TURMEL: Social Credit Stream #8 52k

Subject: Re: TURMEL: On Social Credit vs Greendollars

     On Nov 27 1995 in Article #115731 in can.politics,
huyert@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
: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

: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
     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
     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
     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
     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
     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
     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

:       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
     I do not propose the abolition of chartered banks and private
     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

:        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

: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.

: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.

: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

: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
     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
     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:=
     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

        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 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.

:don't often have the normal luxury of doing experiments with control
:groups, but nevertheless attempt to use the same concept in our
     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
     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
     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.

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