TURMEL: Social Credit Stream #10 65k

Subject: Re: TURMEL: On Social Credit vs Greendollars

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

:John Turmel (johnturmel@yahoo.com) 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
     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.

: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
     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

: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
     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
     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.


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
     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
     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.
     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
     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
     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
:: 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
     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
     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

:        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
     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
     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
     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
     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
     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
     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
     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,

:: :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.

: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
     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
     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.

: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.

: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.

: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
     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
     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.

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