: chips to the money supply as the solution. That's my point. When faced
: with the 11 for 10 dilemma in my game-theoretic model, you chose the
: same solution chosen by the Socreds in real life.
: Since debt is more than money, up the money to match it.

Turmel is commenting in regards to an error that I had made some time
ago. In his 11 for 10 dilemna I had first erroneously proposed that the
problem lay in fixed wealth. The correct criticism, which I adopted
later, was that the 11 for 10 dilemna was irrational. I apologize for
the confusion that my error caused, and it proves that I should actually
read and think prior to posting.

...I am quickly running out of time for this post, so I will skip much
and comment at a level that approaches conciseness elsewhere...

: Take a poll of all Canadians who have ever played the game and

: borrowed at interest to see how many were strictly worse off as a
: result of playing the "11 for 10" game. This stupid game is going on
: in real life. Ask anyone around you. The whole world is your test
: tube. The effects of interest and insufficient money are all around
: you. Open a newspaper. Imagine how tallies would have helped the 90%
: of the stories there on poverty.

A simple way of testing the rationality of the 11 for 10 game/dilemna, is
to invite ten people over, play the game several times, and find out how
quickly it takes before people exercise the option of not playing. You
will find that some people, possibly all, will play the first time, but,
after learning, they will all stop playing (might take a few games,
though).
If the model requires that people must behave irrationally in
order to give something that resembles real life, then the model is
useless. You need a new model that explains why people take out loans.
See (I) in my previous post for such a model.

: But you insisted on your right to pay the interest demanded if

: your refusal meant not getting your loan. So how foolish is it? People
: do it every day since they don't get the loan if they won't sign their
: mort-gage death-gamble.

If you are better off without the loan (and hence, without paying the
interest) then no one is forcing you to take out a loan. Economics
generally assumes that actions freely undertaken are only done so if they
are expected to be of benefit, utility. I mean, why do something if it
is of zero or negative benefit?

--
Tim Huyer, Graduate Studies | "Masters are always and everywhere
Department of Economics | in a sort of tacit, but constant and
Queen's University, Canada | uniform combination, not to raise the
huy...@qed.econ.queensu.ca | wages of labour above their actual
4t...@qlink.queensu.ca | rate." Adam Smith
- My opinions do not necessarily reflect my views or those of anyone else -

[John Turmel]

On Nov 29 1995, Article #116325 of Newsgroups can.politics,

huy...@qed.uucp (Timothy Huyer) wrote:
典倽泾
:John Turmel (bc...@FreeNet.Carleton.CA) wrote:
:
:: I keep repeating that a credit union or a savings and loan or a

:: private piggy bank work as intermediaries lending out their
:: depositors' savings. But chartered banks do not.
:
:And, as I had attempted to show in the banking model in my previous post
:that you are incorrect. Please re-refer to that post.
:

We're off the topic here of whether credits unions and savings
and loans do act like piggy banks. The question is whether the
chartered banks act like casino banks with a tap for new chips.

:: Repeatedly I've pointed out that the bank does "NOT loan out the

:: remainder." If it were lending out the remainder of the money in the
:: piggy bank, the money supply would not go up. Since it does go up when
:: banks make loans, they are not lending out the remainder but they are
:: lending out new money.
:
:I had mentioned regarding the definitions of money supply, although,
:since my field is not money and banking, I was admittedly terse and
:possibly vague. In the model of the banking system in my previous post,
:M1, which would be cash and reserves, was $1, precisely the amount of
:money created by the central bank. M2 is the amount of all deposits,
:$10. So, since M2 > M1, one could state that the money supply has gone
:up. However, the charter banks do not affect the size of M1, and M2 is
:fundamentally limited in size by the size of M1.

:
Again, I don't care what you call the money coming out of the
banks' loan pipes. I just want you to admit that it's connected to the
tap and that it's new money, not old savings.

: I had also word wise created a possible plumbing diagram. In it,

:with liquid injected from the central bank (tap) to the charter bank
:which siphons a fraction to its reserves and loans out the remainder
:which cycles back to the charter back, the reserves eventually become the
:reservoir of all liquid.

:
I specifically drew that example in my Oct. 30 1995 post. How
could he forget:

:A reader wrote
::
::O.K. So now the bank has $100 (which you placed on deposit and so
::theoretically have access to)
:
: PIGGY BANK
: Deposits Interest(paid) Loans Paid
:Depositor | | |
: |------------|-------------|-------------|--------------|
: | |----|-------------|-------------|----| |
:DS100 | | $100 RESERVOIR | |
: | |----|-------------|-------------|----| |
: |------------|-------------|-------------|--------------|
: | | |
: Withdrawals Expenses Loans Made
:
: So the piggy bank has the 100 dollar bills and you have a deposit
:slip for $100.
:
::>::The person loaned the $90
:
: PIGGY BANK
: Deposits Interest(paid) Loans Paid
:Depositors | | |
: |--------|-------------|-------------|--------|
:DS100 | |----|-------------|-------------|----| | Borrower
: | | $10 RESERVOIR IOU90 | | $90
: | |----|-------------|-------------|----| |
: |--------|-------------|-------------|--------|
: | | |
: Withdrawals Expenses Loans Made
:
::>:: buys goods from someone else, who deposits the $90 in the bank.
::
: PIGGY BANK
: Deposits Interest(paid) Loans Paid
:Depositors | | |
: |--------|-------------|-------------|--------|
:DS100 | |----|-------------|-------------|----| |
:DS90 | | $10 RESERVOIR IOU90 | | Borrower
: | | $90 | | $0
: | |----|-------------|-------------|----| |
: |--------|-------------|-------------|--------|
: | | |
: Withdrawals Expenses Loans Made
:
::O.K. now the grocer who sold the goods has $90, the person who spent the
::money has groceries but also owes the bank $90 plus interest. Now
::theoretically the Grocer still has access to the $90 he placed on deposit
::(and I still theoretically still have acess to the initial $100 for a total
::of $190 "deposited" in the bank between you and the grocer). Let's hope
::that you and the grocer don't need to make big withdrawals becuase it get's
::worse.
::
: The person who borrowed the $90 out of your piggy bank replaces
:it with his IOU for $90. The grocer then deposits the $90 into the
:piggy bank and gets a deposit slip for $90.
: It's true that the original depositor has his deposit slip for
:$100 and the grocer has deposit slip for $90 but the piggy bank still
:only holds $100 and the $90 IOU.
:
::>::The bank holds $9 to maintain cash reserves, and loans out $81.
::
: PIGGY BANK
: Deposits Interest(paid) Loans Paid
:Depositors | | |
: |--------|-------------|-------------|--------|
:DS100 | |----|-------------|-------------|----| |
:DS 90 | | $10 RESERVOIR IOU90 | | Borrower
: | | $ 9 IOU81 | | $81
: | |----|-------------|-------------|----| |
: |--------|-------------|-------------|--------|
: | | |
: Withdrawals Expenses Loans Made
:
: Again, the person who borrowed the $81 out of your piggy bank
:replaces it with his IOU for $81.
:
::>::And so on.
:
: The borrower spends the $81 and that vendor deposits it:
:
: Deposits Interest(paid) Loans Paid
:Depositors | | |
: |--------|-------------|-------------|--------|
:DS100 | |----|-------------|-------------|----| |
:DS 90 | | $10 RESERVOIR IOU90 | |
:DS 81 | | $ 9 IOU81 | | Borrower
: | | $81 | | $0
: | |----|-------------|-------------|----| |
: |--------|-------------|-------------|--------|
: | | |
: Withdrawals Expenses Loans Made
:
: $8 is held in reserves and the other $73 is loaned out in
:exchange for another $73IOU
: PIGGY BANK
: Deposits Interest(paid) Loans Paid
:Depositors | | |
: |--------|-------------|-------------|--------|
:DS100 | |----|-------------|-------------|----| |
:DS 90 | | $10 RESERVOIR IOU90 | |
:DS 81 | | $ 9 IOU81 | | Borrower
: | | $ 8 IOU73 | | $73
: | |----|-------------|-------------|----| |
: |--------|-------------|-------------|--------|
: | | |
: Withdrawals Expenses Loans Made
:
: The borrower spends the $73 and that vendor deposits it:
:
: Deposits Interest(paid) Loans Paid
:Depositors | | |
: |--------|-------------|-------------|--------|
:DS100 | |----|-------------|-------------|----| |
:DS 90 | | $10 RESERVOIR IOU90 | |
:DS 81 | | $ 9 IOU81 | |
:DS 73 | | $ 8 IOU73 | |
: | | $73 | | Borrower
: | |----|-------------|-------------|----| | $0
: |--------|-------------|-------------|--------|
: | | |
: Withdrawals Expenses Loans Made
:
::Exactly. Each time the loan is spent the loan is still owed to the bank and
::the deposit from which the loan was made is still owed to multiple
::investors. If you can see that perhaps money and credit are one and the
::same then you ought to be able to see the new money being created.
::
: At this point, the first depositor has his deposit slip for $100
:and the savers have deposit slips for $90, $81, and $73 but the piggy
:bank still only holds $100 in cash and the $90, $81 and $73 IOUs. I
:see no creation of any new money here. I see more deposit slips and
:more IOUs but no new money.
:
: At the limit of the process:
:
: Deposits Interest(paid) Loans Paid
:Depositors | | |
: |--------|-------------|-------------|--------|
:DS100 | |----|-------------|-------------|----| |
:DS 90 | | $10 RESERVOIR IOU90 | |
:DS 81 | | $ 9 IOU81 | |
:DS 73 | | $ 8 IOU73 | |
:DS 66 | | $ 7 IOU66 | |
:DS 59 | | $ 7 IOU59 | |
:DS 53 | | $ 6 IOU53 | |
: | | | | | | |
: | | |------ ------ | |
: | | | $100 IOU900 | | Borrower
: | | |----|-------------|-------------|----| | $0
:----- |--------|-------------|-------------|--------|
:DS1000 | | |
: Withdrawals Expenses Loans Made
:
: Lots of new Deposit Slips and IOU slips but no new money, only
:the original 100 dollars in your piggy bank and $900 in IOUs matching
:1,000 in Deposit slips.
: Get yourself a piggy bank and 100 dollars and no matter how many
:times you relend and reborrow that 100 dollars, you'll find that you
:don't end up with more money. If your piggy bank does manage to end up
:with more than 100 dollars, the government will certainly be knocking
:on your door.

So I think it's pretty clear that I did deal with the bank as a
piggy bank model that he describes. I also show that the process of
passing the money through the piggy bank over and over again to create
new IOUs and new deposit slips does not create new money. There has to
be a tap.


:However, the volume of liquid that is deposited

:in the bank, allowing some liquid to be double (and triple...) counted,
:was 10 times the actual amount of liquid physically in existence. This
:is caused since the model is dynamic and the liquid has, for want of a
:better term, velocity.
:

He keeps calling his volume which passes through the bank over
and over "double-counting." He's saying they use the same old 100
quarts of liquidity but by double-counting it as it pumps through
their piggy bank, they're actually doubling the real money supply.
Notice that this falling back on "double- and triple-counting"
the money is only necessary if you cannot see a tap. Anyone prepared
to use my model with a tap has no need to speak of double-counting
since the depositors' savings are counted once and the borrowers
deposit if counted once.
No matter how you cut it, putting the tap into the design
certainly explains the flows going in and out of a bank better than
working without a tap and believing that double-counting or triple-
counting is going on.
As a matter of fact, I'd never read of the theory of double-
counting to create new money in any of the Economics books I'd read
before. In Economics by Lipsey/Sparks/Steiner, there's no mention of
double-counting. In Money & Banking by Boreham/Shapiro/Solomon/White,
there also is no mention of double- or triple-counting to create new
money. And I'm not checking anywhere else. Tim can provide us with a
reference to double-counting if he brings it up again.

:: And as I pointed out with the flows which Tim seems to have

:: failed to follow, it doesn't loan out the remainder. Seems we've been
:: over this umpteen times but it does prove my point that the question
:: is one of the major double-thinks of Economics, guaranteed to keep
:: them permanently confused.
:
:If charter banks didn't loan out money deposited into them, they would
:have a hard time making any deposits.

:
So because they would have a hard time, they wouldn't? This is
not a philosophical question of how hard a time they would have if the
new loans come out of the tap or out of the reservoir. But this is a
technical question which you cannot face.

:I.e., we have positive transaction

:costs (the costs of tellers et al) and the costs of paying interest on
:deposits. Obviously banks need revenue somewhere. If it did not come
:from deposits (i.e., from loaning out deposits) then it would be strictly
:more profitable for banks to NOT accept deposits and loan out their
:alternate source of money only.

:
Thank you for just proving my point better than I could have.
Since they don't lend from the reservoir but do lend from the tap, why
do they spend all that expense to keep the reservoir filled?
You conclude that it would be illogical to fill the reservoir if
they weren't lending money from the reservoir and since they're
filling the reservoir, then loans must be coming from the reservoir.
I conclude that they pay all those expenses to fool people like
you into refusing the believe what you see, that it's coming from the
tap, and continuing to believe that because they worry about keeping
the reservoir full, it has to be coming from the reservoir.
And given the power banks get of okaying or refusing a loan from
the tap to needy borrowers, paying the expenses looking like you need
to keep the reservoir full so that the suckers don't know it's coming
out of the tap seems sell worth the investment for total economic
control.

:Given that banks can be quite reasonably

:assumed to be profit maximizing or even approximately profit maximizing,
:one must conclude that some profit is generated for banks by using
:depositors' money.
:

Given that banks spend money to profit doesn't mean that they're
not making their money by the lending. As I've explained, they get
their profits from money manipulations of the tap and hiding the tap
is the first most important thing to do in a world where everyone is
thirsting. So it costs to build a piggy bank cover for your casino-
style bank. So it even costs you all the interest you collect to pay
the interest on those unused savings, it still leaves you in charge of
an invisible tap in a desert of debt slaves. That's where the power
comes from and needlessly holding savings deposits and needlessly
paying those depositors' their interest is a great cover to hide your
control of the pump.

:: With zero reserve ratio, the money supply COULD be infinite.

:: That's how LETS and casino cages work with zero reserve ratio. No one
:: needs deposit old chips to the safety deposit section in order for us
:: to loan out new chips from our infinite supply in the cage.
:
:Actually, with positive reserve ratios, the money supply could be
:infinite, iff (if and only if) the central bank created infinite money.
:The central bank effectively does have unlimited money (corrollary, never
:worry about a cheque from the Bank of Canada bouncing!) just like the
:infinitely well supplied cashier in Turmel's casino model.
:

When you're talking about a monetary system which has a zero
reserve ratio as well as zero interest, zero unemployment and zero
inflation, nobody cares what the reserve ratio can make the money
supply do in the inferior model.

:: Having an infinite supply in the cage doesn't mean that an
:: infinite supply is issued. It's always fixed to the finite amount of
:: goods and services so it follows that prices, i.e., inflation, is
:: zero.
:
:As is what the central bank attempts to do. There is some error involved
:in estimating what the amount of goods and services are, hence, there is
:some inflation as a result.
:

It is silly to say that making sure the collateral matches the
chips issued is a central bank issue when it is an "every-bank" issue.
And errors in estimating values in transactions are cancelled when the
valuation is done and the equity priced. If the buyer bought too high,
he incurs such loss. The value of the asset in the cage always remains
the same.

:: The amount of money people keep in cash on their person is

:: minimal. The bulk of the volume of transactions is done by check from
:: one account to the other.
:
:Granted,

:
So engineers often find it easier to look at the flows which
represent 99% of the volume alone and the real world analogy would be
for the banks to cease cash and only allow checking. Then we'd have a
zero preference for cash.

:but note that, given wealth w and environment e, f(w|e) > 0 in

:general (and at worst is non-negative). All that the analysis requires
:is that if F is the aggregate demand for cash and W aggregate wealth,
:F(W|e) > 0 for at least some environments e.
:

Sorry. Here you lost me since you don't define the operator "|"
or the units for wealth (though ergs would do) or the units for
environment (which I've never heard of), or the units for demand for
cash. I can only paraphrase how I tried to read it:

Note that demand for cash f is the function | of w and e always
greater than zero. If aggregate
demand for cash F is the function | of aggregate Wealth and e greater
than zero, that's all the analysis requires.
And now that the analysis got what it required, what does it end
up saying? All I said that was 99% of money is e-money in chartered
banks computers and that the study of the demand for 1% in cash was
not of major utility.

:: He talks about the banks needing to have cash on hand and looks

:: at it from the point of view of one bank imagining that all the
:: depositors take out their money leaving his accounts all empty. The
:: point is that all those deposits go into other similar bank accounts.
:
:(1) I never made a claim that all deposits are withdrawn. In fact, I
:made almost no assumptions regarding the cash demand function f (i.e.,
:it need not be everywhere differentiable, for one). Note that f(w|e) is
:necessarily bounded, as noted above.
:(2) It can be assumed, but is not necessary, that all cash eventually
:ends up in banks. However, at any particular point in time, banks
:perceive demand for cash to be some random variable over the bounded range.
:I.e., all money in anyone's wallet is, at that precise moment, not in a
:bank. This does not depend upon the number of banks in existence.
:

But it's still 1% of the peanuts. 99% is sitting in bank
computers at all times.
How many times in these discussions have I said "let's
concentrate on the bulk" and he keeps getting into the trickles?

:: And even though nothing would have happened if all the deposits

:: had ended up back within the same bank, having them all leave would be
:: cause for termination of the operation hurting the economy as a whole
:: even though savings simply splashed from one bank's accounts to
:: another bank's accounts rather than from one bank's accounts back to
:: it's own bank's accounts.
:
:Somewhat correct.

:
NOT somewhat. It is correct. If half the savers in a bank cut
checks for all their money to other accounts in that bank, nothing
happens. If half the savers in a bank cut checks for all their money
to accounts in other banks, then the bank has to start calling in
loans. Most banks don't lend out all of the tap money they're allowed
to because their allowance could be reduced if deposits go down.
Strong banks lend out 80% of their allowances, they have plenty of
reserves. If large withdrawals are made which would cause a bank whose
reserves have fallen below the allowable limit and have to start
calling in loans to weather the storm since not all their loans were
out when the reduced allowable amount came in.
Making the volume of your loans dependent on savings is a
ridiculous control system. In LETS with a zero reserve ratio, the
volume of chips issued into today's game has nothing to do with the
volume of chips saved from yesterday's game. It has only to do with
the collateral you have on you or your credit.
Isn't this a beautifully tricky way to disguise a casino model
tap banking system as a piggy bank no-tap model and have it react to
the outside world in exactly the same way a piggy bank would. "Alas,
there's no money left in the piggy bank. We can't lend."
One guy looking for a solution who peeks through the slot at the
top into the inner plumbing of the piggy bank screaming "Hey, I can
see a tap" is not what they're particularly happy about.
But if finding a tap to fund environmental repair, to fund
infrastructure repair, sick-bay repair, engine repair, then scream
"Here's the money tap" I'll forever continue to do.

Throwing in another example of how major societal problems would
be saved when everyone gets their own interest-free credit card, let's
take my example.
My father was a Polish survivor of World War II. A steel-worker.
He worked hard, he drank hard and when he did, and only when he did,
he did his talking with his fists. With state-sponsored alcohol sales,
my mother had to run with the kids.
We went through years of poverty as mom worked and we went to
school. It's a struggle I'd bet most single-parent families go
through.
If my mother had had her own interest-free credit card as should
all mothers today, she would have had the credit to relocate, retrain,
in comfort as should mothers of today. Without such access to money
life-line where all life-support is bought with life-tickets, millions
of women are today shackled into violent relationships they would
never take if they had the support funds to leave and start somewhere
else with society's access to training and materials.
With every child having their own credit card and all their
satisfied economic needs scored to their money-account, a more logical
and amical division of custody might be attained. I find the squabble
over matrimonial assets one of vilest result over poverty. You just
can't blame the guy who's lost the house and the car and three
quarters of his pay-check who is thrust into a life of more poverty
and stress to feel about the courts doing it to him. And you just
can't blame the woman who couldn't survive without breaking him. They
don't see that it's the same old mort-gage "him-or-me" game going on.
Many just give up, lose their jobs and don't have any incentive to
find another. The state then takes over with welfare payments to both.
I've been a pauper and I've been rich more times than I will
tell. I had always been ashamed of being poor until I learned how
interest stacks the deck against us. Knowing it's a rigged in the game
and not that humankind is particularly inept at survival which is the
reason for our predicament also has the happy implication that the
game can be fixed while inept people would be harder to solve.
Last July, I had posted an article "I'm a pauper" just before all
my postings everywhere were deleted. I think I'll repost it
I've always believed that people had princes and princesses
within which were not functions of money. I've always believed one can
be a prince or princess even if a pauper if you can play fair and
score high within your circumstances.
I've seen honor and integrity in so many simple people and I've
seen greed in the eyes of so many of our leaders. After all, if you're
not running for leader with a plan to fix things, why are you running
at all?

:Since reserves are only a fraction of deposits, if

:demand for cash exceeds reserves, banks cannot meet that demand. In the
:1930s, this caused runs on banks with the infamous collapse of banks as a
:result. Subsequent to that catastrophe, central banks have become
:"lenders of last resort". That is, even if a charter bank does not have
:sufficient reserves it can borrow unlimited money from the central bank
:at the bank rate. Since borrowing from the central bank costs money,
:charter banks choose to maintain strictly positive reserves.
:

Yes, they keep a float. But since they're not borrowing the money
to lend it to depositors, loan money comes from the tap, they're
borrowing it only to raise their reserves which raises their allowable
loans out.
Why should a pump have any governor on its operation regulated by
the reservoir level when there is no upward limit on the reservoir's
capacity?
Best way I've ever put the problem yet.

:: The reserve ratio doesn't change. It is set by legislation.

:
:I repeat, pursuant to the last change in the Bank Act (I am not certain
:of the year, could be 1990, definitely under Mulroney's govt), the
:minimum reserve ratio was abolished.
:

In fact, didn't I way I was pleased but also asked why we're
still talking reserve ratios. No more is it "They put 10 aside and
lend out the other 90." It's "They lend out the whole 10." And I ask
are they lending out the whole 10 of the depositors savings as you
show in your piggy bank model or do they lend out 10 new dollars out
of the pump as I show in my casino-bank model.

:In fact, even prior to that point,

:the legislated reserve ratio was merely a minimum, and banks could be
:allowed to adjust their reserve ratios provided they remained above the
:minimum. One argument for abolishing the legislated minimum was that it
:was never binding; charter banks were always maintaining reserve ratios
:strictly higher than required by law.
:

And that was my whole point. Then the central bank reserve ratio
was merely a minimum and they issued 2% and the chartered banks issued
98%. Now the chartered banks can issue as much more as they want no
matter how much the central bank issues. It I was arguing that 2% was
too small to really dwell on and your pointing out that it's now 0%
sure completes my point.

:: If they did that and a depositor withdrew $10, the amount legally

:: allowed out of the tap would be reduced from $90 to $81 and the bank
:: would have to call in part or the whole loan. For this reason, the
:: banks leave themselves a float of reserves upon which the tap may be
:: operated in case of a "run on the bank."
:
:Correct. This is a reason why reserve ratios will typically fluctuate
:within a given range. If reserves drop too low, banks will stop issuing
:loans (it is very rare that a bank will actually call in a loan),

:
It's not as rare as all that. They don't wait until their float
is gone before they start calling in loans. They start to pick and
choose as soon as their float goes down with the excuse that they're
just protecting the bank. Which is true within the rules of their
accounting game.
I think the ugliest of mechanisms are the demand mort-gages most
businesses take out where the bank can call the loan within 30 days.
If you don't find another lender, and usually others lenders happen to
be calling in their loans too, then they foreclose.
These stories make the news all the time. Some going concern has
his death-gamble called in, can't find new financing, and they shut
him down while he had been making a profit and while he had been
making his payments.
Usury's bad enough but a 1-month notice is virtually certain
economic death for many and the bankers pick and choose who lives and
who dies in the death-gamble. Actually, a 1-year mortgage is really a
1-year notice which might not be that long for many in a tight credit
market.
Is it any wonder bankers don't want the people to know they're
sitting on a pump as they tell them "Tight liquidity. No money going
out today." Imagine when they're hearing "Tight liquidity. No pump
today." Once dying people find the pump, no banker is going to stand
in their way. That's the reason I'm betting on LETS Greendollar pumps.

LETS PUMPS
I don't know if you really realize what I have done. Since 1979,
I've said interest-free credit was a miracle lubricant. Worked with
casino chips, it could provide interest-free inflation-free
unemployment free currency. I've run in record-number-breaking
elections to explain interest-free credit whether with a computer tap
or a paper or metal one.
Wherever you a new LETSystem setting up operation, you're seeing
a new Greendollar pump installed. If the people choose to come and
borrow from it currency good within the group and pay no interest to
reduce the borrowing costs of money for goods not in the group, the
opportunity is there.
And this new pump design is delivered to needy economic pools all
around the world through Internet telephone lines.
No you might not want to admit that the design with the tap of a
chartered bank is the same design of the LETSystem but it is.
LETS Service Charge
Deposits Interest(in) Loan Payments
| | |
|--------|-------------|------------|---------|
| | | |---|---| |
| |----|-------------|----| | DRAIN | |
| | | |-------| |
| | RESERVOIR | |
| | | |-------| |
| |----|-------------|----| | TAP | |
| | | |---|---| |
|--------|-------------|------------|---------|
| | |
Withdrawals Bank Expenses Loans Out

Both now have no reserve ratio. The only difference therefore
between the LETSystem software and the current banking software is
that LETS does not charge interst on loans out of the tap while banks
do.
Please realize that people who understand LETS Greendollar
accounting software know that loans are credits out of nowhere that
end up in someone's reservoir while your IOUs end up in yours. And
there's splashing of payments between reservoirs. With no interest.
Charge interest on the liquidity in the above plumbing and you
have a chartered bank. Without reserve ratios, chartered bank plumbing
like LETS plumbing has no governor on the tap. The only difference is
interest, a very useful test with only 1 variable difference.
And as more and more little bits of Greendollar Heaven spring up
around us through more and more LETS financial life-boats, I think the
answer will be clear.
Interest-free Greendollar software exhibits none of the genocidal
characteristics of the present positive-feedback usury software while
providing the identical service demanded of both media of exchange.

:increase interest rates to discourage borrowers and encourage people to

:deposit money. Through controls like this, banks will maintain control
:over their reserve ratios.

:
Why are you dealing with what goes on in the reservoir of
savings? We don't have reserve ratios anymore. You said the control
had been cut between savings and the reserve ratio of loans. You can't
talk control after saying you now have zero control. With no reserve
ratio, there is no savings governor on the pump.

: Banks, however, will always try to keep the minimal reserves

:possible. This is because reserves earn no revenue and the deposits that
:created the reserves cost the bank.
:

But since the reserves they are required to keep is now zero,
why are they keeping minimal ones?

:: But you chose balancing the interest growth in the debt with new

:: chips to the money supply as the solution. That's my point. When faced
:: with the 11 for 10 dilemma in my game-theoretic model, you chose the
:: same solution chosen by the Socreds in real life.
:: Since debt is more than money, up the money to match it.
:
:Turmel is commenting in regards to an error that I had made some time
:ago. In his 11 for 10 dilemna I had first erroneously proposed that the
:problem lay in fixed wealth.

:
No you weren't proposing what the problem was, you were proposing
what the solution was. And just because the fact your solution would
have worked goes against your training which insists nothing can
doesn't mean you can't trust in your initial attempt to solve the 11
for 10 riddle.
How to pay 11 for 10? Do you get deeper in debt or stiff him for
what's not there?
In all the bank foreclosure defences I helped with in the last 15
years, it always boiled down that the defendants were stiffing the
banks for the interest the Defendants never got while accepting
responsibility for the principal which the Defendants did get. I calle
the money they did get, the principal, the social credit portion of
the debt and the interest, the money they didn't get, the anti-social
credit portion of the debt.
That's another problem with old Social Credit. They think Social
Credit is the solution to social debt while I feel Sociable Credit is
the solution to anti-social credit. To me, credit is both positive and
negative. It's not the being negative that is bad, (Nehemiah: No
money? Come, buy and eat), it's being anti-social that's bad. And only
interest makes credit anti-social.
Just note the difference between usury credit and Greendollar
credit. Would you say that today's credit which forecloses and
destroys its participants is anti-social? Would you agree by the rave
reviews of the effects that Greendollar Credit which enables all to
participate is social?
I've always thought of social credits as the generic name for the
many manifestations of friendly credit. From the interest-free loan
from a parent or great friend, from Greendollars to Greenbacks, from
tallies to Aes Grave, from Poker chips to warehouse receipts, these
are all social credits systems because they have the same Laplace
Transformation: 1/s.
1/s is the Laplace Transform of the Letsystem and since the only
difference between the plumbing of the Greendollar bank and the
chartered bank is interest, 1/(s-i) is the Laplace Transform of the
chartered bank.
You have to understand Tim. I've been modelling this stuff with
pipes for you like any engineer would. But I've been modelling this
stuff with electrical circuits for me. Since electrical circuits can
be modelled with plumbing and plumbing modelled with electrical
circuits: current, voltage=pressure, resistance=pipe-width.

:The correct criticism, which I adopted

:later, was that the 11 for 10 dilemna was irrational.

:
And what you can't face is that it's prime rule of what's going
on within every mort-gage death-gamble signed anywhere on the planet.
It is irrational to continue going to the interest-bearing money pump
when you can go to the interest-free Greendollar pump.

;I apologize for

:the confusion that my error caused, and it proves that I should actually
:read and think prior to posting.

:
Upon your first impulse, you came to the right conclusion. You
saw there was an insufficiency of money for everyone to repay 11 for
10 and saw the solution as adding some to every pot to balance the
lack.
Only after you had time to think prior to posting did your
education in Economics kick in to remind you that no matter how many
people played 11 for 10, adding money is incorrect because inflation
shows there's already too much money out there.
I'm sorry. I got with your first natural impulse. "Promising to
pay 11 and only get 10 is irrational" and one way for the banker to
fix the imbalance was to add 1 to everybody's pot. The Social Credit
National Dividend.
Now that you've apologized for getting it right and given it more
learned thought:

:: Take a poll of all Canadians who have ever played the game and

:: borrowed at interest to see how many were strictly worse off as a
:: result of playing the "11 for 10" game. This stupid game is going on
:: in real life. Ask anyone around you. The whole world is your test
:: tube. The effects of interest and insufficient money are all around
:: you. Open a newspaper. Imagine how tallies would have helped the 90%
:: of the stories there on poverty.
:
:A simple way of testing the rationality of the 11 for 10 game/dilemna, is
:to invite ten people over, play the game several times, and find out how
:quickly it takes before people exercise the option of not playing.

:
Make them all put up their bus-passes and once hooked, there's no
way out but to play and hope you're a winner rather than a loser in
the death-gamble.

:You

:will find that some people, possibly all, will play the first time, but,
:after learning, they will all stop playing (might take a few games,
:though).

:
Not if their bus-pass or their house is at stake. Once you're
hooked, they use the law to enforce the rules of the game. You keep
paying your interest or you lose everything. Tim's thinking the banker
induces people to play his game as if there were another game in town.
The banker coerces people to play his game because you need his chips
to get into the game and because so many slaves before you are in the
same predicament and have given up ever hope of getting out of the
game. And at that stage, the rules of "him-or-me" blur as it becomes a
law of the jungle where the strongest survive to the detriment of the
weakest.

: If the model requires that people must behave irrationally in

:order to give something that resembles real life, then the model is
:useless.

:
The model doesn't require irrationality. It allows and handles
the irrationality of those who sign mortgages and play 11 for 10.
Do you think murder in the streets, robbery, crime, violence,
suicides from people is behaving rationally? My model explains how the
automatic shortage of money causes a poverty which pushes people to
those acts and what happens to even the people who do accept this
irrational death-gamble and survive.
Then I note that most people in the real world compete to accept
this irrational mort-gage. I therefore say that the elimination and
foreclosure we see for the participants in the death-gamble model is
happening to the real participants in the real mort-gage model.
You certainly are helping us see how your courses are teaching
you to think. It's amazing that he doesn't see that the game we call
11 for 10 is what is going on all around him.

:You need a new model that explains why people take out loans.

:See (I) in my previous post for such a model.
:

You talked about them happy to pay interest for taking out loans
because everyone profited, how usury was beneficial in organizing
pools of idle money to be put to profitable use.
Yes, some debt slaves might made it out of the pit to share with
the master but most got into their mortgages because it was the only
way to get chips to get into the game, everybody else was doing it
(this is an amazing impetus) and now they've invested too much to give
up and lose everything. So they keep playing.
Let's see what would happen to the housing market when we give
each homeowner his own interest-free credit card directly accessing
the central bank's computer through his chartered bank provider.
As soon as the mortgage was due, he'd borrow interest-free credit
and pay it off thereby exchanging an interest-bearing debt for an
interest-free one. It would be like having a new chip cage open up and
as your mortgage game due, you pledged your home to the interest-free
cage for interest-free chips like all your neighbors are doing. Money
from bank pumps will be retired as Greendollar pumps take over the
load.
What would happen to debtors. Surely there were some kids who
stiffed you for money when you were a kid. There might be friends
who've defaulted on loans or simply never could pay them back. Most
paupers have had to stiff people for their debts.
We can ask the paupers to settle up their debts on their
interest-free credit cards. They could write checks on their accounts
to everyone they ever had to stiff. They'd probably get checks from
people who've had to stiff them. If some guy forgets you, email him a
reminder that he promised to put $10 gas in the tank when be borrowed
your car in 1973. He may have forgotten but I bet you he'd pay. There
would be a general acknowledgment and accounting of honorable debts on
a voluntary basis. You'd find out how positive or negative you're
starting out with. Even contentious debts are trivial within the
potential of enough interest-free credit of your own.
I'm taking the time to "dream" out loud. But I feel quite
confident that it's a practical dream. LETS gardens sprouting up from
alleys of despair are great test results. Dreaming connection to a
national or international financial database is not far-fetched at
all. Dreaming that it is access free of interest is dream of a
Heavenly world of freedom rather than a Hellish world of debt
slavery.
I love doing this fire-and-brimstone stuff. It shocks people when
I say look around and tell me you don't see hell. People cold and
starving in the streets with stores begging them to buy.
I think we are at the juncture in history where the paradigm
shift from a race of debt slaves to a race of wealth owners is only a
switch of a software disk away.
No matter how much the police-slave state expands from the Third
World to our richer nations, no matter how great the concentration of
wealth into the hands of fewer and fewer people while billions starve,
no matter one man ends up having everyone else in debt bondage, it's
that much easier to get the consent of the master to free the slaves.
See Tim, though it's scary to have to admit that what you've
learned is wrong but isn't the future we're presently facing of
environmental self-extinction far worse. Isn't the possibility that
the world's 50 richest men, perhaps the world's richest 3, have it
within their power to turn the earth's industrial engine on to full
power while freeing the steering to aim at consumer rather than war
production.
I can guarantee that as soon as pools of Chinese peasants are
waving time-based credit and not just the generals, Massey Ferguson
Tractors would soon lure away engineers from tank makers catering to
the generals. Sure 10 generals might outbid 100 farmers for the steel
for a tank rather than a tractor but how would 10 generals share out
the duties on their tank. Sure 10 admirals might outbid 100 sailors
for the steel for a destroyer rather than a freighter but how much
harm could they do with one destroyer?
Major Douglas was right. Giving the monopoly on the issue of
credit is too much power for private enterprise and should be a
government social service. And when credit is socially available to
everyone, everything changes. Peasants outbid generals for resources,
peasants outbid generals for selection. People waving their own
purchasing power will inevitably wave it at consumer goods and not war
and security machinery. With all people working to satisfy all those
people waving their demand, there is no time for war.
Douglas always said that the war for markets inevitably leads to
real war. Fighting in the money jungle inevitably leads to fighting
for real. Because them foreclosing on you hurts more than them
foreclosing on him and it hurts enough that most people fight for
real.

:: But you insisted on your right to pay the interest demanded if

:: your refusal meant not getting your loan. So how foolish is it? People
:: do it every day since they don't get the loan if they won't sign their
:: mort-gage death-gamble.
:
:If you are better off without the loan (and hence, without paying the
:interest) then no one is forcing you to take out a loan.

:
Being better off without the loan because it avoids the interest
is not really better off if your kids are starving. The only time
you're better off without the loan to not pay interest is when you've
already got enough. But it's true that if the rich man doesn't need
money, he's not forced to borrow any.
This totally ignores the group of the participants who don't have
enough and have to borrow. And again, you're dealing the small percent
of the rich, not majority of the paupers who have to borrow.

: Economics

:generally assumes that actions freely undertaken are only done so if they
:are expected to be of benefit, utility. I mean, why do something if it
:is of zero or negative benefit?

:
Because though it may be of zero or negative benefit to the
players, it is of positive benefit to those who bank the game. And if
it takes buying politicians, judges, government with the money tap as
well as reward those who propound the false cover for what's really
going on in the money plumbing,
It's not "Why do something so destructive?" It's "No getting out
once hooked." This coercion of financial survival in the death-gamble
takes liberation from above. I see no possibility of freedom from
below.
It takes interest-free lines of credit to allow all debt slaves
to convert their debts from interest to non-interest bearing debts.
Though it's growing from below as more and more small pockets are
slipping off their debt chains and jumping onto LETS life-boats, this
is the slow way and to avoid the ecological catastrophes implied in
continued exponential growth of debt, it will take the financial power
of the Owners to save their own enterprise even if the price is having
to share out its abundance.
Last note on current attempts to build emoney systems, they're
anticipating that not everyone will have an account with spending
power. Theft and Security are their main concerns.
People might steal because they don't have enough of their own
but I don't believe that there has ever been a recorded theft of
Greendollars anywhere in the world in over 10 years operation.
Imagine. No one's managed to steal Greendollars. Since positive
balances always add up to negative balances, how can you steal without
leaving a trail. "Hey, $100 disappeared from my account into his. Get
it back."
The current emoney system builders are hoping to get you to pay
interest to use their credits and have you treat this new emoney like
you adored your old money. But with LETS springing up as examples of a
sound emoney system, I doubt they'll last long.
If anyone ever brings up "gold" as any kind of solution, they're
not on our wavelength. If they want to use gold chips, fine, but I'm
staying with plastic. Private banks have been using the taps of real
e-money for decades where all real money is created in the computer
with tokens made available to further the metallic myth. Lets is
giving people their own taps to their own credit without the middlemen
loansharking it out. Think about it. You can liquefy your credit for
500 computer dollars at the Royal Bank and pay interest to use it or
you liquefy your credit for 500 computer Greendollars at the LETS bank
and pay a once-only service charge to use it. LETS simply lets you tap
into your own credit. It provides a way for you to issue your own
wampum, your own IOU, acceptable throughout Greendollar society. No
loansharking middlemen.
To those who have written to me to express appreciation for the
important and often unique discussions on monetary reform, I do say
that anything you like may be reproduced without my permission as I
treat everything, postings and email, as not copyright since public
postings and mail are evidence in Canadian courts.
I must admit that Tim has forced me to use my plumbing in several
ways. Really esoteric topics keep fitting the pipes. I hope you've
enjoyed these new angles on the problem as much as I've enjoyed being
forced to focus in from them.

[Timothy Huyer]

John Turmel (bc...@FreeNet.Carleton.CA) wrote:
: huy...@qed.uucp (Timothy Huyer) wrote:

: :And, as I had attempted to show in the banking model in my previous post

: :that you are incorrect. Please re-refer to that post.
: :
: We're off the topic here of whether credits unions and savings
: and loans do act like piggy banks. The question is whether the
: chartered banks act like casino banks with a tap for new chips.

I was referring to chareter banks. I have actually not mentioned near
bank financial institutions at all since they are not necessary for the
analysis.

: Again, I don't care what you call the money coming out of the

: banks' loan pipes. I just want you to admit that it's connected to the
: tap and that it's new money, not old savings.

: So I think it's pretty clear that I did deal with the bank as a

: piggy bank model that he describes. I also show that the process of
: passing the money through the piggy bank over and over again to create
: new IOUs and new deposit slips does not create new money. There has to
: be a tap.

I looked over the diagrams that Turmel made and they are completely
correct. He is also absolutely correct in that the piggy-bank (or
reserves) contains $100 and that there is no other cash to be found
anywhere.
Turmel then argues, in effect, where, then, is the $900 loaned
out? Simply, in other people's savings accounts.
Note that for the bank, assets are reserves plus loans, or $100 +
$900 = $1000. Liabilities are deposits (since that is money owned by
depositors) =$1000. Liabilities=Assets, a nice condition to have.
So what is this extra $900, if there is no cash to cover it? I
have attempted to give a few explanations for it which apparently have been
lousy. I will thus try again...
The bank does not need to have cash to cover all of its
liabilities; it has loans to cover the rest. The borrowers do not need
to always keep the money they loaned as cash; at least some of it comes
back to the bank and is deposited by whomever is the end recipient of the
money. So the money does not exist physically, only in the data-banks of
the bank.
A reason why the money does not need to physically exist as cash
is because people do not want to have all of their money in cash. Even
I, poor starving student, keep some of my money in a bank. Thus, banks
only need to cover with cash that fraction of money that people need as
cash. Reserve ratios are thus, in part, set to cover that expected cash
demand.
Was there a tap that created this money? No. The only tap was
the central bank, with the initial injection of cash, in this case, $100.

What happens if people decide to withdraw all of their deposits, i.e.,
the full $1000? This is the infamous run on the bank. Historically, the
money did not exist, and thus the withdrawls could not be covered and
banks collapsed. Loans were recalled and bankruptcies resulted.
Depressions result.
Nowadays, the charter banks can borrow unlimited sums of money
from the central bank. Thus, if people come clamouring to the bank
demanding to withdraw, in total, $1000, the bank informs people that
there is a clause that means that demand deposits can only be closed
after 24 hour notification. Then the bank goes running to the central
bank, asks for $900 to supplement its reserves, and pays people out.
Note that, since that even the prime rate is higher than the bank rate,
the banks do not need to panic and call in loans to repay the central
bank and can pay the central bank's interest rates through the interest
the charter bank is making on its loans.

I confess that double-counting is my own term, I had hoped that, since we
were using a plumbing diagram, that it might have greater pedagogical
value.
Further, note that, if one assumes that charter banks have an
apparent tap, as Turmel claims, and that they create $900 out of nothing,
their balance sheet is now $1900 in assets and $1000 in liabilities, of
which, $1000 in assets is earning the bank no money. This is a
disequilibrium point and is not profit maximizing.

: I conclude that they pay all those expenses to fool people like

: you into refusing the believe what you see, that it's coming from the
: tap, and continuing to believe that because they worry about keeping
: the reservoir full, it has to be coming from the reservoir.
: And given the power banks get of okaying or refusing a loan from
: the tap to needy borrowers, paying the expenses looking like you need
: to keep the reservoir full so that the suckers don't know it's coming
: out of the tap seems sell worth the investment for total economic
: control.

I am starting to feel that you are relying upon conspiracy theory in
order to validate your arguments. If there is indeed a cartel of
money-lenders who are operating the system as you suggest, then each and
every member of that cartel has an incentive to cheat, that is, to loan
out more money and thus weaken the cartel. I will skip the
game-theoretic analysis that goes through this, although it is fairly
trivial to establish a prisoners' dilemna type game showing this result.
For a real life example, note the dramatic failure of the OPEC cartel in
maintaining high oil prices, this resulted because of cheating by OPEC
members.
In short, I reject a conspiracy argument.
However, I could have mis-read Turmel's arguments, and thus I would like
clarification if conspiracy theory is being used and if yes, how.

: When you're talking about a monetary system which has a zero

: reserve ratio as well as zero interest, zero unemployment and zero
: inflation, nobody cares what the reserve ratio can make the money
: supply do in the inferior model.

: It is silly to say that making sure the collateral matches the

: chips issued is a central bank issue when it is an "every-bank" issue.
: And errors in estimating values in transactions are cancelled when the
: valuation is done and the equity priced. If the buyer bought too high,
: he incurs such loss. The value of the asset in the cage always remains
: the same.

As I have repeated, the size of the money supply is controlled directly
by the central bank. Agreeably, it is not perfectly controlled, since
reserve ratios are not constant, nor is borrower/depositor behaviour.
But the control is there. The central bank, however, does not have
perfect information, it does not know precisely the real GDP of the
economy at this moment. It has statistical estimates however, and this
causes error. The central bank chooses to err on the side of positive
inflation since this is better than too little money.

: So engineers often find it easier to look at the flows which

: represent 99% of the volume alone and the real world analogy would be
: for the banks to cease cash and only allow checking. Then we'd have a
: zero preference for cash.

I am unfamiliar with the literature that deals with the move towards a
cash-less society, and so I can't comment directly. I would speculate,
though, that since there are multiple charter banks, and that money
borrowed from one bank might end up in another, the charter banks must
maintain strictly positive reserves, deposited in the central bank, to
cover the net transfers of money between banks. In this case, the
reserve ratio would be very low, but still strictly greater than 0,
thereby bounding the money supply.

: :but note that, given wealth w and environment e, f(w|e) > 0 in

: :general (and at worst is non-negative). All that the analysis requires
: :is that if F is the aggregate demand for cash and W aggregate wealth,
: :F(W|e) > 0 for at least some environments e.
: :
: Sorry. Here you lost me since you don't define the operator "|"
: or the units for wealth (though ergs would do) or the units for
: environment (which I've never heard of), or the units for demand for
: cash. I can only paraphrase how I tried to read it:

Whoops, mea culpa. I tend to get excited with my math and forget to
explain it.
Given w := wealth, e := a particular environment (i.e.,
non-wealth factors that determine demand for cash, such as, but not
limited to, planned purchase of items with cash), f(w|e) is the demand
for cash CONDITIONAL on an environment e (I took the notation from a
stats book, but it does not excuse me for not explaining it). In other
words, fixing a certain environment, the demand for cash is dependent
only on wealth.
My argument was that, whereas charter banks could easily see how
wealthy people were, simply by checking deposit book balances, they could
not accurately predict what environment the depositors were in. They
thus make estimates about demand for cash, and thus, for the banks, F(W)
is perceived as a random variable, where F(.) is aggregate demand for
cash and W is aggregate wealth.

: And now that the analysis got what it required, what does it end

: up saying? All I said that was 99% of money is e-money in chartered
: banks computers and that the study of the demand for 1% in cash was
: not of major utility.

But proves that banks want strictly positive reserves, which bounds the
money supply. Also shows how changes in environment can change demand
for cash, and, thereby, necessary size of reserves. 1% might be small,
but it still plays a significant role when one is dealing with the limit
of a series.

: Making the volume of your loans dependent on savings is a

: ridiculous control system. In LETS with a zero reserve ratio, the
: volume of chips issued into today's game has nothing to do with the
: volume of chips saved from yesterday's game. It has only to do with
: the collateral you have on you or your credit.
: Isn't this a beautifully tricky way to disguise a casino model
: tap banking system as a piggy bank no-tap model and have it react to
: the outside world in exactly the same way a piggy bank would. "Alas,
: there's no money left in the piggy bank. We can't lend."
: One guy looking for a solution who peeks through the slot at the
: top into the inner plumbing of the piggy bank screaming "Hey, I can
: see a tap" is not what they're particularly happy about.
: But if finding a tap to fund environmental repair, to fund
: infrastructure repair, sick-bay repair, engine repair, then scream
: "Here's the money tap" I'll forever continue to do.
:
: Throwing in another example of how major societal problems would
: be saved when everyone gets their own interest-free credit card, let's
: take my example.

Turmel's example reveals what is called "imperfect capital markets".
It however, is not sufficient to make the entire financial system garbage.
Imperfect capital markets result because:
(1) of uncertainty. I cannot, nor can the bank, predict accurately,
what my future earnings will be. In fact, since I could die in a couple
minutes, I cannot even predict how much labour I am capable of providing
(income would be the value of that labour, since it is pretty obvious
that there are certain things I cannot do as well as others in the same
time).
If I am loaned more than I am worth, than I will go bankrupt.
The bank obviously does not want this to happen, so it will try to reduce
its risk by reducing how much it is willing to loan. Because of risk, it
will loan, on average, less than an individual is worth.

(2) Incentive to repay. If I am using my labour as collateral, I could
very simply default. Simply, I choose to not work, or, if I do work (and
the collateral is hourly based) work poorly.
Note that I have already received the loan -- this is sunk. I will be
getting no value from my labour since it goes to repayment. So why repay?
Historically, one could indenture oneself, i.e., effectively
become a slave if you default. Similar style apprentice-ship programmes
also existed (and for a scathing critique of them see Adam Smith's
_Wealth of Nations_). The former has been (rightly) abolished, the
latter inefficient.

As a digression, this is why there is a govt guaranteed student loan
programme. Since I can default on a loan but not as easily on taxes, the
govt assumes much less risk than the bank does -- i.e., the govt is not
at (as much) risk from me cheating them (being the sneaky and dirty guy I
am!). So govt guarantees student loans since banks would not be willing
to provide them otherwise (which would lead to an inefficient market).

Turmel proposes that something similar to the student loan system be
expanded. Note, however, that his models are as much in danger as the
current system -- what is the value of my labour, what is my risk of
defaulting -- and thus do not solve the problem.
If I might anticipate Turmel, he might counter by providing
examples of how LETSystems evade this problem. However, the LETSystem
would not be sufficient. An example:
If I were to study at MIT, tuition alone would be $28 000 US per
year. Assuming I live reasonably, let's say that it would cost me $38
000 US per year, which I, not having sufficient wealth, would have to
borrow. Letting interest rates = 0, with 4 years we are now talking $152
000.
If I promised a LETSystem that I would repay that 4 years of
education with an equivalent value of labour, who is to say that my
labour is worth $152 000 (some would say that it definitely would not be
since I am studying economics!)? And what would happen if, after being
educated, I choose to default, even if I could afford to repay the loan?
Note that the value of labour is important. A lot of resources
would have to go into teaching me, and the issue is whether I am worth
those resources, not whether I am worth the 4 years I spend in that
school. The proverbial ditch digger is unlikely to generate $152 000 US
of wealth in 4 years, and thus fixed labour repayments are not sufficient.
Attempts could be made to prevent the risk of my choosing to
default, but even if they are 100% successful, they do not cover the
issue as to whether I was worth that education.
Case in point. If someone told me that that $152 000 US would be
covered by a mere 4 years of labour (and during those four years I would
obviously have to maintain minimal consumption levels in food, shelter,
etc) I would jump for it. I would be willing to be indebted a lot longer
for that education, but, unless the market forced me to, I wouldn't admit
it (hopefully, the market doesn't read my posts!).

So, if the problem was only imperfect capital markets, neither solution
would correct that. Unfortunately, there are additional problems which
necessitate positive interest rate lending which I have tried to cover
here and in previous posts.
This does not mean that current attempts to correct the imperfect
capital markets are sufficient either. I would argue the opposite in
fact. In fact, I would argue that ideas like the LETSystems can help, in
limited ways, to correct some of the inefficiencies and suffering caused
by imperfect capital markets. I merely state that LETSystems et al can
not replace in entirety the current system.

: And I ask

: are they lending out the whole 10 of the depositors savings as you
: show in your piggy bank model or do they lend out 10 new dollars out
: of the pump as I show in my casino-bank model.

And I answer
they are lending out the whole 10 of the depositors savings.

: And that was my whole point. Then the central bank reserve ratio

: was merely a minimum and they issued 2% and the chartered banks issued
: 98%. Now the chartered banks can issue as much more as they want no
: matter how much the central bank issues. It I was arguing that 2% was
: too small to really dwell on and your pointing out that it's now 0%
: sure completes my point.

Once again, please check my arguments for why the reserve ratio is
strictly positive. And note that any series from n=0 to infinity
a*(1-r)^n has a finite limit, a/(1-r) for any r, 0 < r < 1. Regardless
of how small the reserve ratio is, as long as it is strictly positive,
the limit holds, and therefore the money supply is fundamentally
determined by the size of a, which is set by the central bank.

Turmel then talks about the notice on loans before a bank can call them
in, such as 1 year mortgages. As long as the borrower's credit is still
viable, there is no reason to not renew the loan. If the borrower's
credit has changed, the interest rate might change to reflect the new
risk (interest can decline if risk declines) or the loan may not be renewed.
This is done to reduce the risk to the bank. A new business is
expected to lose money for its first few months. However, if it does not
improve or if it is losing too much money, then the lender does not
wish to watch his or her loan vanish into a pile of debts.

: Why are you dealing with what goes on in the reservoir of

: savings? We don't have reserve ratios anymore. You said the control
: had been cut between savings and the reserve ratio of loans. You can't
: talk control after saying you now have zero control. With no reserve
: ratio, there is no savings governor on the pump.

I said, and I thought quite clearly, that there is no minimal reserve
ratio maintained by law. There are still reserve ratios, maintained
voluntarily by banks because it is in their profit maximizing incentive
to do so. They keep the reserves to meet demand for cash etc.. See
above and previous posts.

I will also go back to a point that can easily be lost in the model of
the banking system. Why do people borrow money?
They borrow money because (1) they believe that they will be able
to repay that money plus interest and (2) they want that money now rather
than later. Case in point, me and my education. If I invest my future
labour earnings in education now, I will hopefully be able to repay those
labour earnings plus interest. In addition, I hope that the education
will raise my future labour earnings sufficiently more than they would
have otherwise been in order to leave me with additional profit.
Now, if I thought I was going to be worse off from borrowing
money, I wouldn't have done so. Note that here I am referring to utility
rather than money. But simply, if my expected discounted future utility
conditional on no education (and hence no borrowing) is higher than that
with education and borrowing (and repaying that debt and interest) than I
do not borrow.
Obviously I would be willing to borrow more (or be more willing
to borrow) if the interest rate was less, but there is scarcity out there,
and I have to accept certain limits. The interest rate is the
equilibrium point for the demand for borrowing versus the supply of money
-- i.e. resources -- willling to be lent.

: :The correct criticism, which I adopted

: :later, was that the 11 for 10 dilemna was irrational.
: :
: And what you can't face is that it's prime rule of what's going
: on within every mort-gage death-gamble signed anywhere on the planet.
: It is irrational to continue going to the interest-bearing money pump
: when you can go to the interest-free Greendollar pump.

Rather, if I expected to lose from borrowing, I would not borrow. Hence,
any model that argues that I borrow and lose and expect to lose is
irrational -- it says I will do something that I will not do. Thus, a
new model, one which makes it rational for me to borrow, is required.
Either one needs to come up with a model that will fool all the people
all of the time (and I would be very interested in how this is), or a
model in which I do benefit, on average, from borrowing.

: :A simple way of testing the rationality of the 11 for 10 game/dilemna, is

: :to invite ten people over, play the game several times, and find out how
: :quickly it takes before people exercise the option of not playing.
: :
: Make them all put up their bus-passes and once hooked, there's no
: way out but to play and hope you're a winner rather than a loser in
: the death-gamble.

Let me repeat. Explain the game to the players. Tell them, you either
play or don't play. If you play, you put up $10 dollars and get 10
tokens. Make the game perfectly random so skill is not an object. Tell
each player, if you get 11 tokens you get your $10 back, if you get less,
you get $0. We will allow that players all have enough money to play and
lose the game several times.
See how many people choose to play the game. Play the game (and all
people choosing to play will try to get 11 tokens), and then repeat the
whole thing again. I will guarantee that there will be fewer people
playing the game and quite likely zero.
In other words, the best way to win the game is to not play.
So WHY, in Turmel's model, do people consistently choose to play? Game
theory says they won't. Empirical evidence says they won't. So what
principle lets the model ignore both theory and reality?
So what if there is no other game. I still have two options:
play or don't play. And my expected pay-off from not playing is higher
than from playing.
In fact, let us weaken Turmel's model further. Instead of the
fixed payouts, let the payout be $(tokens/11). People will still choose
to not play the game, although it might take them a bit longer to realize
that they are best off not playing.
The irrationality in the model is that the players are
consistently choosing to go against their own best interests, i.e.,
behaving irrationally.

: Being better off without the loan because it avoids the interest

: is not really better off if your kids are starving. The only time
: you're better off without the loan to not pay interest is when you've
: already got enough. But it's true that if the rich man doesn't need
: money, he's not forced to borrow any.

So why borrow, then, to buy a house, car, or anything besides food? One
can rent a house, thereby avoiding the mortgage "gamble", and so on. I
repeat, if one thinks that the loan is going to make one worse off (and
again, I speak in terms of utility) than one does not take out the loan.
People do not start out indentured; I only became indebted when I
voluntarily took out student loans. Now I would have loved to avoid that
necessity -- i.e., to have free education, or to have had interest free
education. Course, I would also love to have free food, free housing
(and make that a big house), a free Ferrarri, and so on. Course, so
would everyone else. Who gets what -- those willing/able to pay!

This does not mean that poverty is inevitable, necessary, or even
desirable. I personally think it stinks. However, in order for a
solution to eliminate poverty, it must also be a feasible solution.

[John Turmel]

Subject: Re: TURMEL: On Social Credit vs Greendollars

On Nov 30 1995 in Article #116597 in Newsgroup can.politics,
huy...@qed.uucp (Timothy Huyer) wrote:

:John Turmel (bc...@FreeNet.Carleton.CA) wrote:
:
:: Again, I don't care what you call the money coming out of the

:: banks' loan pipes. I just want you to admit that it's connected to the
:: tap and that it's new money, not old savings.
:
:: So I think it's pretty clear that I did deal with the bank as a
:: piggy bank model that he describes. I also show that the process of
:: passing the money through the piggy bank over and over again to create
:: new IOUs and new deposit slips does not create new money. There has to
:: be a tap.
:
:I looked over the diagrams that Turmel made and they are completely
:correct. He is also absolutely correct in that the piggy-bank (or
:reserves) contains $100 and that there is no other cash to be found
:anywhere.

:
That was the plumbing blueprint for the piggy bank model which
you agree with which had no pump. Again, I just want you to admit that
the loans pipe is connected to the pump and that it's new money, not
old savings coming out.

: Turmel then argues, in effect, where, then, is the $900 loaned

:out? Simply, in other people's savings accounts.

:
He just found the cash not to be found anywhere!

: Note that for the bank, assets are reserves plus loans, or $100 +

:$900 = $1000. Liabilities are deposits (since that is money owned by
:depositors) =$1000. Liabilities=Assets, a nice condition to have.
: So what is this extra $900, if there is no cash to cover it?

:
That's a valid question if your model doesn't have a pump. To
readers who have accepted the validity of my pump connected to the
loans pipe, this just isn't a question anymore. This extra $900 is new
money issued as loans from the pump.
And as long as you keep trying to explain new money without a
pump in your design, you'll have trouble answering your own question.
"Where did this liquidity come from?" is a question which cannot occur
to people who have a pump in their plumbing model.

:I

:have attempted to give a few explanations for it which apparently have been
:lousy. I will thus try again...

He's going to try to explain how they come up with new liquidity
without a pump once again. Remember, keep the piggy bank model in mind
as he explains it. Then try the casino bank model. It's always fun.
Remember, we can explain it by connecting loans to the pump and he's
trying to explain how his pump-less model creates new money too. So
here he goes again, dealing with the trickle while the river runs by.
And he's going to have to rely on 1% or 2% of the money supply
represented by metallic and paper tokens.

: The bank does not need to have cash to cover all of its

:liabilities; it has loans to cover the rest. The borrowers do not need
:to always keep the money they loaned as cash; at least some of it comes
:back to the bank and is deposited by whomever is the end recipient of the
:money. So the money does not exist physically, only in the data-banks of
:the bank.
: A reason why the money does not need to physically exist as cash
:is because people do not want to have all of their money in cash. Even
:I, poor starving student, keep some of my money in a bank. Thus, banks
:only need to cover with cash that fraction of money that people need as
:cash. Reserve ratios are thus, in part, set to cover that expected cash
:demand.

:
I stress that when Tim's talking "cash," he's talking the paper
and metallic tokens, the 1% or 2% of the supply. He admits the bulk of
his money is in the form of computer emoney bank credits.

: Was there a tap that created this money? No. The only tap was

:the central bank, with the initial injection of cash, in this case, $100.

:
So now he has to explain how the banks create all that new
liquidity into our bank accounts without a pump and how his pump-less
model teeters from liquidity movements in the reservoir (runs on the
bank)

:What happens if people decide to withdraw all of their deposits, i.e.,
:
I'm going to skip this for several reasons.
They're not withdrawn until deposited somewhere else. It's just
splashing in the pool. 98% of deposits are moved from their current
account after the check has been deposited to the payee's account.
What happens with the paper and metallic tokens is really
inconsequential in a run on a bank where 98% of it's transfers are
between computer accounts.
Since Tim pointed out the reserve ratio is now zero, I'm not
going to go further into discussion of the liquidity preference. Since
98% of our liquidity is emoney and has nowhere to go but to another
electronic account, all discussions of runs on banks is but splashing
in the pool which has nothing to do with the problems in the pump
house.
And it seems the greatest problem is to get Tim to admit that
there is a pump in the house from which is issuing real liquidity as
loans. He says they do it without a pump. I say there's a pump. I'm
The Engineer.

:I confess that double-counting is my own term, I had hoped that, since we

:were using a plumbing diagram, that it might have greater pedagogical
:value.

:
You're the first plumber I've ever heard say "Let's double count
the water."

: Further, note that, if one assumes that charter banks have an

:apparent tap, as Turmel claims, and that they create $900 out of nothing,

:
Matched to incoming IOUs like casinos cashiers create new chips
out of nothing or LETS creates Greendollars out of nothing...

:their balance sheet is now $1900 in assets and $1000 in liabilities, of

:which, $1000 in assets is earning the bank no money. This is a
:disequilibrium point and is not profit maximizing.
:

No. The balance sheet is not $1900 in assets and $1000 in
liabilities. Or NOT. Remember, I'd written in my Oct 30 message:

: At the limit of the process:

: FRACTIONAL RESERVE BANK
: Deposits Interest(in) Loan Payments
:Depositors | | |
: |--------|-------------|------------|---------|
: | | | |---|---| |
: | |----|-------------|----| | DRAIN | |
:DS100 | | $10 $90 IOU90 | |-------| | Borrower
:DS 90 | | $9 $81 IOU81 | | $0
:DS 81 | | $8 $73 IOU73 | |
:DS 73 | | $7 $66 IOU66 | |
:DS 66 | | $7 $59 IOU59 | |
:DS 59 | | | | | | |
: | | | | | | | |
: | | |---- ----- ----- | |
:------ | |$100 $900 IOU900 | |
:DS1000 | | | |
: | | RESERVOIR | |-------| |

: | |----|-------------|----| | TAP | |
: | | | |---|---| |
: |--------|-------------|------------|---------|
: | | |
: Withdrawals Bank Expenses Loans Out

:
: So with the original $100, the fractional reserve also allowed
:for total deposits to be $1000 and for total IOUs to be 900 except
:that new money was actually issued for those IOUs permitting all
:depositors to have access to their real money, not *supposed* money,
:at the same time.

I restate your point:
:their balance sheet is now $1900 in assets and $1000 in liabilities, of

:which, $1000 in assets is earning the bank no money. This is a
:disequilibrium point and is not profit maximizing.
:

There were four arrays of numbers with four totals.


IN THE ECONOMY: IN THE RESERVOIR:

DEPOSIT SLIPS CHIPS MARKERS
Downtown Local
DS100 | | $10 $90 | | IOU90 |
DS 90 | | $9 $81 | | IOU81 |
DS 81 | | $8 $73 | | IOU73 |
DS 73 | | $7 $66 | | IOU66 |
DS 66 | | $7 $59 | | IOU59 |
| | | | | | | | |
------ | |---- -----| | ----- |
DS1000 | |$100 $900| | IOU900 |


There is no imbalance in what happened, only an imbalance in what
Tim saw. I guess that if the banker counts all the chips he's holding
in their safety deposit boxes here and downtown and adds IOUs as
assets, it does add up to 1900 in assets.
It's just not the way the Ceasar's Palace casino cashier would
look at the transaction. He'd say:
A guy came in and deposited $100 to his safety deposit box and I
gave him a $100 deposit slip. Over the evening, I loaned out another
$900 chips with the deposit of $900 in markers. The $900 in chips were
deposited to their safety deposit boxes and $900 in Deposit slips
issued.
My numbers are
DEPOSIT SLIPS CHIPS MARKERS
Downtown Local
DS1000 | |$100 $900| | IOU900 |
Now there's a customer, Tim, who been shouting that there's an
imbalance in my books because he had noticed that $900 in local chips
and $100 in down-town chips and $900 in IOUs adds up to 1900 without
reason that deposit slips are another form of money and just because
you use two levels of money for the same apples doesn't mean there's
imbalance.
Look, sir. With $1000 deposit slips, $1,000 in chips and 900
apples IOUs in my cage, $900 deposit slips buy back $900 chips in your
box which buys back the 900 apples. This leaves the $100 deposit slip
for the original down-town $100 chip where you can go to cash out for
your 100 apples. My cage assets and liabilities balanced.
What you saw were $1000 deposit slips for what was in the cage
and in the cage you saw $1000 in chips and $900 in apples and you
counted the chips as if they had value too.
In reality, your $1000 Deposit slips are worth $900 apples and
the original $100 downtown chips worth 100 apples.
Really. A chartered bank would work without interest in exactly
the same way a LETS Greendollar bank does now.
Yet I do appreciate the confusion when banks double-count money
in with their other assets like IOUs for apples when money is really
nothing but a chip of no intrinsic worth.

:: I conclude that they pay all those expenses to fool people like

:: you into refusing the believe what you see, that it's coming from the
:: tap, and continuing to believe that because they worry about keeping
:: the reservoir full, it has to be coming from the reservoir.
:: And given the power banks get of okaying or refusing a loan from
:: the tap to needy borrowers, paying the expenses looking like you need
:: to keep the reservoir full so that the suckers don't know it's coming
:: out of the tap seems sell worth the investment for total economic
:: control.
:
:I am starting to feel that you are relying upon conspiracy theory in
:order to validate your arguments.

:
Unfair shot. The fact that the levers of control on the liquidity
pump do indicate conspiracy to hide the pump has nothing to do with
the discussion of whether the pump is there, which I've been trying to
focus on.
But if that pump is there and if it is connected to the loans
pipe, then the direction of that financing to the war and security
services does in fact indicate covert action by a few very wealthy
people to use money to rob the poor unto genocide.
But whether I believe that this genocidal control system is all
accidental or due to ineptitude, or whether it's the tiger from a
Pandora's box that everybody's got by the tail and can't quit or
whether there are a suicidal team of 50 malevolent billionaires
working feverishly to increase pollution and environmental degradation
unto the extinction of life on the planet and they their team's
winning, ability to discuss a way out openly, loudly, persistently,
vociferously, leaves hope that the one way out will be appealing to
the current loansharking rulers as it is to me.
We're all on Starship Earth together and when it goes, we all go.

:If there is indeed a cartel of

:money-lenders who are operating the system as you suggest, then each and
:every member of that cartel has an incentive to cheat, that is, to loan
:out more money and thus weaken the cartel.

:
Why should they cheat each other when they have a license to
steal? Why should anyone be allowed to disturb their license to print
money? Don't you remember my poem.

Creating money accurately means TO HAVE THE PLATES,
The stamping of some paper into notes best demonstrates;
Yet others would object if you could print it up to spend.
But what if government would let you print it up to lend?

If you could print and lend a thousand out at ten percent,
You'd make a hundred interest on printing that you lent.
But if you could print up and lend a million out you'd get,
An extra hundred thousand dollars for your fee on debt!

If government stops using its own plates and comes to you,
A billion printed nets a hundred million revenue!!
With everybody being taxed to pay you interest,
Of all the scams in history, TO HAVE THE PLATES is best!!!

Though never spending, only lending, riches to await,
To all who with the plates become the loan-sharks to the state.
And though to join the few who thusly profit, one might dream,
Wake up to see we're all the victims of their greedy scheme.

Though governments of old ruled "Treasury run money plates,"
Without the interest to middle-men at rip-off rates,
Today most governments to banking industry have lost,
Control of money plates so interest is now a cost.

To service debt in ninety four, Canada's request,
A hundred'n eighty billion dollars paid in interest.
We're taxed over five hundred dollars each per month to pay,
For interest to holders of our plates they gave away!!!

Based on recent Fraser Institute figures that total debt is over
$3 trillion counting the $1.8 trillion in government liabilities, that
means that every Canadian is losing over $10,000 per year to interest.
Interest on money they pump to governments all around the world where
they are feted as saviors in the process, interest on money they pump
to industry who need access to raw materials to get into the economic
game, and interest on money they pump directly to debtors. The world's
an oyster when the law permits interest and you're running the tap in
an arid environment.
²ú¹¨ Í;ÿ I would think that of all the conspiracies of rich men to profit
using government, what they can do with banks able to hide their pumps
must be the one that nobody's is going to talk and rock the boat
about.
Think about it. A country gives you control of its nation's
plates on the condition that everything you print, you must lend. And
you can take the interest. The spectacle of nations everywhere
prostrate before consortia of international banks should hint that
since your government is in with the crowd bowing, there's a good
chance your government does what their masters want.
In no other instance other than in their pleadings to finance do
governments show such abject subservience. And that's the way the game
will always be played as long as the control of money pumps is left in
private hands.
Some ask if I'm in favor of nationalizing the chartered pumps. I
answer that I helped deliver LETS mini-pumps all around the world and
nationalization has nothing relevant to do with tapping into the
Earth's abundance. Besides, I figure email-banking will eventually be
offered by internet providers since it needs so little security.
With Greendollars, you're not getting money you can hide so a lot
of the security necessary in the emoney systems they are trying to
have us use on the internet becomes unnecessary. Interest-free keeps
the accounts in balance. Period.

I will skip the
:game-theoretic analysis that goes through this, although it is fairly
:trivial to establish a prisoners' dilemna type game showing this result.
:For a real life example, note the dramatic failure of the OPEC cartel in
:maintaining high oil prices, this resulted because of cheating by OPEC
:members.

:
So why can't you recognize the same prisoner's dilemma when they
are prisoners of their debts. "Gee. After 3 or 4 cycles, I'd stop
playing" you suggested. You don't stop playing until you're a winner
at these rules or you lose it all.
Whether or not to engage in usury enslaving your neighbors to
secure yourself is an answer to the debt prisoner's dilemma. If you
don't play for slaves, you become one yourself. And with everyone
trying to enslave you before you enslave them with debts, there's no
sitting down with the group and reasoning it out that we should all
stop playing 11 for 10, that we shouldn't let them foreclose on our
capacity and that we make them bank it for us at 11 for 11. One
borrowed for the banker's service charge.

: In short, I reject a conspiracy argument.

:However, I could have mis-read Turmel's arguments, and thus I would like
:clarification if conspiracy theory is being used and if yes, how.
:

You reject the word conspiracy. Billionaires don't get together
to plan to use their financial muscle in concert to achieve more
profitable returns. Billionaire loansharks with government at their
feet don't get together to plan to use their money system to keep
their debtors enslaved. That 98% of the humans on Earth are enslaved
by their debts to a life of idleness or grinding toil is a clear
indication that it took organization and funds to organize the rip off
of the whole world.
But after all, this is no ordinary conspiracy of rich men. To be
this successful and this evil, it must be a conspiracy of men who
control the only leashes on governments. And the only leashes on
governments are debts. Only a conspiracy of loansharks could buy most
of the world's governments into giving up their pumps which dispense
life-giving liquidity. And anyone who inherits a pump soon realizes
its money-making potential. Only a conspiracy of loansharks could
attain such power. And it's not that hard to be a conspiracy of
loansharks. After all, you have all the money and resources to do
anything you want to try.
Seems everyone can accept that some lone nut in his attic can
dream of ruling the world but not everybody accepts that a group of
rich billionaires might be capable of doing it from behind the scenes.

:: When you're talking about a monetary system which has a zero

:: reserve ratio as well as zero interest, zero unemployment and zero
:: inflation, nobody cares what the reserve ratio can make the money
:: supply do in the inferior model.
:
:
:: It is silly to say that making sure the collateral matches the
:: chips issued is a central bank issue when it is an "every-bank" issue.
:: And errors in estimating values in transactions are cancelled when the
:: valuation is done and the equity priced. If the buyer bought too high,
:: he incurs such loss. The value of the asset in the cage always remains
:: the same.
:
:As I have repeated, the size of the money supply is controlled directly
:by the central bank.

:
It hardly has to be controlled at all if you have velocity.
Everybody in the casino could buy in for thousands and play $1 poker
betting $100 of action in an evening. That's 10 times more chips in
circulation than were even needed. Talk about too much money. But it
simply means that the velocity was .1, one-tenth per chip. With
velocity, there can't be too many chips other than the automatic rule
at the cage dealing with their issuance relative to collateral.

:Agreeably, it is not perfectly controlled, since

:reserve ratios are not constant, nor is borrower/depositor behaviour.
:But the control is there.

:
Here he is again talking about savers splashing their deposits
around when we passed the point long ago that the reserve ratio is now
zero. It has better be constantly zero.

:The central bank, however, does not have

:perfect information, it does not know precisely the real GDP of the
:economy at this moment. It has statistical estimates however, and this
:causes error. The central bank chooses to err on the side of positive
:inflation since this is better than too little money.
:

Too little chips in a casino simply means higher velocity and has
nothing to do with the value of the chips at the cage. So a casino
cashier doesn't have to choose to err like a central bank does.

:: So engineers often find it easier to look at the flows which

:: represent 99% of the volume alone and the real world analogy would be
:: for the banks to cease cash and only allow checking. Then we'd have a
:: zero preference for cash.
:
:I am unfamiliar with the literature that deals with the move towards a
:cash-less society, and so I can't comment directly. I would speculate,
:though, that since there are multiple charter banks, and that money
:borrowed from one bank might end up in another, the charter banks must
:maintain strictly positive reserves, deposited in the central bank, to
:cover the net transfers of money between banks.

Because chips from the Dunes might end up at the Flamingo is no
reason to maintain reserves.

:In this case, the

:reserve ratio would be very low, but still strictly greater than 0,
:thereby bounding the money supply.
:

Tim's not talking about the reserve ratio here. He's talking
about the amount held in reserve being held low whereby the reserve
ratio is just a number which has been picked and is not a function of
something else. And with the reserve ratio now zero, stop talking
about bounding the money supply.

:: :but note that, given wealth w and environment e, f(w|e) > 0 in
:: :general (and at worst is non-negative). All that the analysis requires
:: :is that if F is the aggregate demand for cash and W aggregate wealth,
:: :F(W|e) > 0 for at least some environments e.
:: :
:: Sorry. Here you lost me since you don't define the operator "|"
:: or the units for wealth (though ergs would do) or the units for
:: environment (which I've never heard of), or the units for demand for
:: cash. I can only paraphrase how I tried to read it:
:
:Whoops, mea culpa. I tend to get excited with my math and forget to
:explain it.
: Given w := wealth, e := a particular environment (i.e.,
:non-wealth factors that determine demand for cash, such as, but not
:limited to, planned purchase of items with cash), f(w|e) is the demand
:for cash CONDITIONAL on an environment e (I took the notation from a
:stats book, but it does not excuse me for not explaining it). In other
:words, fixing a certain environment, the demand for cash is dependent
:only on wealth.
: My argument was that, whereas charter banks could easily see how
:wealthy people were, simply by checking deposit book balances, they could
:not accurately predict what environment the depositors were in. They
:thus make estimates about demand for cash, and thus, for the banks, F(W)
:is perceived as a random variable, where F(.) is aggregate demand for
:cash and W is aggregate wealth.
:

You're still talking about the desire for paper or metallic money
you want to leave the bank with. That's only 2% of the bulk.

:: And now that the analysis got what it required, what does it end

:: up saying? All I said that was 99% of money is e-money in chartered
:: banks computers and that the study of the demand for 1% in cash was
:: not of major utility.
:
:But proves that banks want strictly positive reserves, which bounds the
:money supply.

:
Which proves that the money supply is bounded by whatever the
banker feels like tying it to. What a bank wants should have no
bearing on what the money supply should be.

:Also shows how changes in environment can change demand

:for cash, and, thereby, necessary size of reserves. 1% might be small,
:but it still plays a significant role when one is dealing with the limit
:of a series.
:

Sorry. I disagree. When how much of the money supply people want
to leave the bank with as tokens represents only 1% or 2%, it is not
significant. That financial splashings within the 2% of the bulk are
what constitute runs on the bank, I can't agree. There may be runs on
individual banks but not on the system since emoney must always be
deposited to another account first.
As long as 98% of the money, the emoney, may only go from one
account to another, I'm little interested in runs on the token supply.

:: Making the volume of your loans dependent on savings is a

:
This is a standard predicament whether you are dealing with the
interest bank or the LETS Greendollar bank.

: If I am loaned more than I am worth, than I will go bankrupt.
:
No. As long as you're still breathing, you can score positive by
honoring the Green Hours your spent with your offer to work.
No. If you were worth $20,000 and you borrowed $100,000 to buy a
new house, you'd now be worth the original $20,000 and the $100,000
house to balance your new $100,000 marker in the cage.
You must remember that the purchase of any major asset really
doesn't affect your financial score. You owe $100,000 more
Greendollars the day after you move in but it's balanced by the
$100,000 house you're holding. You're still basically worth the same
$20,000 the day after you come into possession of your new $100,000
home.
Now if in 10 years the house has depreciated to $90,000, (in an
interest-free world, things that get older and used up go down in
value) if you've managed to repay $30,000 on that debt, it just mean
that your net value would be the original $40,000. If I had paid only
$5,000, I would be worth $15,000. Let all your life's financial
transactions be through one account and it's easy to understand that
you aren't declared bankrupt for being negative, you're declared
bankrupt for being negative when you die. Till then, you still get
credit to try whatever is being left untried if the resources are
being unused.

:The bank obviously does not want this to happen, so it will try to reduce

:its risk by reducing how much it is willing to loan.

:
So because the present system is apt to over-lending and
bankrupting people out of the game, it's better to reduce their loans.
This is untrue. 11 for 10 is the same problem whether you got the
loan for $100 or for $90.

:Because of risk, it

:will loan, on average, less than an individual is worth.

:
Because LETS sees no risk other than termination of life, the
LETS attempts to loan, on average, as much as an individual is worth
and prefers not to err.

:(2) Incentive to repay. If I am using my labour as collateral, I could

:very simply default. Simply, I choose to not work, or, if I do work (and
:the collateral is hourly based) work poorly.

:
Yes. But now you're guilty of what the involuntarily unemployed
are accused of. Of breaking your pledge to the group to honor your
Time IOUs with equivalent service.

: Note that I have already received the loan -- this is sunk. I will be

:getting no value from my labour since it goes to repayment. So why repay?

:
So why repay? Such a question is foreign to someone whose need
was supplied from another's abundance with no haste for its return.
Tim, we're not telling you that we will demand you do the promised
work to the detriment of your schedule so that you refuse. We're
asking to try to put back what you took out of society's larder before
you die.
Sure, we've had guys like you who asked "Why repay?" and took off
after we served them without repaying in kind but not many were asking
"Why repay" before we were serving them.
And why do people in the real world model, LETS, repay the
Greendollars they've spent by accepting them for their own work.
Perhaps it's as little as the respect of one's peers and the
friendship of people have have learned to rely on your honor. Honoring
one's commitments is fulfilling and gives a sense of self-worth while
might be so rare that once people try it, they like it and don't
bother completing the theft of time.
It's easier to stiff someone who asks you to repay money you
don't have than to stiff someone who asks you to repay time you do
have.

: Historically, one could indenture oneself, i.e., effectively

:become a slave if you default. Similar style apprentice-ship programmes
:also existed (and for a scathing critique of them see Adam Smith's
:_Wealth of Nations_). The former has been (rightly) abolished, the
:latter inefficient.

:
The real problem was that there were more slave-ship programs
than apprenticeship programs. Historically.
Slavery has NOT been abolished. A slave is one from whom the
fruit of his labor is removed. Whether by chains or by financial
trickery.
And in the Third world today, there are actual indentured debt
slaves. There are reports in the press every year on slavery. Give
every slave an interest-free credit card and ask him what he's going
to do.
And debt slavery has persisted far longer than chain slavery in
the annals of history.

:As a digression, this is why there is a govt guaranteed student loan

:programme. Since I can default on a loan but not as easily on taxes, the
:govt assumes much less risk than the bank does -- i.e., the govt is not
:at (as much) risk from me cheating them (being the sneaky and dirty guy I
:am!). So govt guarantees student loans since banks would not be willing
:to provide them otherwise (which would lead to an inefficient market).

:
But why do the banks classify you and your co-students as
inefficient markets in the first place? And why do you take it? Are
you not the best and the brightest? Why do you take bankers betting
that you're losers so quietly?

:Turmel proposes that something similar to the student loan system be

:expanded. Note, however, that his models are as much in danger as the
:current system -- what is the value of my labour, what is my risk of
:defaulting -- and thus do not solve the problem.

:
Your risk of defaulting is minimal without dying. Only the sick
and the slow will be of such little utility that they leave the game
with heavy negative scores on their credit cards, and for whom I
don't mind chipping my thirty millionth share from every Canadian's
account to balance the loser's score.
If you choose to be an idle bum and end your life with a negative
score-card like the sick and the slow, it still won't slow those who
choose to work and trade to augment their life-styles. I'm saying that
whether you're sick, retarded, or lazy, those of us who think scoring
by producing things is fun will use our robot technology to produce a
cornucopia of abundance even our sick, retarded or lazy cousins can't
handle.
Worrying about credit limits in a world of abundance disappears.
Though it's a game where the richer cousin can end up driving a Rolls
Royce, but's also a game where that only happens when the slower
cousin is driving his minicar on credit if the minicar is there to be
used. Or his Rolls Royce on credit if no one else has chosen to use
those Rolls Royce's over there.
It's almost exciting thinking about the freedom an interest-free
bank account would give you. Freedom from financial coercion. The boss
better treat you right or you can take a break while you look
elsewhere or retrain for something else.
But what I seem to have dwelled on most recently is how the
interest-free credit would affect the producers and consumers as each
become the other up to 100%.
10,000 indigent Ottawa families use their interest-free credit
card to purchase every free home in town. Remember that property goes
to one side of their ledger and debt to the other so that they can't
borrow too much as long as they've got the collateral in tow.
They'd spend new IOUs furnishing their new housing. These are
also small-depreciation items which won't cost much credit.
They'd spend new IOUs on food, clothes, entertainment. There'd be
lots of goods going to the poor replaced by their monetary IOUs.
As merchants start selling more goods, they start ordering more
stock and paying with those monetary IOUs.
Manufacturers get more orders for goods and have to hire people
to do the work.
People who owe for their recent support now have the opportunity
to settle their advance with their labor.
It's just like the wampum IOU system of the Great North American
Indian civilization. Everybody in town takes your IOUs and uses them
as chips until the day you earn your IOUs back.

: If I might anticipate Turmel, he might counter by providing

:examples of how LETSystems evade this problem. However, the LETSystem
:would not be sufficient. An example:
: If I were to study at MIT, tuition alone would be $28 000 US per
:year. Assuming I live reasonably, let's say that it would cost me $38
:000 US per year, which I, not having sufficient wealth, would have to
:borrow. Letting interest rates = 0, with 4 years we are now talking $152
:000.

:
But getting your first year's $38,000 at an interest rate of 10%,
Exiting your first year, you'd owe
$38,000(1.1) = $41,800.
Exiting your second year, you'd owe
($38,000 + $41,800)(1.1) = $87,780.
Exiting your third year, you'd owe
($38,000 + $87,780)(1.1) = $138,358.
Exiting your fourth year, you'd owe,
($38,000 + 138,358)(1.1) = $193,993.

If I promised a LETSystem that I would repay that 4 years of
:education with an equivalent value of labour, who is to say that my
:labour is worth $152 000 (some would say that it definitely would not be
:since I am studying economics!)?

And instead of owing $150,000 my way facing any number of years
in which to repay, you're facing $194,000 with $19,400 as the
interest payment for your first year out of school.
If you just managed to pay just the $19,400 interest every year,
year after year, forever, your would $19,400 payments applied directly
to the principal means you would have been debt free in 8 yearly
payments.
What was an insurmountable obstacle of growing debt became a debt
which could be handled by most graduates.
These words will come back to haunt you the next time one of your
fellow students leaves the game by suicide over financial problems.
Growth of non-exponential debt for goods and services is benign.
Growth of exponential debt for no reason is not.

:And what would happen if, after being

:educated, I choose to default, even if I could afford to repay the loan?

:
Here he is back wanting to leave the game being ranked with the
sick and the slow. You may not get to drive a Caddy like a worker or
buy a mansion like a worker or vacation around the world like a worker
but your credit for anything that is not being used by someone with a
positive credit line may certainly go to the drones with negative
ones.
But who wants to leave a fair game with the score-card of a
drone. So the problem of people absconding to not honor their time
debts is quite insignificant.

: Note that the value of labour is important. A lot of resources

:would have to go into teaching me, and the issue is whether I am worth
:those resources, not whether I am worth the 4 years I spend in that
:school. The proverbial ditch digger is unlikely to generate $152 000 US
:of wealth in 4 years, and thus fixed labour repayments are not sufficient.
: Attempts could be made to prevent the risk of my choosing to
:default, but even if they are 100% successful, they do not cover the
:issue as to whether I was worth that education.

:
But if the teacher was there and if we're ready to accept your
IOUs from you even if you die negative, why shouldn't the idle teacher
register some time useful time, even if only seen in your eyes, so
that you acknowledge to the system at some point, "let me pick up her
tap for some of her car, I owe her." It means that she has more
positive number and you have more negative number but it doesn't hurt
society to serve her in exchange for her positive contribution. If
we'll take the marker from the cripple, we'll certainly take it from
the teacher.
Imagine that the working generation are simply earning the markers
of the next generation and hope their markers are remembered when it
comes time for them to be cared for.
Applying Christ's law of abundance from Paul Corr II 8:14:
Your generation's abundance should at the present time be a
supply for their want to that the later generation's abundance may be
a supply for your want.
That's what's scariest. Banks loansharming the savings of the
older generation to the younger one. I know of rich families who lose
money because junior pays 15% at the bank for his loan and senior gets
10% for his deposit. It splits generations like it splits marriages.

: Case in point. If someone told me that that $152 000 US would be

:covered by a mere 4 years of labour (and during those four years I would
:obviously have to maintain minimal consumption levels in food, shelter,
:etc) I would jump for it. I would be willing to be indebted a lot longer
:for that education, but, unless the market forced me to, I wouldn't admit
:it (hopefully, the market doesn't read my posts!).

:
Using the option of paying it off at $19,400 per year over 8
years allowed you to be free of your debt where otherwise, you'd have
been a debt slave for the rest of your life. And I'd bet that even if
it took 8 years or 10 years, or 20 years, it doesn't matter as long as
you realize that you got what you're paying for.
If you think that your education by these specialized men was
worth trading 32 years to get, that's your decision and can be handled
in an interest-free world though spending $600,000 in four years would
be quite on the indulgent side.
I hope you realize the magnitude of what's at stake if Tim gets
his interest-free or interest-bearing student loan. Forced to go to a
loanshark, he can just make his interest payments and stay afloat for
the rest of his life and for the same payments, in a linear world,
he'd be out of debt for that education in 8 years.

:So, if the problem was only imperfect capital markets, neither solution

:would correct that. Unfortunately, there are additional problems which
:necessitate positive interest rate lending which I have tried to cover
:here and in previous posts.

:
It's the use of the word "necessitate" which bothers me. Just
because it's written in an economics book that something is necessary
doesn't mean it's necessary in the real world, only in the economic
world.
Tim says that interest rates are necessary to solve certain
problems. I see LETS and casino chips which have no problems and have
no option but to suggest that his cure is his cancer. Like the doctors
of old who believed in bleeding the patient to health, the economic
analogy applies.

: This does not mean that current attempts to correct the imperfect

:capital markets are sufficient either. I would argue the opposite in
:fact. In fact, I would argue that ideas like the LETSystems can help, in
:limited ways, to correct some of the inefficiencies and suffering caused
:by imperfect capital markets. I merely state that LETSystems et al can
:not replace in entirety the current system.
:

I say that a LETS which can handle a database of 100 records or
1,000 records or 1,000,000,000 records can fully be offered as a real
world software upgrade to replace the current system in its entirety.

:: And I ask

:: are they lending out the whole 10 of the depositors savings as you
:: show in your piggy bank model or do they lend out 10 new dollars out
:: of the pump as I show in my casino-bank model.
:
:And I answer
:they are lending out the whole 10 of the depositors savings.
:

If you're lending me the depositors savings, where's the new
money you say you've just created if not double-counted. Upon this
rock, that the loans are from the tap not the savings reservoir it
looks like we must disagree.
Seems kind of silly that such a trivial situation can offer two
such contradictory explanations. I say it's testament to the
brilliance of the scam.,


:: And that was my whole point. Then the central bank reserve ratio

:: was merely a minimum and they issued 2% and the chartered banks issued
:: 98%. Now the chartered banks can issue as much more as they want no
:: matter how much the central bank issues. It I was arguing that 2% was
:: too small to really dwell on and your pointing out that it's now 0%
:: sure completes my point.
:
:Once again, please check my arguments for why the reserve ratio is
:strictly positive.

:
Wait a minute. You said that it was now zero. Positive or
negative have no relevance.

And note that any series from n=0 to infinity
:a*(1-r)^n has a finite limit, a/(1-r) for any r, 0 < r < 1. Regardless
:of how small the reserve ratio is, as long as it is strictly positive,
:the limit holds, and therefore the money supply is fundamentally
:determined by the size of a, which is set by the central bank.

:
Yes but a is now zero. And the other factor in the determination
of the money supply is if the banker feels like it or not.

:Turmel then talks about the notice on loans before a bank can call them

:in, such as 1 year mortgages. As long as the borrower's credit is still
:viable, there is no reason to not renew the loan.

:
Except where the interest rate went up and your viability of
meeting those increased payments went down correspondingly and they
say no. Those are the news stories I'm talking about. When they say
yes and let the loan live, there is no news story.

:If the borrower's

:credit has changed, the interest rate might change to reflect the new
:risk (interest can decline if risk declines) or the loan may not be renewed.

:
Exactly my point. The credit-worthiness of you and your
collateral is a function of interest rates set by the controllers of
money. If the rate goes down, you and your asset's credit-worthiness
goes up and if the rate goes down, so does your credit-worthiness.
Notice that without an interest rate to reflect the value of your
worth up and down, most people are worth what they've got added to
their score-card. Most buildings are worth the workmanship that went
to them. That can fluctuate due to supply and demand but any change is
always reflected at the cage.
If you borrowed 100,000 chips to buy your house, always
promising to cover the depreciation, I have your IOU marker for
$100,000 and you have the $100,000 chips which you exchange for the
house.
If next year, someone offers you $120,000 for the house and it's
only depreciated by $10,000, he sees something of greater value and
he's willing to part with more hours to get it so I take his marker
for $120,000 and he gives the $120,000 to you who pay me the $10,000
for the depreciation, the $100,000 you owe and you net $10,000. If you
covered depreciation with repair yourself, you make a net profit of
$20,000 on your investment.
That kind of price inflation will always exist. I call this
supply and demand though. I reserve the word inflation for the
artificial price rises forced upon manufacturers who have to include
interest in the price of their goods.

: This is done to reduce the risk to the bank. A new business is

:expected to lose money for its first few months. However, if it does not
:improve or if it is losing too much money, then the lender does not
:wish to watch his or her loan vanish into a pile of debts.
:

But the initial risk of failure is introduced by the rule of 11
for 10. That's what creates the initial shortage that leads to a
fraction of the participants failure and foreclosure. It leads to
everyone being so desperate for tickets to survive that they will
resort to fraud, theft, violence in order to survive. So when they
assess the risk of your being a loser, they are themselves creating an
original minimum number of losers.

:: Why are you dealing with what goes on in the reservoir of

:: savings? We don't have reserve ratios anymore. You said the control
:: had been cut between savings and the reserve ratio of loans. You can't
:: talk control after saying you now have zero control. With no reserve
:: ratio, there is no savings governor on the pump.
:
:I said, and I thought quite clearly, that there is no minimal reserve
:ratio maintained by law. There are still reserve ratios, maintained
:voluntarily by banks because it is in their profit maximizing incentive
:to do so. They keep the reserves to meet demand for cash etc.. See
:above and previous posts.

:
So they're still measuring something that's been disconnected.
But it's a dial that still may offer useful information. But it has no
effect when zero savings are necessary to issue a new loan.

:I will also go back to a point that can easily be lost in the model of

:the banking system. Why do people borrow money?
: They borrow money because (1) they believe that they will be able
:to repay that money plus interest and (2) they want that money now rather
:than later.

:
They also want that money because it's the only way to get into
the game and the only way to survive physical necessity. Seems a much
more powerful inducement than "they want that money now rather than
later." Perhaps they need that money now.

:Case in point, me and my education. If I invest my future

:labour earnings in education now, I will hopefully be able to repay those
:labour earnings plus interest.

:
And all we're asking you do do is the same thing without
interest. And if the only reason you're suggesting that interest is
necessary is to cover the bums who are going to stiff their loans, I'd
say that your averment of your hopeful intention to repay both the
principal and the interest would also serve demand for the averment of
your hopeful intention to repay at least the principal.
My way, a lot less students will fail to honor their promise.

:In addition, I hope that the education

:will raise my future labour earnings sufficiently more than they would
:have otherwise been in order to leave me with additional profit.

:
So do I so your account can rise out of debt faster as your
production increased.

: Now, if I thought I was going to be worse off from borrowing

:money, I wouldn't have done so.

:
You know you're worse off with respect to the house in your
original deathgamble but you're betting that you'll be one of the
survivors. You know that you're badly off with interest but you're
worse off with the loan. So you think you're forced to accept badly
off with interest to get the loan when in reality there is a way for
you to access loans without interest.

:Note that here I am referring to utility

:rather than money. But simply, if my expected discounted future utility
:conditional on no education (and hence no borrowing) is higher than that
:with education and borrowing (and repaying that debt and interest) than I
:do not borrow.

:
This is all just the descriptions of problems for participants
within the deathgamble. Questions of who survives. When it's not a
deathgamble and everyone survives, whether you were credit-worthy
enough to borrow and gamble will not arise.

: Obviously I would be willing to borrow more (or be more willing

:to borrow) if the interest rate was less, but there is scarcity out there,
:and I have to accept certain limits.
:

The other big bonus of keeping the tap hidden. It permits Tim, in
a world with stores bursting at the seams with proffered goods, to
believe that there's real scarcity he must endure. This is done by

to chase the dollar instead of the good. When dollars are kept
in short supply, he thinks there is scarcity in supply.
This is a great myth. A few posts ago, I pointed out a report
which indicated that we'd only started the harvest the minerals in the
earth's crust and the agricultural potential. If it is correct in
saying that we have the potential to feed 35 billion on an American
diet, then we have the immediate potential the stuff the present 5
billion of us with good food within years.
But remember that as auto garages are forced to keep their
inventories lean to avoid interest charges, so do grocers forced to
keep their inventories low as well.
As the garage waits for immediate payment before ordering the
product, the food industry keep their inventories low awaiting payment
before ordering from farmers.
It's the difference between the Earth always having a 6 month
reservoir of food and having a reservoir of food that grows as fast as
possible. We tend to discourage the growing of food and other life
support industries on the grounds that there is no foreseeable market
for that food from people who are starving and broke. So they don't
grow it.
Stopping food production because the warehouse ran out of
receipts for it is stupid and stopping food production because the
banks run out of money tokens for it is just as stupid.

:The interest rate is the

:equilibrium point for the demand for borrowing versus the supply of money
:-- i.e. resources -- willling to be lent.
:

Yes but we've agreed that with a zero reserve ratio, the pump is
free to lend out as much new liquidity as it wants. So with
sufficiency of money, interest as a premium for scarcity of money,
disappears.

:: :The correct criticism, which I adopted

:: :later, was that the 11 for 10 dilemna was irrational.
:: :
:: And what you can't face is that it's prime rule of what's going
:: on within every mort-gage death-gamble signed anywhere on the planet.
:: It is irrational to continue going to the interest-bearing money pump
:: when you can go to the interest-free Greendollar pump.
:
:Rather, if I expected to lose from borrowing, I would not borrow.

:
But you earlier admitted that when you borrow 10 expecting to
repay 11, you expect to lose. So why do you borrow? You say you do not
borrow and yet you say you do though admitting expectation of loss.

:Hence,

:any model that argues that I borrow and lose and expect to lose is
:irrational -- it says I will do something that I will not do.

:
You can't say you will not do it as you do do it by signing your
name to the promise to pay 11 for 10. You do it. Don't say that my
model doesn't expose you doing it when you've admitted that you do do
it. You do borrow 10 to owe 11. You think it's normal.

:Thus, a

:new model, one which makes it rational for me to borrow, is required.

:
What better way to model everybody getting 10 dollars and owing
$11 than everybody getting 10 toothpicks and owing 11? Or 10 chips and
owing 11? You can't get a better model than right on. You keep looking
for a model that can keep you confused.

:Either one needs to come up with a model that will fool all the people

:all of the time (and I would be very interested in how this is), or a
:model in which I do benefit, on average, from borrowing.
:

My models allows you to benefit from your borrowing just like the
current models.
All the reasons you gave me why you should be trusted with the
loan at interest were just as good reasons for you to be trusted with
the loan without interest.
But he's still living under the rule that he can't get anything
out of the loan pipe without paying interest. So he sees the benefit
he out of the loan as a benefit of having paid his interest. Unusual
comprehension, even from a slave.

:: :A simple way of testing the rationality of the 11 for 10 game/dilemna, is

:: :to invite ten people over, play the game several times, and find out how
:: :quickly it takes before people exercise the option of not playing.
:: :
:: Make them all put up their bus-passes and once hooked, there's no
:: way out but to play and hope you're a winner rather than a loser in
:: the death-gamble.
:
:Let me repeat. Explain the game to the players. Tell them, you either
:play or don't play. If you play, you put up $10 dollars and get 10
:tokens. Make the game perfectly random so skill is not an object. Tell
:each player, if you get 11 tokens you get your $10 back, if you get less,
:you get $0. We will allow that players all have enough money to play and
:lose the game several times.

:
TEST: Can you determine the fraction who get knocked out of the
game from Tim's explanation of the model?

: See how many people choose to play the game. Play the game (and all

:people choosing to play will try to get 11 tokens), and then repeat the
:whole thing again. I will guarantee that there will be fewer people
:playing the game and quite likely zero.

:
That's what I'm guaranteeing too. That after every cycle of the
11 for 10 game, there are fewer borrowers who survive to play again
and there are soon likely to be zero.

: In other words, the best way to win the game is to not play.

:
He's made a good case for the problem faced in the 11 for 10
game. The best way to win the game is to not play and bring your
collateral to the 10 for 10 bank if you've got one.
The problem he can't accept is that to not play deathgamble often
means to not survive. No job, no money, no life-support. That can
kill.
But even now, I've got him and his friends hooked.
All 10 of them borrowed 10 and all 10 owe me 1 per year minimum
or more if they want to pay down their principal. If he can pay off
the whole 11, great, if not, just the 1 in interest will do.
Let's say that in their first cycle, five guys end up with 11 and
five guys end up with 9. Four of the five winners take cash out their
11 and leave the your party game with their bus-passes. The other one
who could cash out and the other five who can't pay their interest.
With 50 chips back in the cage and 6 bus-passes, that leaves 50
chips out in the casino. I, the banker, now think "I'm up one bus
pass."
Cycle after cycle, they give me one or score enough to buy out
and survive. Finally, it's "No problem" no more as the last two hand
over their last chip. They've got one more cycle with no chips in the
game to come up with the interest or else.

:So WHY, in Turmel's model, do people consistently choose to play?
:
No, it's not in my model that they're choosing to play. It's in
the real world where they're choosing to play and Turmel's model
simply demonstrates what is expected to happen to those real people
which the model is modeling.

:Game

:theory says they won't.

:
Game theory says they do. Or rather, with game theory one can
show that they do, how many will be eliminated and how many watches
will disappear from the cage backing up the chips.

:Empirical evidence says they won't.
:
Empirical evidence says they do. Ask any accounting prof is bank
loans are obtained under the 11 for 10 rule. Every bank you see is
empirical evidence that people do choose to play, even if coerced.

:So what

:principle lets the model ignore both theory and reality?
: So what if there is no other game. I still have two options:
:play or don't play.

:
Play or don't play. Play or starve. How many times do you not
choose play. Starvation seems not a high frequency choice.

:And my expected pay-off from not playing is higher
:than from playing.
:
Well, yes, you lose less interest but you also lose your life. I
know questions of financial losses are weighty considerations but
don't quite rate up there with questions of physical survival.

: In fact, let us weaken Turmel's model further.
:
No, let's not weaken my model. Let's change some parameters and
see if the model handles them.

:Instead of the

:fixed payouts, let the payout be $(tokens/11). People will still choose
:to not play the game, although it might take them a bit longer to realize
:that they are best off not playing.
: The irrationality in the model is that the players are
:consistently choosing to go against their own best interests, i.e.,
:behaving irrationally.
:

Can I really criticize you for being so irrational as to sign
your own mortgage deathgamble when you had no other choice but to
gamble on being one of the survivors?

:: Being better off without the loan because it avoids the interest

:: is not really better off if your kids are starving. The only time
:: you're better off without the loan to not pay interest is when you've
:: already got enough. But it's true that if the rich man doesn't need
:: money, he's not forced to borrow any.
:
:So why borrow, then, to buy a house, car, or anything besides food?

:
Because you need that past resource now and you have the manpower
to replace its value later. And if getting the loan of the past
generations spare resources makes you stronger, in general, we all
have more.
There is good reason the older generation to support the younger
generation but not middled by loansharks.

:One

:can rent a house, thereby avoiding the mortgage "gamble", and so on.

:
You pay interest on the structure within your rent. There's no
escaping it. Increased prices due to interest is everywhere.

:I

:repeat, if one thinks that the loan is going to make one worse off (and
:again, I speak in terms of utility) than one does not take out the loan.

:
Most people asking for a loan don't think it's going to make them
worse off unless they understand the nature of interest. Utility of
loans is a given under either system.

:People do not start out indentured; I only became indebted when I

:voluntarily took out student loans. Now I would have loved to avoid that
:necessity -- i.e., to have free education, or to have had interest free
:education.

:
Free, no. No one deserves a free ride. But interest-free, yes.
Everyone deserves chance to pay it off.
I do feel empathy for Tim's predicament though. He might owe
$30,000, $40,000, $50,000 for his education and with the front-end
loaded interest charge, he could be dragged down by it for a major
part of his life. And, no matter how rich he might eventually get,
that would be part of his life where is most needs money and when it
will hurt the most.
Wouldn't it actually be nice if they only came to collect after
you were dead. You have your earnings card and your spendings card and
when you die, they open them up and see if you came up a winner or a
loser in a fair game of harvesting abundance.

:Course, I would also love to have free food, free housing

:(and make that a big house), a free Ferrarri, and so on.

:
Just because you linked free money with interest-free credit
doesn't mean I'm offering you free food, free housing, etc., in the
least. With the original offer of the credit, you can have that food,
but you'll try to return its value someday. We're counting. You can
have that housing but you'll pay the depreciation on it someday. We're
counting. Not loansharking, not charity but right in between. Loans we
want back but without the loanshark's interest.

:Course, so

:would everyone else. Who gets what -- those willing/able to pay!
:This does not mean that poverty is inevitable, necessary, or even
:desirable.

:
Poverty is inevitable if 11 for 10 continues to be charged.
Interest is at the root of the cause of the shortage. And only in
Economics could the desirability of poverty be taken into account.

:I personally think it stinks. However, in order for a

:solution to eliminate poverty, it must also be a feasible solution.

:
That's why you should be ashamed of yourself for not seeing that
a LETS Greendollar bank account is a major step in the solution to
your personal poverty. Instead of facing a life of financial scarcity
with dread, you could be facing a life of abundance with financial
considerations relegated to an auxiliary service offered by our
internet providers.
You can't get more feasible than a software disk in hand and
press reports of the success of the upgraded money system from around
the world. I'll repost some of the Greendollar press for those who are
hearing this for the first time.

[Timothy Huyer]

: John Turmel (bc...@FreeNet.Carleton.CA) wrote:
: : huy...@qed.uucp (Timothy Huyer) wrote:

I re-read Turmel's posts to see if there was anything that I could add to
my previous posts. Unfortunately, the differences seem to be more a
function of Turmel not understanding my arguments (although I am certain
Turmel would argue vice versa!) rather than missing any important elements.

I will attempt, though, to re-cap conclusions of my previous posts.

First, one only takes out a loan (at interest) if one feels that the
benefit of that loan exceeds the cost of that loan and interest. In the
most trivial case, one could look at investing. If I knew of an
investment that I expected would have a 10% return, I would be willing to
borrow money at any rate of interest strictly less than 10%. However,
one does not need to restrict oneself to monetary returns; economists
deal primarily with utility. If I got greater utility by borrowing
against my future income and spending that money now than if I simply
waited and spent the money in the future, I would be willing to take out
a loan at interest to facilitate that present consumption.
This generalizes. Any mutual exchange is carried out only if all
participants are (weakly) better off as a result. If the terms of the
exchange are such that any person would be strictly worse off, than that
person simply would not agree to the transaction. In the case of
borrowing, for example, if the bank would only loan me money at 11% I
would decline the loan and not invest the borrowed money in that
investment with 10% return.
Obviously, when dealing with the future, there is uncertainty and
risk. Clearly, people adapt to these figures. If the investment was
only expected to provide 10% return (could be higher, could be lower),
but the loan was definitely at 10% interest, the risk averse individual
would not take out a loan to invest money. Even risk averse individuals
might make bad mistakes and end up bankrupt. This is unfortunate but not
a fault from positive interest rate investments. If the interest rate
was 0%, not only would I be willing to borrow money to invest in
something that had a 10% expected return, I would also be willing to
invest in something that had say, a 1% expected return. Of course,
either of these investments might end up having a negative return and I
would still end up bankrupt if that happened.
But the option of not borrowing always remains, and this is why
Turmel's mortgage gamble model is irrational -- the players are denied
the option of not borrowing, not playing.

Second, in regards to the alleged tap that charter banks are supposed to
have (in actuality, I would imagine that if charter banks have a tap, so
must other near bank financial institutions. The process that credit
unions et al follow is identical to charter banks, the only difference is
that these near bank financial institutions do not have accounts in the
central bank. M2+ and M3+ account for deposits etc in near bank
financial institutions as well as in the charter banks).
Turmel follows how money flows through the banking system and
thus results in deposits and loans significantly larger than the amount
of cash in existence. The problem is that he suddenly concludes that,
since loans exceed cash supply that banks have created money from
elsewhere and not loaned depositors' money.
I had demonstrated a mathematical series that virtually mimics
what I believe Turmel called the piggy bank model. With a reserve ratio
of r, say r=0.1, and all money ending up in the bank, each dollar in cash
creates $10 in deposits, $9 in loans, and $1 in reserves, the last item
being entirely cash. Turmel was correct in calling the additional $9
e-money, electric money, since it really only exists electronically in a
bank's computers (originally, though, it existed only in ledger books,
before the microchip revolution). However, it is obvious that the bank's
assets -- loans plus reserves -- are matched by its liabilitie --
deposits. In fact, at each stage of the lending/depositing process, the
depositor gives the banker cash and the banker gives the lender cash that
the banker has at hand.
I really cannot see another way of explaining that this was not
resultant from the banks having a tap. I apologize for having reached
the very limits of my ability to explain.
It is also obvious that there are more deposits than loans,
i.e., there is not only money in existence to cover loans but also the
interest.
I suppose Turmel could reply that the model I presented is not
wrong, per se, but that his is better. However, in previous posts I also
did some work showing how Turmel's model would not lead to equilibrium
point, which is a necessary condition for the model to explain anything
which has not fallen to _complete_ chaos over time.

There was some additional mention of scarcity. Turmel correctly pointed
out that there are sufficient resources to eliminate extreme poverty
(indeed, most if not all poverty) worldwide. This is a distributional
problem and a very valid criticism of how the world is operating. It is
not necessarily a social credit criticism; my criticism of the
distributional problem is a socialist one and does not depend upon the
problem being one of usury per se.
Nevertheless, scarcity still exists. Scarcity simply means that
it is impossible for every person on the planet to be satiated; to have
all of their possible demands filled. I may have enough to eat and be
satiated there, but I still want a better computer. If I got the
computer then I would still want a car, and so on. Perhaps I would be
satisfied before I owned the entire planet, but aggregate demand exceeds
aggregate supply. Hence, scarcity.

Again, other then repeating myself, I do not know if I can further
explain these points. I had suggested previously that perhaps textbooks
might have better explanations since, after all, the authors are smarter
than me, have teaching experience, more time, and editors.

Otherwise, I am prepared to accept that my ability to explain is
not sufficient for the task. If there are new points which I have not
addressed, I will attempt to respond to those, but I cannot see the point
of being repetitive. In the ground otherwise covered, I would like to
say that I believe I do understand what Turmel is trying to demonstrate,
but that his conclusions are wrong (and, perhaps, Turmel would argue vice
versa).
If there are lurkers on this thread (if Turmel and I have not
scared you away with our epic length posts!) and any of these lurkers
have additional questions, please e-mail me (and I am certain that Turmel
extends the same invitation). Dependent upon time constraints and my
already acknowledged limited ability to explain, I will do my best to
reply fully.

[John Turmel]

Subject: Re: TURMEL: On Social Credit vs Greendollars

On Dec 1 1995 in Article #116853 of can.politics,

huy...@qed.uucp (Timothy Huyer) wrote:

:I re-read Turmel's posts to see if there was anything that I could add to
:my previous posts. Unfortunately, the differences seem to be more a
:function of Turmel not understanding my arguments (although I am certain
:Turmel would argue vice versa!) rather than missing any important elements.
:
:I will attempt, though, to re-cap conclusions of my previous posts.
:
:First, one only takes out a loan (at interest) if one feels that the
:benefit of that loan exceeds the cost of that loan and interest. In the
:most trivial case, one could look at investing. If I knew of an
:investment that I expected would have a 10% return, I would be willing to
:borrow money at any rate of interest strictly less than 10%. However,
:one does not need to restrict oneself to monetary returns; economists
:deal primarily with utility. If I got greater utility by borrowing
:against my future income and spending that money now than if I simply
:waited and spent the money in the future, I would be willing to take out
:a loan at interest to facilitate that present consumption.

:
No one is debating the utility of credit. Certainly not me. I
want you to borrow against your future income and spending that money
now because you need that support now and all I'm asking you to do is
NOT "take out a loan at interest to facilitate that present
consumption" but to pay a one-time service charge to "take out a loan
at NO interest to facilitate that present consumption."
He keeps repeating the theory that because credit is good and
because they've made it necessary to pay interest for that credit,
therefore paying interest is necessary.
Credit is just as good from a Greendollar bank and because
they've made it unnecessary to pay interest for that credit, therefore
paying interest is not necessary.

This generalizes. Any mutual exchange is carried out only if all
:participants are (weakly) better off as a result. If the terms of the
:exchange are such that any person would be strictly worse off, than that
:person simply would not agree to the transaction. In the case of
:borrowing, for example, if the bank would only loan me money at 11% I
:would decline the loan and not invest the borrowed money in that
:investment with 10% return.

:
Unless you're refinancing your house from a 10% to 11% loan. In
that case, which the case of most death-gamblers, you don't have a
choice not to take the survival money at any price.
Your example doesn't deal with people already hooked in the game.
It deals with you having a new investment opportunity which you can
decline because the rate has been set too high. What about the
majority dealing with an old investment opportunity, their home, which
they cannot decline even if the rate is set too high. It is pure
financial coercion, nothing less.

: Obviously, when dealing with the future, there is uncertainty and

:risk. Clearly, people adapt to these figures. If the investment was
:only expected to provide 10% return (could be higher, could be lower),
:but the loan was definitely at 10% interest, the risk averse individual
:would not take out a loan to invest money. Even risk averse individuals
:might make bad mistakes and end up bankrupt.

:
Bankrupt in today's world. In a Greener world, he'd only be
highly negative with his future opportunities as optimal as his past
ones. The concept of bankruptcy just does not exist under an interest-
free software because we don't turn off industrial motors just because
they've hit a certain negative number. Everyone can keep trying with
whatever tools are available.
And that is the problem with the present economic system. It puts
human motors out of action who are not yet dead. Just imagine if ants,
bees, termites, used a monetary system which systematically put a
certain percentage of insects in the colony out of action. If ants,
bees and termites used money to reflect their physical achievements,
they would soon also be on the verge of self-extinction. Just lock up
all the honey and worker ants without life-tickets don't get any. Just lock
up all the industrial production and worker people without money
don't get any.
Poverty amidst plenty, the famous Social Credit description of
the major symptom of usury. Inequitable distribution the major
symptom of usury. If someone is getting something for nothing, someone
else is getting nothing for something.

:This is unfortunate but not

:a fault from positive interest rate investments. If the interest rate
:was 0%, not only would I be willing to borrow money to invest in
:something that had a 10% expected return, I would also be willing to
:invest in something that had say, a 1% expected return. Of course,
:either of these investments might end up having a negative return and I
:would still end up bankrupt if that happened.

:
Interesting point. With interest-free credit, projects which have
a 1% return become feasible! As long as there are idle workers and a
positive return is possible, we can go after it. Today's world cannot.
Competing for loans via return, opening casinos are a better
investment than improving the mouse-trap. But even the small demand
for a better mouse-trap will be catered to.

: But the option of not borrowing always remains,
:
Upon this we again fundamentally disagree. I say that once you
have mortgaged your house, you'll have to refinance at whatever rate
they offer you or you lose your house. This is coercion and the option
of not borrowing does NOT always remain. I thought I'd gone over the
predicament of those who are already hooked. And they do represent the
majority.

:and this is why

:Turmel's mortgage gamble model is irrational -- the players are denied
:the option of not borrowing, not playing.

:
The model is modeling the 11 for 10 contract, not the players,
though it does show what happens to the participants. I earlier
explained how it's not a model that is irrational but what the players
in the model do which might be. You can't use those kinds of words
with respect to a model.
Whether you're playing 11 for 10 pledging a watch in the model or
your business in real life, it's the 11 for 10 game which is being
modelled, the logic of getting into it.
The model takes over when all the mortgages have been signed. The
model doesn't tell the inducement that gets people into the game. When
you signed your mort-gage, that inducement was the deal: "With the 10
you get now, you'll get a better education which might let you pay
11." When the butcher signed his death-gamble, his inducement was
"With the 10 you get now, you'll provide a better meat and might let
you pay 11." When the dentist signed his 11 for 10 promissory note,
his inducement was "With the 10 you get now, you'll provide service
and might let you pay 11."
In all cases, yours included, the alternative was to not get the
loan and all the impediments that entailed. I'm trying to tell you you
are being coerced into paying interest when you shouldn't have to and
you're arguing you like it. Think about it.

:Second, in regards to the alleged tap that charter banks are supposed to

:have (in actuality, I would imagine that if charter banks have a tap, so
:must other near bank financial institutions. The process that credit
:unions et al follow is identical to charter banks, the only difference is
:that these near bank financial institutions do not have accounts in the
:central bank. M2+ and M3+ account for deposits etc in near bank
:financial institutions as well as in the charter banks).
: Turmel follows how money flows through the banking system and
:thus results in deposits and loans significantly larger than the amount
:of cash in existence. The problem is that he suddenly concludes that,
:since loans exceed cash supply that banks have created money from
:elsewhere and not loaned depositors' money.
:

I'm going to play my Ace now. "Not loaned depositors' money" is
Turmel's allegation. Whether new money banks create comes out of
a tap or whether it's old money lent out over and over. It started
with the question:

: I noted a perfect example of Orwell's "double-think" in one of
:the articles. Double-think was defined as the ability to
:simultaneously accept two contradictory points of view as both true.
: On Aug 24 1995, wfhu...@netcom.com (William F. Hummel) wrote:
::A bank loans money that it receives from other depositors...
: In the next paragraph, he says:
::The money supply increases whenever a bank creates a new loan, and it
::decreases when the loanee pays off the loan.
:Can anyone else see the double-think here?
:John C. Turmel, B. Eng.

The essence of all our arguments is that you say the money supply
can be increased by relending the same depositors' savings out of the
loans pipe and I say the money supply can only increase by the loans
pipe being connected to a pump.
I hate turning to authorities when we have the plumbing and we
should be able to judge for ourselves but I will now cite my one
ultimate Canadian financial authority as backup for the fact that
depositors' savings do not come out of the loans pipe, only new bank
credit from the tap does.
In 1939, Graham Towers, Governor of the Bank of Canada, before
the Commons Banking and Finance Committee testified:
"THE BANKS, OF COURSE, DO NOT LEND OUT THEIR DEPOSITORS' FUNDS.
Each and every time a bank makes a loan, new bank credit is created.
Brand new money."
Again, I point out that it's not hard for me to connect the pump
to the loans pipe or the battery to the loans wire. You're showing me
10 times the voltage of your first battery and claiming the financial
power is magnified 10 times by reusing the same battery over and over
and I say it can't be done. For banks to create new money, I have to
see a voltage source.
So the Governor of the Bank of Canada says that "the banks, of
course, do not lend out their depositors' batteries. Each and every
time a bank makes a loan, new batteries are created. Brand new
charge."
I know many might feel it unfair to argue a dozen rounds with an
Ace in the hole, but the Graham Towers quote is in my Mathematics of
usury and had Tim read it, he would have seen it hanging over this
debate like a sword of Damocles over his model.
I don't think I could have proven my point about the double-think
implanted on everyone in society with respect to banks lending out
their depositors' funds without such vigorous debate. If you went up
to the average person and repeat the truth we've concluded:
"Banks do not lend out your deposits,"
you'd run up against the first wall of cognitive dissonance. Everyone
originally dealt with piggy banks as children and instinctively knows
"you need a deposit before you can lend." Everyone reacts: "Of course
they lend out my deposit. Why else would the borrower pay me
interest?"
Over and over, everything in people's experience leads them to
conclude that banks lend out their depositors' funds and getting them
to accept that "banks do not lend out their depositors' funds" is like
undoing brainwashing. Cognitive dissonance. Even if it's the truth,
they can't believe it because it goes against everything they've been
trained to believe before. Cognitive dissonance. When people hear
bankers repeat "Deposit your savings so we can lend," it's natural to
assume they are waiting for savings to lend out; if you don't know the
loans are coming out of the tap.
That's why finding out loans are coming out of the tap is such a
shock to the cognitively dissonant. Tim can deny the existence of a
tap in the chartered bank plumbing stating there is only a tap at the
central bank while admitting that the money supply goes up when the
central bank makes a loan and when the chartered bank makes a loan.
Why accepting a tap at the central bank is so easy while accepting a
tap at the private banks is so hard is again testament to the piggy
bank theory of savings for loans versus the casino bank theory of new
chips for loans.
Finding out that loans come out of the pump cannot be accepted by
the subconscious because it destroys the rationale for having been
enslaved by the interest all their lives. No one wants to admit
they've been suckered but to find out that you've paid interest all
your life believing it was the only way you could get credit from the
depositors when you were actually getting credit from the tap makes
some people really irate.
And that he fell for the bankers saying that his deposits were
down and that's why they were cancelling people's credit lines when
they didn't need the deposits at all, evidenced by the recent doing
away of the reserve requirements, some people get really irate.
That my government has handed over the creation of the chips to a
bunch of loansharks and then gotten in line to compete with me for a
loan is the height of insanity when that government could take back
the creation of the chips and we could eliminate the middlemen from
our transactions completely.
It seemed through these discussions that no matter how much I
inferred that there had to be a tap, this went against the grain to
the extent Tim had to deny the existence of the tap.
Now he had to explain the appearance of real money without a tap
and rolling the same liquidity over and over just didn't come up with
the batteries.
Up to now, Tim's had the cognitive dissonance of an education in
Economics to explain the refusal to accept that banks do not lend out
their depositors' funds. Now that he's faced not only with the
plumbing showing a tap but the statement of the Governor of the Bank
of Canada indicating a tap where "banks do not lend out their
depositors' funds" and that "each and every time a bank makes a loan,
it's brand new batteries," he has no excuse but to sit back and
re-evaluate in light of my Ace in the hole.
This is one statement I personally verified in Hansard for 1939.

: I had demonstrated a mathematical series that virtually mimics

:what I believe Turmel called the piggy bank model. With a reserve ratio
:of r, say r=0.1, and all money ending up in the bank, each dollar in cash
:creates $10 in deposits, $9 in loans, and $1 in reserves, the last item
:being entirely cash. Turmel was correct in calling the additional $9
:e-money, electric money, since it really only exists electronically in a
:bank's computers (originally, though, it existed only in ledger books,
:before the microchip revolution). However, it is obvious that the bank's
:assets -- loans plus reserves -- are matched by its liabilitie --
:deposits. In fact, at each stage of the lending/depositing process, the
:depositor gives the banker cash and the banker gives the lender cash that
:the banker has at hand.

:
Here's an added explanation of why Tim can't see a tap. He's
watching the paper tokens going into and out of the banker's till.
He's not looking at what's happening in the computer accounts.
I explained that when cash comes in, the soul of it is deposited
into the depositor's emoney account. When another saver decides to
take some of his emoney out, he brings it to the cashier who lets him
leave with that paper money.
The fact the depositor deposits paper money and the borrower
receives that paper money forgets that there's been a switch of souls
in that money which took place in their computer accounts. When Mr.
Jones deposits a $100 bill and Mr. Smith borrows it out, Mr. Jones'
emoney account went up and Mr. Smith's emoney account went down. It
wasn't the same money leaving the bank. Entering the bank was Jones
emoney dressed in a cash coat and leaving the bank was Smith emoney
dressed in the same cash coat.
I rarely delve into how this movement of paper money helps
deceive the viewer into believing that no pump exists. Tim sees the
Jones money go into the till and Smith take it out and concludes that
there can't be a pump. What he fails to realize is that the real
action is taking place in the emoney computer and the movement of the
real emoney backing up the cash is invisible to the eyes of those
watching the cash.
Cash is a cloaking system. Two forms of emoney are leaving under
the same cash cloak. Withdrawals from the reservoir go to the till to
put on the cash cloak to leave the premises or loans from the pump go
to the till to put on the same cash cloak to leave.
Furthermore, in repeated talk about the pump or the tap, we've
neglected it's corollary, the sink or the drain.
When you accepted Mr. Robert's cash in your store, the ownership
to the emoney under the cloak changed to you. When you go into the
bank with that cash in hand, your emoney comes out of the cash in the
till and goes into your emoney account.
But if you are repaying the loan principal, the converse of
getting the loan principal, your emoney leaves your cash cloak at the
till and goes down the drain thereby reducing the volume of money in
circulation.
Count up all the new loans made by the banks this week and all
the principal payments on those loans and that's how much new money
was pumped into circulation minus money pumped out for the weekly
numbers reported in the newspapers.
The fact that they count the increase in the money supply by the
volume of new loans is another Ace proving that loans are new money.
And the fact they count the decrease in the money supply by the volume
of payments on principal proves that paying loans extinguishes them as
money.
As a matter of fact, I can't think of a greater reason why most
people think banks operate like piggy banks than what goes on in front
of their eyes at the teller's till. We all put in bills as deposits
and we all take out bills as loans and this certainly helps cloud
what's going on in the computer. It's a wonderfully intricate shell
game but with genocidal consequences. The real question is whether
there's an invisible pump behind the cash Tim's watching moving in and
out of the till.

: I really cannot see another way of explaining that this was not

:resultant from the banks having a tap. I apologize for having reached
:the very limits of my ability to explain.
: It is also obvious that there are more deposits than loans,
:i.e., there is not only money in existence to cover loans but also the
:interest.

:
Stop. We were talking about the tap of money coming into
existence. We're not into the 11 for 10 Rule of Return. I state that
every injection demands the removal of it and more. And saying it's
obvious there's enough money to cover the interest is jumping to an
unwarranted conclusion.
Every dollar that comes into existence is born with a debt to the
banker bearing interest. The very next day, the debt is always greater
than the loan you received. The next day, the aggregate debt is always
greater than the aggregate loans received. Derived from the concept
that (Principal + Interest) owed is always greater than (Principal)
received.

: I suppose Turmel could reply that the model I presented is not

:wrong, per se, but that his is better.

:
No, your choice of the piggy bank plumbing is NOT not wrong. It
is wrong. And my choice of the casino bank plumbing is not better, it
is right. I'm standing my ground because if this simple plumbing model
is correct, it necessitates a fundamental revaluation of economic
theory to date.
If it took an engineer to see a systems engineering approach to
monetary system design, so be it. It is done and can't be undone. If
I'm right, the a lot of economists are going to have a lot of
explaining to do. Telling the world you grasped this stuff when it was
full of nutsy double-think won't be something they'll be proud of.
But once you've seen the plumbing, there's no denying the truth.
This LETS Greendollar software could not only provide currency for
full Local Employment Tradings all around the world but it could
provide currency for the full Employment Trading for the Federation
of Planets, interpolating and extrapolating Earth as also operating at
full employment trading.

:However, in previous posts I also

:did some work showing how Turmel's model would not lead to equilibrium
:point, which is a necessary condition for the model to explain anything
:which has not fallen to _complete_ chaos over time.

:
Sure, a casino chip matched one-to-one to collateral would not
lead to equilibrium because it is always at equilibrium Greendollar
systems are at equilibrium all the time. Positives always balance
negatives. If it starts balanced and positives are always created with
negatives, it can't be unbalanced. To say it doesn't lead to
equilibrium fails to note that it doesn't have to lead anywhere when
it's already in equilibrium.

:There was some additional mention of scarcity. Turmel correctly pointed

:out that there are sufficient resources to eliminate extreme poverty
:(indeed, most if not all poverty) worldwide. This is a distributional
:problem and a very valid criticism of how the world is operating.

:
Let's keep that in mind. There's nothing wrong with the engine
but only a failure to distribute its energy properly. The problem is a
failure in the human ability to purchase which is registered on the
financial dial.

: It is

:not necessarily a social credit criticism;

:
I'm glad to see that the Socreds may have been somewhat cleared
in your eyes. But remember, they looked at the 11 for 10 dilemma and
said just like you. Balance the extra interest with new chips.
That's what's sad because I've had difficulty with the old
Socreds who thought they really understood this stuff. When I now come
along and say that all the ways they had thought of to up the money to
balance the debt won't be needed anymore because we've found a way to
keep the debt balanced to the money automatically, it's as if they
don't want to accept the better innovation because they never really
got the chance to show off how their balancing act would have worked
too.
Remember, I posit two solutions to our dilemma. Eliminating
interest as the one and only evil which you aren't yet convinced is
the solution or balancing the interest which initially struck you as
the way out.
If you're not going to be a "LETS eliminate the interest" Social
Crediter, the least you should become is an old "balance the interest"
Socred. Because, they'd be 100% behind your balance the debt
solution.
But Socreds do score a higher ratio of those who hear about LETS
Greendollars and quickly understand. It's no accident that in LETS is
expanding so quickly in U,K, Australia, New Zealand, Canada. These
were all countries where Social Credit had major movements. Perhaps
those Social Credit preachers made it easier for today's generation to
accept that we'll use our own chips even if we forego paying interest
to use the loanshark's down the block.

:my criticism of the

:distributional problem is a socialist one and does not depend upon the
:problem being one of usury per se.

And the problem I've always encountered with Socialists is that
they have no policy with respect to the money pump. They talk about
socialized medicine, socialized day-care, socialized environmental
care but they don't speak of socialized credit as a social service. To
use the pump to society's credit, you have to go through a middleman
loanshark. It's not his money I'm getting, it's not the money they're
using in the reservoir show, it's new money I'm getting from the pump
on the casino's chips. Credit is probably the most important social
service we could ever get. And fixing the credit system is just never
discussed.
Look at the Reform Party which sprung up in English Western
Canada led by former Social Crediter Preston Manning. If you look at
all the suggested reforms in their platform, you'll notice that this
former leader of monetary reform has promised every reform under the
sun but money reform.
He had many ways to reform how we rule ourselves.
He had many many ways to change the tax splashings in the pool.
But he had no way to reform what was going on in the pump house.
No monetary reform.
Bankers must like giving loans to political parties who do not
have monetary reform on their agendas. Rich people must like giving
loans to political parties who do not have monetary reform on their
agendas.
And bankers finance all socialists who don't have monetary reform
on their platforms. They'll help you form a party protesting how tax
money is splashed around, protesting how we rule ourselves, but never
to protest what they're doing in the financial pump-house.
To say that Banking Families form the invisible Elite is trite.
The Elite are those everybody including nations are bowing to. And
that's international bankers. They sit on the boards or all major
corporations or those corporations don't get finance. They vote the
corporate stock left under their care. The have the decision on
granting life-and-death loans.
Interesting hypothesis.
I've thrown all my spare resources for the past 15 years in the
fight to install the upgrade LETS money software on the World Bank
computer. I invested a few of my major jack-pots in the enterprise.
I've always felt that the world's richest 50 men, probably all
bank-owners, could organize the installation of a global LETS giving
each person an interest-free credit card and checking account.
I wonder what would happen if Bill Gates got it into his mind to
try to deliver access to interest-free credit to the starving masses
of the Third World. I bet he could do it with a few billion dollars
because I, as a humble electrical engineer, think I could do it. Give
Michael Linton, the designer of the original LETSystem, a few billion
dollars and I think he could deliver global access too.

: Nevertheless, scarcity still exists.
:
Scarcity of physical wealth is not the problem, it's the rule of
11 return for 10 loaned out which generates the initial artificial
scarcity of the money tokens we use to represent that wealth. Tokens
are in short supply, we think wealth is in short supply. It's a trick.

:Scarcity simply means that

:it is impossible for every person on the planet to be satiated; to have
:all of their possible demands filled.

:
This doesn't mean we can't come close. And because only 99% of
our earthly demands are satiated, I wouldn't call this scarcity.
It's the oldest dogma of poverty economics. I read it in the
early pages of my first Economics book. Since man's wants are
infinite, there will always be scarcity. Tropical islands with too
many fish and coconuts are ignored under the scarcity model.

:I may have enough to eat and be

:satiated there, but I still want a better computer. If I got the
:computer then I would still want a car, and so on. Perhaps I would be
:satisfied before I owned the entire planet, but aggregate demand exceeds
:aggregate supply. Hence, scarcity.

:
Everybody wants to own everything so assume there must be
scarcity.
Scarcity is an opiate to the conscience. We see people starving
on TV, we reason "Scarcity, better them and us." We see wars and
revolutions, we reason "Fighting over Scarcity, better them than us."
To find out that there is no scarcity, that there never was, and
they've made us believe life-support was scarce when only money had
been made artificially scarce, is an insult to our intelligence.
We can look back at the last Great Depression when the world ran
out of money and banks made everybody lay down their tools and end
their productive boom. They went from knowing they were producing in
abundance to believing everything was gone just because their chips
had been taken out of circulation. All that human misery of the Great
Depression for the profits of the loanshark banking industry.

:Again, other then repeating myself, I do not know if I can further

:explain these points. I had suggested previously that perhaps textbooks
:might have better explanations since, after all, the authors are smarter
:than me, have teaching experience, more time, and editors.

:
I find it hard to accept that there are whole bunch of textbooks
out there which say that Governor Towers was wrong when he testified
that banks do not lend out their depositors' funds. I personally found
that most books do acknowledge that loans are from newly-created money
while at the same time fostering, without stating, the continued
notion that banks do lend out their depositors funds. If you'd check
most Economics text-books, they might explain how banks hand out cash
to borrowers taken in from depositors. That, and the fact they have
depositors at all, cements the notion that depositors' funds are used
for something and the obvious use is loans.
I think most are quite clear in admitting the money supply does
increase with the issuance of a loan and it seems that the question
left for them to admit is that this increase comes from a pump and not
the reservoir. This observation they cannot face.

: Otherwise, I am prepared to accept that my ability to explain is

:not sufficient for the task. If there are new points which I have not
:addressed, I will attempt to respond to those, but I cannot see the point
:of being repetitive. In the ground otherwise covered, I would like to
:say that I believe I do understand what Turmel is trying to demonstrate,
:but that his conclusions are wrong (and, perhaps, Turmel would argue vice
:versa).

:
I think my conclusion is simply that interest is a destructive
way of paying for our monetary accounting. This conclusion has been
expounded by most of the major philosophers and saints in history. The
real different between then and now is that for the first time in
humankind's history, there breaks on the horizon not only a ray of
global interest-free LETS sunshine but the very possibility of
instantaneous and universal cure. Quite the potential.
I would like to hear Tim's explanation of where all the poverty
around us stems from if it does not stem from the initial 11 for 10
promise at the bank at the start of the game.

: If there are lurkers on this thread (if Turmel and I have not

:scared you away with our epic length posts!)

:
You shouldn't think that everyone is daunted by lengthy debate.
This series of long discourses has generated only two irate readers
and considering how many people read my TURMEL articles looking to be
irate, it's quite an indication that everyone's staying with us.
This have suffered under a lie about the creation of money for so
long, that many people find the subject as fascinating as I do. Sure
we deal with dozens of points in detail and it's nowhere near the 15
second or two line sound bite most are used to but if they've been
following the debate, I'd bet they don't want to interrupt.
I must admit that you've forced me to break new economic ground
with my engineering jackhammer. You've prompted discussion of reserve
ratios which I'd never dealt with in that particular way before. We've
shown how "runs on banks" used to occur and why. It may be that as the
plumbing was cemented in our debates, that made other angles clearer.
We may have certainly had a tussle in the plumbing and darn if I
didn't think I dropped you on that pump over and over again, and even
I gained new insights into using the plumbing model. There's lots of
brand new unique stuff I'll have to integrate into my regular posts.

:and any of these lurkers

:have additional questions, please e-mail me (and I am certain that Turmel
:extends the same invitation).

:
Actually, I don't like answering detail via mail. New questions
focus new angles and I'd like to think of all new angles on this
esoteric money-creation topic as a valuable education. I'd rather
effort here be public.

:Dependent upon time constraints and my

:already acknowledged limited ability to explain, I will do my best to
:reply fully.

:
I know it must be upsetting to have me state "I'm an engineer and
I know more about economic plumbing than your Economics professor's
do." But the economic system can be looked at from two angles, the
Systems Engineering angle, top looking down, and the Economics angle,
bottom looking up." (sorry, it's a standard barb in my speeches)
It's a fact that the way the creation of money is taught in
Economics courses is totally confusing compared to following the
pipes in a plumbing blueprint.
I'm still going to demand my due. Once the question of Mr.
Towers' statement that banks do not loan out their depositors funds is
accepted, I'd then like a comment on the value of my using the
plumbing to model the bank's financial flows.
I want credit for being the first to draw the connection
between the loans and the pump.

[Phil Hunt]

In article <DJ0Cp...@freenet.carleton.ca>

bc...@FreeNet.Carleton.CA "John Turmel" writes:
> Bankrupt in today's world. In a Greener world, he'd only be
> highly negative with his future opportunities as optimal as his past
> ones. The concept of bankruptcy just does not exist under an interest-
> free software because we don't turn off industrial motors just because
> they've hit a certain negative number.

Does that mean everyone can work up as big a debt as they like? Is there
some limit to how much debt someone is allowed to get into?

--
Phil Hunt, phi...@storcomp.demon.co.uk

[Huyer Timothy]

John Turmel (bc...@FreeNet.Carleton.CA) wrote:
: huy...@qed.uucp (Timothy Huyer) wrote:

I think this thread has now reached the point of "Is too/Is not" in terms
of argument quality. Nevertheless, on the hope that I am wrong...

: He keeps repeating the theory that because credit is good and

: because they've made it necessary to pay interest for that credit,
: therefore paying interest is necessary.

My argument is that (1) since borrowers get some utility for having that
credit now and (2) since transactions are not undertaken unless they are
mutually beneficial, borrowers make gains from borrowing even under
positive interest. This, alone, does not make positive interest necessary.
What makes positive interest necessary is the willingness to lend
money only occurs with positive interest. I provided a two period
example in an earlier post with two agents and showed that they could
make mutual gains if and only if the agent with the greater preference
for present consumption borrowed at interest from the other agent.
Although I did not provide one of the possible solution values, it should
be straightforward to calculate that, for a transaction to occur, the
rate of interest is bounded, eg., 0 < a =< r =< b < 1.
Even if the lender would prefer to consume more in the second
period, the lender has no incentive to loan at no interest.

Turmel would argue that this model does not generalize. I would refer
him to the whole literature on general equilibrium economics, although I
would caution him that he might need to brush up on topology and real
analysis first.
What remains necessary, however, is an equilibrium value to be
found. In the simple two person model, the equilibrium involves lending
at positive interest. If the interest rate was zero, then demand for
credit vastly exceeds supply.
Turmel would counter, I suppose, by saying that since money is
not backed by a commodity, it need not have a limited supply. However,
it should be blatantly obvious that money itself has no intrinsic value;
it is only what money can buy that becomes important.
To acknowledge this, without loss of generality, assume that the
simple example I gave was a pure barter economy with two goods, and that
good number two was valued in units of good number one. The positive
interest equilibrium still remains.
With zero interest, both agents in the simple example would
demand credit. After getting credit, both would find that the total
amount of goods has not increased. With more money than goods (Turmel
calls this shift a inflation, economists use a different term, otherwise
it is identical), prices in period one rise, and in period two fall.
The resulting exchange would then mimic the interest economy. In
fact, the difference in prices in the two periods would mimic, although
somewhat more complicated, the interest rate.
However, note that the equivalence only occurs after much groping
towards equilibrium in an allegedly zero interest economy. Especially,
the existence of money in the allegedly zero interest economy is an
additional complication from the pure barter economy, and thus hardly
serves its role of facilitating trade. Finally, it should be clear that
adding complications (such as production)to the model could easily through
the allegedly zero interest model to a disequilibrium value; i.e., the
positive interest model is more robust.
The issue of equilibrium is very important in that (1) this is
the place where all agents have done as well as they can without making
anyone else worse off and (2) this is a point where things do not explode
into pure chaos.

In calling Turmel's model irrational, he replies:
: Your example doesn't deal with people already hooked in the game.

It doesn't have to. Let me try to explain using as simple language as
possible. You have choice to play game or not play game. Let's say you
play game. You either win or you lose. In either case, you start to
think that game is stacked against you. You decide not to play again.
If you are dumb, it takes more than one game before you learn.
The game, obviously, can be long lived -- a 25 year mortgage for
example. However, we have been talking about the existence of this game
for millenia (apparently). If you played the game and found out that it
now had you hooked for the rest of your life, perhaps, maybe, you would
counsel your kids to not play when they have a choice?
I repeat. Try the experiment. Get several people together.
Make the game purely random. Make them mortgage something of value to
them. Find out how many agree to play. Play the game, and find out how
many are willing to play again. If anyone plays the game more than 3
times, tell that person I have a bridge that I would like to sell them...

: Bankrupt in today's world. In a Greener world, he'd only be

: highly negative with his future opportunities as optimal as his past
: ones. The concept of bankruptcy just does not exist under an interest-
: free software because we don't turn off industrial motors just because
: they've hit a certain negative number. Everyone can keep trying with
: whatever tools are available.

Bankruptcy = wealth + ability to repay < debt. Nothing to do with interest.
Industrial motors, as it were, are not shut off because of
bankruptcy which necessarily only exists under positive interest.
Capital and labour are unemployed when they are not considered
profitable.

: Interesting point. With interest-free credit, projects which have

: a 1% return become feasible! As long as there are idle workers and a
: positive return is possible, we can go after it. Today's world cannot.
: Competing for loans via return, opening casinos are a better
: investment than improving the mouse-trap. But even the small demand
: for a better mouse-trap will be catered to.

A positive return does not necessarily mean something is a good
investment. There are plenty of other options to where the resources
that went into a particular investment could have gone. The interest
rate system, then, is one way in determining where the resources of
society are allocated to. Again, without some decision making criteria,
disequilibrium occurs.

: In all cases, yours included, the alternative was to not get the

: loan and all the impediments that entailed. I'm trying to tell you you
: are being coerced into paying interest when you shouldn't have to and
: you're arguing you like it. Think about it.

I'm not arguing that I like to pay interest. I am arguing that, in order
for me to borrow, I must. I am also arguing that it is worth it.

Turmel cites someone who posted earier as well as a previous governor of
the Bank of Canada. The quotes display rather avidly Turmel's ignorance
of the banking system, and his willingness to stop his research once he
has found a nice sound bite that could be construed to support him.
Turmel is obsessed with the fact that money in depositor's
accounts greatly exceeds money created by the central bank. Where does
this money come from, he wonders, where is the tap? And if there is a
tap, why must we deal with scarcity in money?
First, let me extend Turmel's analysis. Suppose that bankers can
lend money without any regard for the amount of money deposited in their
accounts. When they make a loan, they add money electronically to
someone's bank account, so cash isn't needed anyway, the argument goes.
But note that everyone has a demand for cash, a demand function
which is a function of wealth and other circumstances which I call the
environment. Denote demand function f(w|e), and have df/dw > 0
d^2f/dw^2 < 0, which seems reasonable enough -- the more wealth you have,
the more cash you carry, but the increased demand occurs at a decreasing
rate. If we let W equal aggregate wealth, i.e., the sum of all
individuals' wealth, and F(W|e) the aggregate demand for cash function,
we note that F(W|e) is also increasing but concave in W.
The individual's wealth depends upon such factors as money in
their bank account. It doesn't matter if that money exists
electronically or not, every depositor knows that they have the right to
get that money in cash (limited, on occasion, only by requirements of
notice to the bank). So, if W is unbounded, as an unlimited tap in the
banks suggest, then F(W|e) > cash in existence, a disequilibrium.
The equilibrium, then, depends upon a specific bound to W. In
fact, with multiple banks, the cash (reserves) that banks have on hand
depends directly upon the amount of money (deposits) that their clients
have. In other words, cash is the determinant of the money supply -- it
does not encompass the money supply but it certainly limits how much
money can exist.
This happens since one person's loan becomes another person's
deposit. Eg., when you borrow money to buy the car, the car dealer
deposits that money in a bank, and thus deposits rise as with loans.
Reserves, naturally, only result from deposits, since charter banks have
no other source of getting cash.
This allows for multiple methods of attempting to explain the
banking system. Whichever method works depends upon the way one person
learns, or in Turmel's case, fails to learn.
One could state that charter banks have a tap, however, the
amount of money that charter banks create depends directly upon the cash
supply and the amount of money deposited in their banks.
One could also state that charter banks do not have a tap since
saying there is a tap can create, in Turmel's case, the confusion that
banks have some separate source for their reserves.
Please note that it really doesn't matter if F(W|e) is 2% or
even less of the total amount of wealth in existence. One must
acknowledge, however, that 0 < F(W|e) < W; the amount of cash outside of
banks is strictly positive. The series still, necessarily, sums to a
finite value, which is a math result, not an economics one.

: Up to now, Tim's had the cognitive dissonance of an education in

: Economics to explain the refusal to accept that banks do not lend out
: their depositors' funds. Now that he's faced not only with the
: plumbing showing a tap but the statement of the Governor of the Bank
: of Canada indicating a tap where "banks do not lend out their
: depositors' funds" and that "each and every time a bank makes a loan,
: it's brand new batteries," he has no excuse but to sit back and
: re-evaluate in light of my Ace in the hole.

Needless to say, I haven't yet quit my education and gone on a
pilgrimmage to meet the Dalai Lama.

: Here's an added explanation of why Tim can't see a tap. He's

: watching the paper tokens going into and out of the banker's till.
: He's not looking at what's happening in the computer accounts.

And, since Turmel is not watching the flow of money, he is not
recognizing the finite limit to the money supply dependent upon the
existence of cash.

: Every dollar that comes into existence is born with a debt to the
: banker bearing interest.

Categorically incorrect. I already stated, and you acknowledged, that
the central bank creates money not through debt but through open market
operations. You called the amount trivial, but, if you would refer to
the mathematics, you would note that any trivial but positive amount of
money is the limiting factor in the money supply.

: I would like to hear Tim's explanation of where all the poverty

: around us stems from if it does not stem from the initial 11 for 10
: promise at the bank at the start of the game.

Distributional results: Labour not being paid its true value (even Adam
Smith recognized that one). Accumulation of capital which is passed
along through hereditary lines -- unequal endowments. Some wars
(coercion).

Tim Huyer --
direct e-mail to huy...@qed.econ.queensu.ca once that damn account is
working again.

[Huyer Timothy]

John Turmel (bc...@FreeNet.Carleton.CA) wrote:
: 4t...@qlink.queensu.ca (Huyer Timothy) wrote:

I think this is my last try...

: Your argument applies to 20% interest, 10% interest, 5% interest
: and 0% interest. The "positive or zero" equilibrium still remains.

Please review math. There is no transaction at 0% interest. There is
also an upper bound on the interest rate at which no transaction will occur.

: But demanding credit is not necessarily using it.

For what other purpose would one demand credit if not to use it?

: This does not follow when the cardinal rule of casino chip
: banking is that money equals goods and there is NOT more money than
: goods.

The amount of money * the purchasing power of money = all goods and
services available.
Thinking in pure barter first, there already is enough units of
exchange. If we add money to act as an intermediary, then there is
already money with sufficient purchasing power to buy all goods and
services. If, then, people desire to loan money, but no one decides to
save, then demand for credit exceeds supply. How does one determine
equilibrium? Who gets credit?
In economics, the person who gets the credit is the person most
willing to repay given the perceived riskiness of that person's credit.
If you are willing to pay the rate of interest, you FREELY AND WITHOUT
COERCION choose to take out the loan. If you are not willing, you don't.
Notice that in economics, it is up to the individual to decide if
he/she will be able to repay the loan. In other systems, it would be up
to some third party to decide if the individual is capable of repaying
the loan. But who knows the individual better -- the individual
him/herself or a third party?

: But how do you leave the game once hooked without being a winner
: or losing all? I've asked this several times already.

I've replied, who cares? Let me re-state. YOU have claimed (and I have
not challenged) that loaning at interest has existed for millenia. So
everyone today (I rely on the assumption that no person is over a
thousand years old...) has taken out a loan SUBSEQUENT to the first game
being played.
I've asked you to run the experiment. Will people play the game
more than once? More than twice? More than n times for any value n? I
say no.
THUS, IF THE BANKING SYSTEM WORKED AS YOU HAVE DESCRIBED, NO ONE
WOULD BE TAKING OUT LOANS TODAY.
Ergo, your model is wrong. QED.

: Bankruptcy = wealth + (ability to repay)*(time) < debt. Ability to
: repay has everything to do with interest. Ability to repay is gauged
: by the interest. Facing a doubled interest rate, your ability to repay
: would be lessened.

Accepting your correction, note that then, bankruptcy depends upon time,
which is a random variable, and ability to repay, which depends upon the
value of the individual's productivity. I would add an additional
correction then that:
Bankruptcy = wealth +(ability)*(time) < debt + accumulated interest.
Less (even zero) interest, does not prevent bankruptcy, since
ability and time are not constant, nor even non-stochastic.

: All work to be done should be possible profitably.

Something that, with more or less success, is what is decided when the
decision to invest resources (it is resources and not money, which does
nothing on its own, that is important) into one possible project or
another occurs.

: There are better ways and leaving the decision-making to private
: bankers is leaving too much economic power of life-and-death in their
: hands.

Bankers DO NOT DECIDE WHERE OR WHEN TO INVEST. The borrower decides
that. The banking system only provides a measure by which to decide if
an investment is a good one -- if the expected rate of return + risk
premium covers the interest rate. This is necessarily strictly positive
since the set of feasible investments exceeds the available resources
(NOT MONEY) for investment.

: But you don't "must" if your loan is really coming out the pump
: and you're compensating the pump and not a depositor for doing without
: their savings.

WHICH IS NOT WHAT I AM DOING. I am compensating a depositor. That is
why deposits, emoney (again, economists use a different term, but I will
use yours) included + reserves = loans. And deposits > cash.

: Paying the interest to get the credit may have been a good deal
: but paying a once-only service charge to get the credit is an even
: better deal.

Only if I could get credit. However, demand for credit would exceed
supply, and some new means of allocating credit must be determined.

: At LETS, they accept that they're lending you new
: Greendollars out of the pump and that why no one would dare try to
: charge you interest.

Please note that I have never accepted that the LETSystem is interest
free -- I have argued that interest implicitly exists in prices and you
have not successfully challenged that -- indeed you effectively
acknowledged that in a post.

: Yes. Yes. Why do we accept "No money" as an excuse for cutting
: social services, infrastructure repair, etc. Why do we accept scarcity
: in money if there is a tap.

Because money is irrelevant. Money doesn't pave roads or feed children.
Resources do. Resources are finite.

: I thought that our determination that the reserve ratio was now
: zero effectively does just that. So let us not suppose that bankers
: can lend money without any regard for deposits because they now need
: zero deposits before they can lend.

I spent several posts informing you that the LEGISLATED minimum reserve
ratio was abolished, and it took, if I recall correctly, 3 attempts
before you realized that. But note that only the LEGISLATED minimum
reserve ratio was abolished, NOT RESERVES. In fact, one reason why the
LEGISLATED MINIMUM was abolished was because banks ALWAYS had MORE than
the minimum.
Reserves are always strictly positive so long as (1) banks have
AT LEAST $0.01 in cash AND/OR (2) banks have AT LEAST $0.01 deposited in
the central bank (Bank of Canada).
And, as long as AT LEAST $0.01 exists in reserves, the money
supply is necessarily finite. Pleae check a math text for the conditions
under which a series converges to a finite limit.

: I'm not going into this again. I'm prepared to accept your
: statement that "the cash isn't needed anyway" but am perturbed by your
: insistence in going into how individual's preference for cash is
: somehow relevant when we've accepted it is not.

INDIVIDUALS, MAY, AT WORST AFTER PROVIDING NOTICE (generally 24 hours)
WITHDRAW UP TO 100% OF THEIR DEPOSITS.
Now, obviously, it rarely happens that someone withdraws all of
their deposits. But odds are they will, on occasion, withdraw SOME of
their deposits. Have you ever gone to the bank or an ATM and taken out
some cash? Or, do you know anyone who has?
BANKS MUST ACCOMODATE THAT DEMAND FOR CASH.
Ever wonder where the cash in that ATM comes from? The machine
doesn't simply print up a new $20 bill every time you ask for one.
BANKS KEEP RESERVES TO ACCOMODATE THAT DEMAND.
I.e., they stock those ATMS with cash. Now, since odds are, not
everyone is going to withdraw all of their deposits at the same time,
they only need to keep a fraction of the deposits in cash stored, say, in
ATMs. It could be a miniscule fraction, 2%, even. But it is a STRICTLY
POSITIVE VALUE.
THE RESERVE RATIO, I.E. RESERVES/DEPOSITS IS STRICTLY GREATER THAN ZERO,
AND LESS THAN ONE. 0 < r < 1

THE ABILITY OF BANKS TO "CREATE NEW MONEY" IS LIMITED. FOR ANY VALUE r,
THE LIMIT IS DETERMINE BY THE AMOUNT OF MONEY CREATED BY THE CENTRAL BANK.

: Multiple methods of attempting to explain something as trivial as
: a pump, drain, reservoir and some pipes?

Since, obviously, a strictly positive number (i.e., at least one) of
people do not understand it when it has been presented one way,
pedagogically, alternate methods of explaining can be considered useful
strategies.

: Used to before the reserve ratio went to zero. No more.
: And it is the first time I've heard Tim say:
: "chartered banks have a tap." It's about time. Now to disabuse
: him of the notion that he should keep paying interest to satisfy the
: liquidity preference of the tap.

I allowed for an explanation that "banks have a tap" not to agree with
your incorrect interpretation, but to attempt to show you your error.
Note the finite ability of banks to lend. Note how deposits rise with
loans. Follow the math. Look for the correlation.

: If there's an infinite supply of emoney ready to go, a finite
: amount of cash has no limiting effect.

Operative word "IF". Real situation (see above), the if does not apply.
Try the contra-positive proof: If cash has limiting effect, then there's
a finite supply of emoney. Note limiting effect of cash from above. QED.

: And your open market operations leave those who end up with the
: new Bank of Canada dollars paying interest for it. When the Bank of
: Canada turns on it's tap of high-powered no-reserve money, someone
: ends up promising to pay interest. It can't be escaped that every
: dollar born into circulation is accompanied by a component of debt
: which grows beyond the original amount of money.

Sorry. Wrong.
Example of open market transaction:
Bank of Canada auctions off 91 day T-Bill, face value of $1000. Highest
bid is $990, which gives a 4.4% annualized return. Bidder gives Bank of
Canada $990 now. 91 days later, Bank of Canada gives T-Bill holder
$1000, or the $990 back and $10 of new money. Bank of Canada pays for
the difference by printing money, i.e. creating money.
The $10 of new money is not accompanied by any debt.

: Not when the emoney needs zero reserves before being created.
: There is no limit to the amount of emoney they can now create.

Contrapositive to proposition: If reserves strictly greater than zero
exist, then emoney limited.

: And at the root of the economic war causing the unequal
: endowments of the economic spoils is usury, the yoke of oppression.

Nice rhetoric. Wrong. See above and previous.

Tim Huyer
e-mail huy...@qed.econ.queensu.ca when the damn account is working

[John Turmel]

Subject: Re: TURMEL: On Social Credit vs Greendollars

On Dec 3 1995 in article #117261 in can.politics,
4t...@qlink.queensu.ca (Huyer Timothy) wrote:

:: He keeps repeating the theory that because credit is good and

:: because they've made it necessary to pay interest for that credit,
:: therefore paying interest is necessary.
:
:My argument is that (1) since borrowers get some utility for having that
:credit now and (2) since transactions are not undertaken unless they are
:mutually beneficial, borrowers make gains from borrowing even under
:positive interest. This, alone, does not make positive interest necessary.
: What makes positive interest necessary is the willingness to lend
:money only occurs with positive interest.

:
But a tap shows no willingness to lend or not. That's why this
discussion of the pump is important. You keep justifying interest
using the savers' willingness to lend without accepting that we're not
getting those dollars from the savers but the tap. As long as you deny
a tap and believe that it's really the savers' money you're borrowing,
then I'll never convince you that a pump has no liquidity preference.

:If the interest rate was zero, then demand for credit vastly exceeds
:supply.
No. If the interest is zero, then the demand for credit exactly
fits the supply. You can't use more credit than there's stuff
available to purchase with it despite your infinite appetite.

: To acknowledge this, without loss of generality, assume that the

:simple example I gave was a pure barter economy with two goods, and that
:good number two was valued in units of good number one. The positive
:interest equilibrium still remains.

:

Your argument applies to 20% interest, 10% interest, 5% interest
and 0% interest. The "positive or zero" equilibrium still remains.

: With zero interest, both agents in the simple example would

:demand credit. After getting credit, both would find that the total
:amount of goods has not increased.

:

But demanding credit is not necessarily using it.

:With more money than goods (Turmel
:calls this shift a inflation, economists use a different term, otherwise

:it is identical), prices in period one rise, and in period two fall.

:

This does not follow when the cardinal rule of casino chip
banking is that money equals goods and there is NOT more money than
goods.

:In calling Turmel's model irrational, he replies:

:: Your example doesn't deal with people already hooked in the game.
:
:It doesn't have to. Let me try to explain using as simple language as
:possible. You have choice to play game or not play game. Let's say you
:play game. You either win or you lose. In either case, you start to
:think that game is stacked against you. You decide not to play again.
:If you are dumb, it takes more than one game before you learn.

:

But how do you leave the game once hooked without being a winner
or losing all? I've asked this several times already.

: The game, obviously, can be long lived -- a 25 year mortgage for

:example. However, we have been talking about the existence of this game
:for millenia (apparently). If you played the game and found out that it
:now had you hooked for the rest of your life, perhaps, maybe, you would
:counsel your kids to not play when they have a choice?

:
Perhaps you should. But explaining to your kids to avoid getting
hooked doesn't solve your present dilemma.

: I repeat. Try the experiment. Get several people together.

:Make the game purely random. Make them mortgage something of value to
:them. Find out how many agree to play. Play the game, and find out how
:many are willing to play again. If anyone plays the game more than 3
:times, tell that person I have a bridge that I would like to sell them...
:

Well then walk up to anyone who just signed an 11 for 10 loan at
your neighborhood bank and you've got someone to sell that bridge to.
My whole point is that signing a mortgage deathgamble is a really
stupid gamble.

:: Bankrupt in today's world. In a Greener world, he'd only be

:: highly negative with his future opportunities as optimal as his past
:: ones. The concept of bankruptcy just does not exist under an interest-
:: free software because we don't turn off industrial motors just because
:: they've hit a certain negative number. Everyone can keep trying with
:: whatever tools are available.
:
:Bankruptcy = wealth + ability to repay < debt. Nothing to do with interest.

:
First, you've got your units wrong.
Wealth is store energy, physical assets.
Ability to repay is power, rate of production of assets. So
actually, your equation would be correct is you had:

Bankruptcy = wealth + (ability to repay)*(time) < debt. Ability to
repay has everything to do with interest. Ability to repay is gauged
by the interest. Facing a doubled interest rate, your ability to repay
would be lessened.

: Industrial motors, as it were, are not shut off because of

:bankruptcy which necessarily only exists under positive interest.
:Capital and labour are unemployed when they are not considered
:profitable.
:

All work to be done should be possible profitably.

:: Interesting point. With interest-free credit, projects which have

:: a 1% return become feasible! As long as there are idle workers and a
:: positive return is possible, we can go after it. Today's world cannot.
:: Competing for loans via return, opening casinos are a better
:: investment than improving the mouse-trap. But even the small demand
:: for a better mouse-trap will be catered to.
:
:A positive return does not necessarily mean something is a good
:investment. There are plenty of other options to where the resources
:that went into a particular investment could have gone. The interest
:rate system, then, is one way in determining where the resources of
:society are allocated to. Again, without some decision making criteria,

:disequilibrium occurs.

:
There are better ways and leaving the decision-making to private
bankers is leaving too much economic power of life-and-death in their
hands.

:: In all cases, yours included, the alternative was to not get the

:: loan and all the impediments that entailed. I'm trying to tell you you
:: are being coerced into paying interest when you shouldn't have to and
:: you're arguing you like it. Think about it.
:
:I'm not arguing that I like to pay interest. I am arguing that, in order
:for me to borrow, I must.

:

But you don't "must" if your loan is really coming out the pump
and you're compensating the pump and not a depositor for doing without

their savings. That's why getting you to accept that your loan came
from the pump is so important. With the acceptance of that truth, the
rationale that you "must" pay interest to get your loan disappears.

:I am also arguing that it is worth it.
:

Paying the interest to get the credit may have been a good deal
but paying a once-only service charge to get the credit is an even

better deal. At LETS, they accept that they're lending you new

Greendollars out of the pump and that why no one would dare try to
charge you interest.

:Turmel cites someone who posted earier as well as a previous governor of

:the Bank of Canada. The quotes display rather avidly Turmel's ignorance
:of the banking system, and his willingness to stop his research once he
:has found a nice sound bite that could be construed to support him.
: Turmel is obsessed with the fact that money in depositor's
:accounts greatly exceeds money created by the central bank.

:
No, actually how much more the chartered banks create than the
central banks is of no real interest to me. It's the positive feedback
on the debt that bothers me. I wouldn't really care whether my
credit supplier were an Internet provider, a chartered bank or even
the central bank. I don't care whose chips I use to liquefy my
collateral as long as the chips retain their value.

:Where does

:this money come from, he wonders, where is the tap? And if there is a
:tap, why must we deal with scarcity in money?

:

Yes. Yes. Why do we accept "No money" as an excuse for cutting
social services, infrastructure repair, etc. Why do we accept scarcity
in money if there is a tap.

LETSers don't accept scarcity in Greendollars because they know
their banking system has a tap.

: First, let me extend Turmel's analysis. Suppose that bankers can
:lend money without any regard for the amount of money deposited in their
:accounts.
:

I thought that our determination that the reserve ratio was now
zero effectively does just that. So let us not suppose that bankers
can lend money without any regard for deposits because they now need
zero deposits before they can lend.

¤øÔÃ
:When they make a loan, they add money electronically to

:someone's bank account, so cash isn't needed anyway, the argument goes.
:

But it can't hurt to have the borrower leave with the cash loan
and deposit it to his account in the reservoir. And yes, the example
is best shown without adding the confusing aspects of cash flows.

: But note that everyone has a demand for cash, a demand function

:which is a function of wealth and other circumstances which I call the
:environment.

:

I'm not going into this again. I'm prepared to accept your
statement that "the cash isn't needed anyway" but am perturbed by your
insistence in going into how individual's preference for cash is
somehow relevant when we've accepted it is not.

: In other words, cash is the determinant of the money supply -- it

:does not encompass the money supply but it certainly limits how much
:money can exist.

:
No, now that there's no reserve ratio, the amount of cash is NOT
a major but a totally minor determinant of the money supply.

: This allows for multiple methods of attempting to explain the

:banking system. Whichever method works depends upon the way one person
:learns, or in Turmel's case, fails to learn.

:

Multiple methods of attempting to explain something as trivial as
a pump, drain, reservoir and some pipes?

: One could state that charter banks have a tap, however, the

:amount of money that charter banks create depends directly upon the cash
:supply and the amount of money deposited in their banks.

:

Used to before the reserve ratio went to zero. No more.
And it is the first time I've heard Tim say:
"chartered banks have a tap." It's about time. Now to disabuse
him of the notion that he should keep paying interest to satisfy the
liquidity preference of the tap.

: One could also state that charter banks do not have a tap since

:saying there is a tap can create, in Turmel's case, the confusion that
:banks have some separate source for their reserves.

:
No. Saying there's a tap and that it's connected to the loans
pipe causes no confusion at all in helping determine the meanings of
the splashings in the pool.

:: Up to now, Tim's had the cognitive dissonance of an education in

:: Economics to explain the refusal to accept that banks do not lend out
:: their depositors' funds. Now that he's faced not only with the
:: plumbing showing a tap but the statement of the Governor of the Bank
:: of Canada indicating a tap where "banks do not lend out their
:: depositors' funds" and that "each and every time a bank makes a loan,
:: it's brand new batteries," he has no excuse but to sit back and
:: re-evaluate in light of my Ace in the hole.
:
:Needless to say, I haven't yet quit my education and gone on a
:pilgrimmage to meet the Dalai Lama.
:

Bet you the Dalai Lama would insist on seeing a tap too.

:: Here's an added explanation of why Tim can't see a tap. He's

:: watching the paper tokens going into and out of the banker's till.
:: He's not looking at what's happening in the computer accounts.
:
:And, since Turmel is not watching the flow of money, he is not
:recognizing the finite limit to the money supply dependent upon the
:existence of cash.
:

If there's an infinite supply of emoney ready to go, a finite
amount of cash has no limiting effect.

:: Every dollar that comes into existence is born with a debt to the

:: banker bearing interest.
:
:Categorically incorrect. I already stated, and you acknowledged, that
:the central bank creates money not through debt but through open market
:operations.

:

And your open market operations leave those who end up with the
new Bank of Canada dollars paying interest for it. When the Bank of
Canada turns on it's tap of high-powered no-reserve money, someone
ends up promising to pay interest. It can't be escaped that every
dollar born into circulation is accompanied by a component of debt
which grows beyond the original amount of money.

:You called the amount trivial, but, if you would refer to

:the mathematics, you would note that any trivial but positive amount of
:money is the limiting factor in the money supply.
:

Not when the emoney needs zero reserves before being created.
There is no limit to the amount of emoney they can now create.

:: I would like to hear Tim's explanation of where all the poverty

:: around us stems from if it does not stem from the initial 11 for 10
:: promise at the bank at the start of the game.
:
:Distributional results: Labour not being paid its true value (even Adam
:Smith recognized that one). Accumulation of capital which is passed
:along through hereditary lines -- unequal endowments. Some wars
:(coercion).

:

And at the root of the economic war causing the unequal
endowments of the economic spoils is usury, the yoke of oppression.

In article #117240, Phil Hunt <phi...@storcomp.demon.co.uk>
added:

: bc...@FreeNet.Carleton.CA "John Turmel" writes:
:> Bankrupt in today's world. In a Greener world, he'd only be

:> highly negative with his future opportunities as optimal as his past
:> ones. The concept of bankruptcy just does not exist under an interest-
:> free software because we don't turn off industrial motors just because
:> they've hit a certain negative number.

:
:Does that mean everyone can work up as big a debt as they like? Is there

:some limit to how much debt someone is allowed to get into?

:
Of course, there would have to be a limit. But limited by the
availability of the goods and services and not by the availability of
the credit.
If there's an idle tractor and some farmer's kid wants the credit
to buy it, it's automatic.
If a young doctor is qualified, credit for his practice is
automatic.
Credit for tools and basic life support is automatic.
Credit for fun can be limited by availability and consensus.

I've spoken in greater detail about the 50 World Owners who have
the power to liberate us from our debts. How have the power to fulfill
Christ's prayer to the Father:
"Forgive us our debts as we forgive our debtors."
I just watched reasonable doubt on A&E on the Kennedy
assassination. It was an examination of the flaws in the Warren
report. I makes it evident that hidden powers had Kennedy removed and
controlled the investigation. They still control it. Only those
pulling the true strings of real power could have been in power then
and still be in power now.
If you follow alt.conspiracy, you'll notice many of the populists
saying that Kennedy was shot because he had plans to use Treasury
notes instead of Federal Reserve money. If he really were going to use
interest-free Treasury money like Lincoln did, then I could believe
that his similar fate had the same root. They say he issued an
Executive Order which was immediately cancelled by Johnson but I've
never been able to get a copy of it. But if there were proof that
Kennedy had ordered the borrowing of interest-free funds from the
Treasury and was by-passing the Federal Reserve loansharks, then I
would have no doubt that he was done in over the money plates.
Once you appreciate the life-and-death power the government has
given to our bankers over not only us but also of our government, many
things in history now make more sense. Just as Tim's explanation of
the money flows makes more sense using the plumbing with a pump, the
history of government makes new sense when we take into account the
½øífact that they're all operating in debt to the same guys.
Of course, that Kennedy was removed by a conspiracy is pooh-
poohed by those who don't believe in conspiracy theories. "He believes
in conspiracies" is used as a denigration. But I'll be the first to
say I believe that JFK was removed as the result of a conspiracy which
had the power to call off the President's military protection and
change the parade route on the very day of the parade to take a slow-
speed deke in front of the ambush site.
The motorcade, which is supposed to keep to minimum 40 mph and
could have gone straight through on Main St to the Stemmons Freeway,
takes a 90 degree deke to the right and a 135 degree deke to the left
into and out of the ambush site.
If that 10 mph deke right in front of Oswald's building had been
part of the original parade route, I wouldn't be so convinced of
conspiracy. But to call off his protection and cause the parade to
make a slow deke into the ambush zone is just too much to be
coincidence.
This levers of logistical power stands right out when you
contemplate the odds of the change in parade route to just that deke
into the ambush zone being accidental. It's astronomical. Standing
exposed are changes in the route to parade Kennedy into those rifle
sights.
Realizing what that parade route deke really signifies chills me
to the bone. It convinces me there is an invisible structure which
really rules the world and it's not the rulers I see before me. And if
those front men displease, they can be removed in many ways including
ultimate termination.
That the President of the United States could be so easily
paraded into an ambush and the investigation so easily controlled is a
great indication to me of an operating intelligence which doesn't seem
to have made the news. But of course, I'm ready to forgive, forget and
get on with an interest-free life.
Sure, I'm a believer in a International Loansharks' Conspiracy
which finances all of the other ones. The guys who were banking the
Communists and the guys who were banking the Capitalists happen to be
the same guys.
Maybe it's because I have a better understanding of the power of
loansharking, the power of inducing people into deathgambles and
stripping them clean. Like highwaymen or thugs, they fall on you and
leave you for dead in an alley where men weep and gnash their teeth.
That's what Christ kept saying. If you have interest, you're
going to have alleys of poverty where men weep and gnash their teeth.
Nice way of putting it. Interest is the "yoke of oppression," the
chain of slavery.
And of course, the power that removed Kennedy still rules today.
It may have ruled for 200 years, probably for 5,000 years. I
acknowledge that power. I fear it. But I can forgive and forget what
it did if it will free me to get on with an interest-free life.

I found out that these posts seem to be erased in can.politics
and other newsgroups in under a week. For those readers asking me for
past instalments, we have a problem. There is 650Kb of debate in the
Social Credit topic, 390 in just the last two weeks. I'll try to edit
down the debate to the main points over the next few weeks. I'm
looking into a web site where these kind of debates can be posted as
they're written.