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
:borrow.
:Therefore, situations can occur under
which mutual gains are made with
:positive interest rates.
:
Again he's basing
his rationale for the fact that borrowers
should pay interest because the savers
wouldn't lend without it. But
my model shows and I repeated stress:
::(II) Banks do not loan depositer's
money.
:
:The bank system is basically
:a means of making the above market more
accessible. By loaning or
:borrowing money through the intermediary
-- the bank -- risk and
:transaction costs can be reduced.
:
I keep repeating
that a credit union or a savings and loan or a
private piggy bank work as intermediaries
lending out their
depositors' savings. But chartered banks
do not.
: In a previous
post, I attempted to demonstrate to some extent how
:money flows in the banking system.
I will attempt to quickly repeat
:(and possibly improve on) that here.
:
Let there be one central bank and one charter bank, and all
:individuals deposit all of their money
in the charter bank (no one keeps
:any cash). All borrowing also occurs
from the charter bank. The charter
:bank keeps a set fraction of deposits
in reserves, i.e., a reserve ratio
:of r, 0 < r =< 1 and loans out
the remainder. For the example, we will
:set r = 0.1
:
Repeatedly I've
pointed out that the bank does "NOT loan out the
remainder." If it were lending out the
remainder of the money in the
piggy bank, the money supply would not
go up. Since it does go up when
banks make loans, they are not lending
out the remainder but they are
lending out new money.
:
Let the central bank buy a bond from any individual for $1, and
:pays for the bond by the creation of
new money, $1 (all central bank
:operations on the open market involve
creation/destruction of new
:money). That person deposits the
$1 in the charter bank. The charter
:bank puts $0.10, or r*$1 in reserves,
and loans out the remainder,
:$0.90. That loan is used for some
transaction and the recipient(s) of
:the money deposit it in the bank.
This process repeats infinitely.
:
And as I pointed
out with the flows which Tim seems to have
failed to follow, it doesn't loan out
the remainder. Seems we've been
over this umpteen times but it does prove
my point that the question
is one of the major double-thinks of Economics,
guaranteed to keep
them permanently confused.
Then he spent
time telling us about the reserve ratio which
limits how much the banks can expand the
loan supply.
:
Note that deposits in the charter bank is the series
:t=0->infinity, [$1*(1-r)^t], which, with
r=0.1, has a value of $10.
:Reserves are necessarily r*deposits,
or $1. Loans are the series
:t=0->infinity, [$0.90*(1-r)^t] or $9.
Thus, liabilities of the bank
:(deposits) are $10 which equals assets
(loans + reserves). All loans are
:covered by deposits and then some.
:
Boundedness of r. I assumed earlier that r is in (0,1]. Note
:that it is impossible to maintain greater
reserves then deposits, since
:all reserves come from deposits.
Hence r is bounded above by 1. Note
:that the two series converge only if
1 - r < 1, which thus requires that
:r > 0. If the reserve ratio is
zero or negative (the latter if banks
:created their own money), the money supply
would be infinite.
:
With zero reserve
ratio, the money supply COULD be infinite.
That's how LETS and casino cages work
with zero reserve ratio. No one
needs deposit old chips to the safety
deposit section in order for us
to loan out new chips from our infinite
supply in the cage.
:
With infinite money pursuing a finite amount of goods and
:services, it follows that prices, i.e.,
inflation, is also infinite.
:
Having an infinite
supply in the cage doesn't mean that an
infinite supply is issued. It's always
fixed to the finite amount of
goods and services so it follows that
prices, i.e., inflation, is
zero.
:Additional comment on the reserve ratio.
The assumption that depositors
:keep no cash is very strong. In
fact, people keep some function of their
:total wealth in cash on them;
:
The amount of
money people keep in cash on their person is
minimal. The bulk of the volume of transactions
is done by check from
one account to the other.
:i.e., if wealth is w, cash held is
:f(w|e), 0 =< f(w|e) =< w (f(w|e)
need not be linear), where e is some
:environment. e can be conceived
as needs for cash not tied directly to
:wealth, i.e., if planned major expenditures
are occuring or other
:environmental considerations. From
the perspective of the bank which
:cannot perceive e, aggregating over all
depositors gives an estimate of a
:random variable which represents the
unknown demand for cash.
:
He talks about
the banks needing to have cash on hand and looks
at it from the point of view of one bank
imagining that all the
depositors take out their money leaving
his accounts all empty. The
point is that all those deposits go into
other similar bank accounts.
If banks were all branches of one system,
there would be no such
concern since monies taken from one account
end up in another.
The problem,
therefore, stems from the fact that accounts have
been sectioned off into separate banks
which, if viewed alone, can end
up with all their accounts empty while
other separate banks show the
increase.
And even though
nothing would have happened if all the deposits
had ended up back within the same bank,
having them all leave would be
cause for termination of the operation
hurting the economy as a whole
even though savings simply splashed from
one bank's accounts to
another bank's accounts rather than from
one bank's accounts back to
it's own bank's accounts.
:
Since banks must meet the demand for cash they keep reserves in
:order to cover the expected demand plus
extra to cover risk.
:
How do banks then choose r? Obviously, it depends on the
:expected value and variance of e.
However, the charter banks also can
:borrow money directly from the central
bank (the loaner of last resort) at
:the bank rate. Thus banks choose
to minimize the cost of holding
:reserves (measured in terms of possible
income from loaning out the
:money) and the costs of borrowing from
the central bank (measured in
:estimated short-fall of reserves*bank
rate).
:
Clearly, as the bank rate falls, so too falls the cost of
:borrowing from the central bank, and
thus charter banks are less inclined
:to keep reserves -- reserve ratio falls,
money supply increases. The
:reverse if the bank rate rises.
:
No. As the bank
rate falls and the cost of borrowing from the
central bank falls, the reserve ratio
does NOT fall and money supply
increase.
The reserve ratio
doesn't change. It is set by legislation. What
really makes the money supply increase
when the cost of borrowing from
the central bank falls because the bank
rate falls is the decision of
the bankers to open the taps to nearer
their capacity.
Just because
the depositor puts $100 into the bank, $10 are sent
off to central reserves, $90 are put in
the bank and $90 new dollars
out of the tap may be lent out doesn't
mean the whole new $90 is lent
out.
If they did that
and a depositor withdrew $10, the amount legally
allowed out of the tap would be reduced
from $90 to $81 and the bank
would have to call in part or the whole
loan. For this reason, the
banks leave themselves a float of reserves
upon which the tap may be
operated in case of a "run on the bank."
If, when someone
deposited $100, I sent $10 to the FED and stowed
the savers' $90 while lending out not
the allowable $90 but only $70,
if someone now withdraws $10 and my allowable
limit becomes $81, I'm
still quite safe having only lent out
$70.
But if it's a
big run and my savings reserves dip below $70, then
I am compelled to start calling in loans.
The problem is that they're
not calling those loans to replace what
they gave to the withdrawer.
The loans they're calling in go straight
down the money system's drain
and are extinguished.
The only reason
a run on savings forces them to call in loans is
simply to satisfy their reserve requirement,
not because it went to
the withdrawer.
This remains
hidden to all who think that the banking system
doesn't have a tap. Those of you who have
written appreciating reading
about the hitherto unexplored areas of
banking system plumbing can
now readily see how bank runs work and
how people are led to believe
they have to pay off because the saver
needs his money are being
scammed.
But to Tim and
all those who have suffered the Economics
brainwashing that led to the double-think
that loans can be both new
money and old savings at the same time,
this all seems like some alien
language.
It is interesting
to note how not knowing that loans are from the
tap becomes alibi for so many of the systems
Imagine a system
which works fine for splashes within your bank's
little pools where you splash funds back
and forth with no ill effect
but which can break down from too large
splashes between different
banks.
It does allow
the larger banks to prey on the weaker banks since
most bankers don't know that Loans out
are from the tap and Loans
called in go to the drain. They just figure
their accounts ran empty
as they worked feverishly to call in those
loans down the drain
thinking it was satisfying depositors'
demands.
So now the necessary
question arises again. If the banks are
making loans out of the new tap, why do
they need depositors' savings
or why do they need to borrow from the
central bank?
You have no answer
if I'm correct and loans are coming out of the
tap. It's the reason you keep insisting
that the banks lend out
the money they've borrowed. If they didn't
lend out the money they
borrowed, why did they borrow it?
:
It is much more complex to establish, although many of the
:necessary conditions have already been
established, that the rate of
:interest is such that reserves cover
interest, which, if I follow
:Turmel's arguments correctly, contradicts
his claim that there is a
:shortage in the money supply.
:
I'll try to paraphrase:
It is harder
to establish that the interest rate is such that
reserves cover interest which contradicts
a shortage in the money
supply.
: The
(charter) banker here has not added any money to the pot,
:which is a correction of an error that
I had made many many weeks ago and
:one which Turmel repeatedly brings up.
:
But you chose
balancing the interest growth in the debt with new
chips to the money supply as the solution.
That's my point. When faced
with the 11 for 10 dilemma in my game-theoretic
model, you chose the
same solution chosen by the Socreds in
real life.
Since debt is
more than money, up the money to match it.
So the interesting
point is not that your analysis of how bankers
solved the interest problem today was
wrong but that analysis of the
problem and your solution did result in
repair in a less-than-optimal
yet totally sufficient way. The old-Socred
way.
If you don't
believe me, search out any Socred and explain how
you'd balance the interest demanded by
adding chips to everyone's pot
and he'd call it the Socred's National
Dividend. Tell him you'd add
extra chips as an incentive to get into
productive enterprise and he'd
call it the Socred's Compensated Discount.
It's so sad to
see someone score a bull's-eye on first try and
never hit the target again. But Tim's
first bull's-eye has managed to
draw forth some pretty fundamental information
on old Social Credit.
I don't think
anyone could reduce Social Credit theory to shorter
than this:
Because interest
makes the debt grow beyond the amount of money,
we'll balance the money to the debt by:
1) having government
cover its expenses with new chips;
1) adding an
equal share of chips to everyone's monthly pot;
2) adding a few
extra chips to a industrialist's pot.
This is it. This
is all those books and courses on Social Credit
reduced to one problem and 3 solutions.
:(III) Turmel proposes, in effect,
abolishment of the charter banks and
:private lending (via the banks or otherwise)
in favour of loaning
:directly from the central bank at zero
interest. Since the central bank
:can literally create money, it does not
need any deposits to cover the
:loans.
:
I do not propose
the abolition of chartered banks and private
lending.
You're a petroleum
engineering graduate with a few new theories
to test out in the discovery of oil.
Your nation is
producing another 80 oil rigs this year but there
are 100 petroleum engineers bidding for
them not with money but with
their qualifications.
It's not a question
of "Which engineer will qualify for the
credit for the rig?" settled by bankers
upon nebulous specifications,
it's a question of "Who will qualify to
get the rig? settled by
technologists and politicians. Upon qualifying
for the rig, credit is
automatically allocated.
This shows the
kind of limits that will be placed on adult
credit. Student credit for life-support
can pretty well be open.
Adult credit for machinery and industrial
capital will be limited by
the capital available, not the credit
available.
The most remarkable
turnaround is in the thinking on taxes.
In my world,
I want to pay as much taxes as possible. I'll call
the current system "Tax-up-front then
spend." I'll call my system the
"Spend then tax-at-end" and I'll use the
Tally system as my example.
Today, governments
tax, borrow-at-interest and steal to get the
money up-front for what they will spend.
With tallies,
governments spent and got it back at-end. Since all
the subject's taxes were going to people
service, doctors, police,
administrators, the King, and none to
debt service, what they had
spent was always in circulation to get
back. Tallies spent = Taxes.
Not only were tallies spent on services
from the state but they served
as medium of exchange on services to and
from individuals.
Yes, sir. Tax-at-end
rather than Tax-up-front hummed along with
total stability for seven centuries. That's
a topic that really lies
at the root of government woes. They're
taxing us backwards. And it
hurts.
:
Note that as in (I), there is no incentive for anyone to loan at
:0% interest (besides altruism).
:
Actually, now
we're back to Rockefeller's billions which works
like Islamic banking. If you scored 81st
on your Petroleum Engineering
Project application and you'll have to
wait, you can approach
Rockefeller and invite him to take part
in your gamble and share in
the possible proceeds if your calculations
are right. Islamic banking
allows Rocky to share in the profits as
long as he's willing to share
in the losses. If Rocky feels like throwing
resources into a new kind
of eatery while always keeping it profitable
for the regular workers
who could be on their own, I see no reason
he shouldn't in the success
of the venture even if he didn't cook.
I think this
example points out a need to invest some actual time
rather than mere credit. Somehow I feel
that Rocky's billions won't
help him and they won't hinder him.
:Even changing B's utility function to
:something like U_B := (C_B1)^0.4*(C_B2)^0.6
would mean that B would
:simply choose to save his/her own money
at 0% interest and has no
:incentive to loan that money out (and
with positive risk on default,
:incentive exists to not loan money out).
:
He's back to
the incentive to loan out money. Tell me about the
incentive of the TAP, this inanimate object,
to turn on. He keeps
trying to point out the inherent necessity
of interest between one
person and another while ignoring the
not-inherent necessity of
interest between one person and his TAP.
:
Turmel restricts the infinite supply of money case by holding the
:supply of money equal to collateral.
:
Keep this in
mind. It is the fundamental theory of "No Inflation
Ever."
:In a sense we can view collateral
:to be (real) GDP -- if money supply always
equals real GDP, then there is
:no inflation -- there is neither too
much money chasing too few goods or
:too few goods chasing too much money
-- and similarly no deflation.
:
That's right.
If chips equal collateral in the cage, there is
just enough chips chasing just enough
goods all the time. With no
deflation. Unless thieves rob the cage.
Thieves adding collateral to
the cage is not a problem.
: This
:is already what central banks attempt
to do when they decide by how much
:to increase the money supply, and the
inflation that we have is simply
:the error resulting from incorrectly
estimating the growth of real GDP
:(the error is consistently biased positive
since too little money causes
:a recession, which is much worse than
a little inflation).
:
Again, he's referring
to what I call "Shift A" in my Mathematics
of Usury. 10 guys put up their watch as
collateral and all get 10
chips. If the banker gives them all one
extra chip, then the chips
inflate because 110 chips still by only
10 watches in the cage.
Shift B is where
10 guys put up their watches as collateral, get
10 chips and promise to repay 11. At the
end of the game, only 9
watches are bought out of hock. Their
chips have inflated.
I therefore disagree
that inflation is the central bank adding
too much money for which debt is added
to even more. Inflation is the
result of foreclosure on collateral. Both
shifts feel the same but
evidence of stores full of goods and people's
empty wallets argue for
Shift B.
:Since
:estimation procedures are unlikely to
be better under Turmel's system
:than present, inflation would still exist.
:
Right after pointing
out that Turmel's fundamental theory of
linking collateral to money issued made
both inflation and deflation
impossible, he now says that because of
estimation errors, because he
can't focus, he says it doesn't necessarily
land on zero. Sorry but
when a man claims 100% accuracy, you can't
claim your inability to
focus to the limit to be any possible
argument against the claim.
:
Is there an equilibrium in Turmel's model? Note that in (I),
:with the original utility for B, both
A and B would want to borrow money
:at 0% interest. Note that in (I),
any equilibrium would have C_Ai + C_Ai
:= w_Ai +w_Bi, i=1,2; consumption equals
supply in each period. With both
:A and B being net borrowers in period
1, C_A1 + C_B1 > w_A1 + w_A2 and
:the reverse for period 2. Demand
exceeds supply in period one and the
:reverse in period 2. Simple economics
notes then that prices will rise
:in period one and fall in period 2.
But if the agents take prices as
:given, then there still would not be
an equilibrium. If agents
:understand their impact on prices, then
the change in prices is
:implicitly equivalent to interest and
an equilibrium is possible. Note
:that when I commented on the LETSystem
and implicit interest within
:prices a similar argument holds for that.
:
That's my point.
The prices might change with interest but the
amount of money in my hand doesn't also
change to match chose prices.
10 Industrialists
all borrow 10,000 and owe 11,000. The spend the
10,000 in production, inflation their
prices to 11,000 or fail to pay
the bank. 100,000 goes into circulation.
With a debt of 110,000,
prices demanded must be raised to 110,000.
Only 100,000/110,000 gets
sold and one of the industrialists is
foreclosed upon and assets
seized for the bank.
But the agent
has no effect on the relationship between the chips
in my hands and the collateral I'm going
to be getting at the cage.
There is nothing the users of the machine
can do to alter the function
of the machine. Values cannot change.
No matter how many times you
theorize how interest must be, I tell
you there are models where it
does not have to be.
:
The above paragraph follows from the simple reality that
:consumption is specific to certain time
periods. Note that money
:borrowed in period one is backed by collateral
from period two.
:
Should the central bank restrict the money supply such that the
:total supply of money in each period
is backed by goods and services
:within that period, then no borrowing
from the central bank can occur - the
:model (I) already has that equality established
in both periods.
:
However, we shall allow for the supply of money to be less than
:the supply of goods and services.
For simplcity, then, assume that the
:supply of money is zero.
:
First, note that the exchanges of goods is still entirely
:possible as a barter system. Let
any good which has non-zero value
:(i.e., is demanded by some individuals)
be considered the numeraire, the
:good by which all other good's prices
are established. I.e., if we let
:apples be the numeraire, then other goods
are worth x apples. Under the
:barter system, the solution in (I) still
occurs. I had mentioned before
:in other posts that with n goods, prices
form an n-1 dimensional simplex,
:and this is the logic that holds true.
Simply, it is only the relative
:prices that matter, not the absolute
prices.
:
But let everyone borrow $5000 from the central bank each period at 0%
:interest. Note that from that point,
both A and B can make mutual gains
:by loaning to each other following exactly
the same logic used in (I).
:
Tim's has failed
to follow the fundamental theory of no inflation
chips. Before everyone takes out $5,000
in chips from the cage at 0%
interest, you have to determine what a
chip is worth.
Here we are off
onto a detailed economic examination having
issued $5,000 in chips to all participants
but not having fixed a
value for the chips.
:A note on rationality.
:
That's right.
It's irrational borrow $5,000 in chips even at 0%
if you don't know what the chip is worth.
I snip parts
on how agents influence the chips.
:
I called Turmel's watches and toothpick model irrational
:
Yet, when 10
people all put up their homes promising to repay 110
for every 100 they received, that's what's
going on. It's not the
model that's irrational. It's the predicament
shown by the model
that's irrational. And it it irrational
for the group to promise to
all repay 11 when they all only got 10.
Ask any child.
:since,
:in a perfectly random game, each agent
expects to get 10 toothpicks back
:(what they started with) and thus not
be able to buy back their
:collateral. That is to say, each
agent expects to be strictly worse off
:as a result of playing the game.
:
Take a poll of
all Canadians who have ever played the game and
borrowed at interest to see how many were
strictly worse off as a
result of playing the "11 for 10" game.
This stupid game is going on
in real life. Ask anyone around you. The
whole world is your test
tube. The effects of interest and insufficient
money are all around
you. Open a newspaper. Imagine how tallies
would have helped the 90%
of the stories there on poverty.
:
Clearly, some people can be foolish enough to not realize that
:the game is stacked against them.
:
But you insisted
on your right to pay the interest demanded if
your refusal meant not getting your loan.
So how foolish is it? People
do it every day since they don't get the
loan if they won't sign their
mort-gage death-gamble. I think they're
more at peace than those who
do realize the deck is stacked as they
sit down to the game?
Everyone's predicament is that in order
to get your loan, you have to
sign this clearly stacked death-gamble
mort-gage. And as long as
you're convinced you're borrowing someone
else's savings, you can
never get up the resentment of someone
who realizes he's paying
interest to somebody's TAP.
:However, over time, more and more
:people will realize that playing the
game is stupid, and the equilibrium
:result will be no one plays the game.
:
You realize the
game is stupid but you were ready to sign.
Everyone plays the game because if they
don't, they get no chips to
play the game at all. Everyone is forced
to play the 11 for 10 game if
they want their loan or there is no economic
game other than barter.
:Thus, if the mortgage system
:really behaves as Turmel suggests in
that model, then it can be expected
:that, within a reasonable learning time,
everyone will stop playing, and
:there would not be any mortgages undertaken.
:
No it can be
expected that within a certain number of cycles,
people will be removed from play by foreclosure
and sold to new
players ready to buy the collateral and
try themselves. And the others
can't stop playing once they're hooked.
:Turmel thus needs a very
:compelling reason why agents will continue
to play the game -- i.e., a
:reason that makes playing the game rational.
:
The compelling
reason is that if you try to stop paying 11 for
10, they'll come and take your house and
assets away. I can't think of
a more compelling legislated reason than
that.
:Finally, on the creation of money.
Note that fundamentally, the creation
:of money first occurs when the central
bank creates money in an open
:market transaction. One could state,
technically, that only the amount
:of money created by the central bank
actually exists.
:
Not true if private
banks have their own taps, the issue in
question here. In that case, the money
created by the central bank
represents only 2% of the money that actually
exists. Since economists
have determined that the central bank
does only create 2% of the money
that exists, one can deduce that the remaining
98% of the money is not
created by the central bank and those
taps remain undetected to
believers that the 2% is "technically"
the only amount that actually
exists.
:But the amount of
:money in deposits (and the amount loaned)
greatly exceeds the amount of
:money physically in existence.
:
To say that this
liquidity and that liquidity is greater than
both of them is silly. The amount of old
money in deposits (and the
amount of new money loaned) exactly equals
the amount of money
physically in existence. That's how money
exists, as savings, and
comes into existence, as loans.
:Hence the various definitions of money,
:M1, M2, M2+, M3, etc.. One could
also argue that, since the money
:circulates multiple times through the
charter banks and that, each time
:it loops back, deposits and loans increase,
that the charter banks are
:also creating money, although they are
not creating any physical currency
:or M1.
:
We did the looping
through your piggy bank model and found new
the same $100 and new IOUs to balance
the new deposit slips but no new
money. He says that the chartered banks
create money but he won't
identify the tap and how it connects to
the economy.
And sure they
create money without creating currency because the
money is created as credits within the
software and the cash supply
are simply monetary tokens, chips if you
will, for the electronic
money supply. That new money is created
though the actual paper money
doesn't change is one of the greatest
financial sleights of hand ever
devised.
It's nice to
identify the TAP but one must remember that taps are
electronic money to computer bank accounts.
I'll call new money E-
money. Taps do not inject cash into circulation.
The bank buys
some cash coins or paper from the mint or the
central bank and when you want to take
your E-money out for a walk
with you, they take it out of your account
and sent it to their
cashier who liquefies your E-money with
paper currency much like
casinos liquefy your paper currency with
plastic currency.
When I get back,
I return the remaining money chips to the cage,
they give me back my E-money and now someone
else buys in with their
E-money to get the same physical dollars
I had just borrowed and
returned. Paper money is simply a physical
cloak for our real money,
our bank credit E-money.
So it a really
really devious shell game. Keep the marks thinking
the cash is moving while invisible credit
flows go unnoticed in the
background.
So again he admits
that chartered banks are creating money but
refuses to start with a tap and show to
which pipe it's linked.
:
This is probably why the explanation as to who creates money is
:often vague. Fundamentally, it
is always the central bank.
:
This if fundamentally
untrue. It is always both central and
fractional reserve banks who create money.
In one breath he admits it,
in the next he denies it. Another double-think,
the ability to accept
two contradictory points of view as both
true at the same time.
:Even stating
:that charter banks create money since,
after the money goes through a
:charter bank deposits (a measure of money)
increases,
:
After something
the chartered banks does, the money increases!
Right after saying that fundamentally,
it is always the central bank.
Same double-think again. Maybe repetition
reinforces the effect.
:the total money
:supply is still determined as a/r, where
a := the amount of money created
:by the central bank.
:
Right. where
a = the central bank amount. But the rules say that
whatever a the central bank creates, the
fractional reserve banks can
create 49 times a. To say this gives the
central control in the
creation of money is to underestimate
the value being able to create
the other 98% of the money supply can
supply. After all, they are but
loansharks allowed to multiply loans by
49 times whatever the central
bank loansharked out.
:: Pretty
good argument for linear service charges for our loans.
:: Now we pay $100 on the $1,000 transaction
and $100,000 on the
:: $1,000,000 transaction. Every year.
I'd rather pay the $15 service
:: charge one for both.
:
:If the linear service charge is r*loan,
0 < r < 1, charged per period,
:say, annually, then over multiple years
we have exponential, or compound,
:interest. Thus either your system
is not linear or the current system is.
:
First of all,
it wouldn't r*loan. I actually stated the opposite
above that the cost of the banker's time
would be independent of the
size of the loan.
Cute, eh? I say
"$15 service charges for both" and he says "If we
charge more for this one..."
What I call a
linear service charge because it's independent of
the loan, he links to the loan and points
out it's exponential, like
interest. But if you keep it independent
of the size of the loan, it
stays linear unlike interest.
An interest-free
system is quite different from an interest-
bearing one.
No, the service
charge is not based time either. It's a one-time
charge for the time of the worker who
helped you with your forms. If
you don't pay it off for 10 years, nothing
changes with no charges per
period since there was no work to be done
on the account.
:: And if
it's only part of the problem, why would I not still be
:: correct in criticizing economic systems?
Why does the problem have to
:: "_simply and only-" the lack of money
and not just a component of the
:: problem. Shall it be discarded because
it doesn't solve everything all
:: at once but only one small part of
the market mechanism? Actually, it
:: does solve everything all at once.
:
:I was simplifying myself. I will
allow, if the scarcity of money --
:distinct from the scarcity of goods and
services -- is part of the
:problem, then Turmel's criticisms have
at least some validity.
:
And you'll never
be able to accept that validity until you
connect your loans pipe to the TAP like
it should be. Until you see
that, you'll never be able to accept how
the system really works.
:: To say
scarcity occurs in nature and therefore not in the money
:: supply needs remedial Boolean algebra.
Scarcity can and does occur in
:: both real life and in the money supply.
One is real, one is
:: artificial. Looking at the real scarcity
will not help you in your
:: examination of the artificial one we're
discussing here.
:
:Well, take the (among economists) famous
Fisher equation:
:
M*V = P*T
:Where M := supply of money, V := velocity
of money, P := prices, and T:=
:transactions.
:
Here we go into
Price theory and again, the casino chip model is
perfectly analogous:
GNP
= Money * Velocity = Prices * Number of deals
Volume = Chips
* Velocity = Pot size * Number of deals
:
The equality holds obviously --> all goods and services that are
:sold are sold at some price and that
price must come from some money.
:Since money circulates, each dollar is
used in more than one transaction,
:and hence the velocity of money is important.
:
If V is constant, as it normally is, and M is set by the central
:bank as it always is, we can use d to
represent delta, for discrete changes.
:
In a casino bank
or LETSystem, M is not set by the central bank
but left to rise or fall to its most comfortable
level since there is
no reason to keep V constant.
I've done this
before explaining how one could play 100 $1
gambles in an evening and if I started
with 100 $1 chips, I could use
a new chip for each gamble for a velocity
of 1.
If I've started
with 50 $1 chips, I could use each chips twice
for a velocity of 2.
How many chips
I choose to buy-into action is not a function of
the cage by my perception of an acceptable
velocity. I know when I sit
down to a $10/$20 Poker game, that buying-in
for $500 means I'll have
to buy-in for more one time in 10. If
I buy-in for $200, I'll be
rebuying one time in five. With $500,
an evening's gambling rolls it
over several times, with $200, it rolls
it over a few more times. But
why I take $500 instead of $200 is strictly
based on my convenience.
If there were
interest charged, everything changes. I'd only
borrow as much as I needed and only when
I needed it. Like businesses
today won't pay interest to borrow to
hold stock, without interest,
they'd hold as much stock as their shelves
could hold just as I'd be
limited by the number of trays of chips
I could comfortable hold.
Going to the
limit, if I were in a wheelchair, I wouldn't want to
go back the cage at all and I'd the want
the lowest velocity possible
by buying-in for everything I had.
So seeking constant
velocity is a needless limitation.
: If dM >
dT, then dP > 0 (too much money chasing too few goods
:causes prices to rise). Clearly
the reverse also holds. Note similarly
:for changes in transactions being the
first result.
:
Why not keep
the change in prices dP = 0 and let the velocity
fluctuate?
The above of course skips whether T is a function of M, but that
:is not relevant in this simple case.
:
Note that for any finite T and any V > 0, infinite money (i.e.,
:no scarcity in money) only results in
infinite prices.
:
No scarcity of
money doesn't mean infinite money generating
infinite prices. Please. No scarcity of
money can also mean just
enough out of an infinite source. And
my version of no scarcity of
chips is just that. And just enough results
in stable prices, never
infinite prices.
:In fact, for any
:fixed T and V, increasing the money supply
necessarily only increases
:prices -- which is why I claimed that
scarcity of goods and services is
:the only problem and not supply of money.
:
Here he is fixing
the velocity or the number of pots and asking
what increasing the number of chips does
to the size of the pots. Yes,
fixing those factors results in larger
pots. Big deal. Why fix those
safely fluctuating factors?
:: No, lowering
the interest rate does not lower the bank's reserve
:: ratio. Yes vice versa. The reserve
ratio has been defined in
:: legislation by Parliament. Cutting
it allows for more and therefore
:: cheaper borrowing into circulation.
But whatever then happens in
:: circulation has no effect on the rate
the Banker sets.
:
:Subsequent to the last amendment of the
Bank Act, which occured under
:Mulroney's govt, the minimum legislated
reserve ratio was abolished.
:This was done in part since charter banks
were always maintaining
:reserves greater than the minimum ratio.
:
Great news!
So the TAP can
now be turned on independent of the savings, just
like a LETSystem issues Greendollars,
with no savings base. How does
Tim feel finding out that his loan is
based on nobody's savings but
his TAP's?
Pretty well cinches
my point, doesn't it? No depositor walks in,
he walks in and comes out with a loan.
Even his piggy bank model can't
do that. It needs the first $100 to start
rolling over with IOUS. Now
that he starts getting his loan without
there having been any
depositor, it might become even more obvious
that loans were never
depositors' savings!!
So the bank taps
to the nation's money are now totally
independent of any limit at all. I don't
know if that's bad. It seems
to take away the trigger mechanism forcing
them to call in loans when
depositors withdraw too much.
Since this sounds
good, I would have to question it as a given
and ask Tim to cite some documentary proof
before I breathe a sigh of
relief that the decision to foreclose
is now off automatic pilot and
firmly in the hands of bankers we can
grovel to.
:: But you
don't comment on whether I used my plumbing model
:: correctly enough to have a pedagogical
value in economics. We know it
:: works for engineers. You tell us it
also works for economists. Did it
:: work for John The Engineer?
:
:Models only work if reasoanable assumptions
are made and if the math is
:valid. Certainly a plumbing model
can have valid mathematics and is thus
:of potential pedagogical value.
However, I have attempted to note many
:of the fundamental failures in Turmel's
analysis which makes those models
:incorrect. Now incorrect models
can still have pedagogical value (i.e.,
:assignment question: Is the following
a correct model -- explain
:fully), and, as such, Turmel's models
might still find their way into an
:economics classroom.
:
I see no reason
that the technical veracity of my very elementary
models should elicit a grudging probability.
If properly modelling the
system to enable you to connect to a TAP
of interest-free credit has
really been accomplished, you should be
dancing in the streets.
Wouldn't an interest-free credit card
go good for you and your buddies
now. You're a switch of a disk away from
global financial heaven and
you even have a do-it-yourself Local model
of financial heaven to try
it out.
I see no reason
to be sad about financial life-boats springing up
all around the world. I'm ecstatic. I
had heard on the Web about them
setting up the Greendollar software in
Britain in 1992. I had heard
about explosive growth. I found out this
year from university
professor doing a paper on LETS that there
were now 350 Greendollar
branches serving over 30,000 Greendollar
accounts.
And I had a major
hand in getting that new financial software to
them. And I'm bursting with pride on having
bet on such a winner when
it was on the ropes and almost out of
the game. You can ask Michael
Linton. My financial contribution saved
his ass but I bet on him
because he'd designed a winner. And it's
paid off. I got to be guest
speaker at the New Zealand Greendollar
National Meeting and take a few
bows for having backed a winner. No matter
what anybody thinks about
my views on the evils of interest, they
know I backed a winner system
which designed around those evils.
:
In fact, I hope that Turmel is clever enough to see that a
:plumbing diagram could be constructed
from the model that I presented of
:the banking system.
:
As a matter of
fact, that's exactly what I had done. I called the
piggy bank model.
:Let money be injected from a tap, the
central bank,
:into a charter bank. Let the reserve
ratio of the money go to the
:reserves, the rest goes to loans which
loops back into the charter bank.
:
That' how I showed
it. The depositors savings actually went out
and were replaced by the IOUS for the
loans.
Using liquid to represent money, if we
measure the volume of liquid that
:enters the bank either from the central
bank or from deposits (allows
:liquid to be double-counted) and the
volume that is loaned out,
:
And double-counting
doesn't create new liquid.
:we will
:find that the volume of liquid deposited
is 1/r, the volume of liquid
:loaned is (1-r)/r, the volume of liquid
in reserves (which is the
:reservoir of all money) = 1.
:
No new money.
1. The same.
But in reality,
with a tap, when $100 goes in and $90 is loaned
out, there is now 1.9 the amount of money
in circulation.
Only with a tap
can you create new liquidity. It is a fundamental
fact of plumbing. It is also a fundamental
fact of banking. And as
long as he keeps saying that the loans
are coming from the rest of
their savings and not the tap, he's wrong,
wrong, wrong. And no matter
how many times he says his savings are
double-counted into new money,
no new liquidity is created.
I can take in
10 quarts, lend out 9, take in 9, lend out 8, take
in 8, lend out 7, and if the suckers want
to believe there are 90
new quarts into circulation when I don't
have a tap in my plumbing, I
don't know how to explain it. It's the
double-think. Plus the
inability to recognize that the actual
presence of the 90 quarts could
exist only with a tap.
:I haven't used any fancy diagrams, but
I
:figure most people who can use internet
can handle that much for themselves.
:
:: And who
to better understand the usury banking system than the
:: engineer who first drew its Laplace
Transform Control Circuit? Check
:: it out in my Mathematics of Usury.
Other engineers have vouched for
:: it.
:
:I commented a while ago that mathematics
+ bullshit = bullshit. The same
:holds true for economics. I have
no doubts that the math in your models
:is correct, it is the underlying economic
assumptions which I am challenging.
:
There is only
one simple underlying assumption. 11 for 10 is
evil. 11 for 10 has deadly repercussions.
The rest of my
models are strictly technical examinations of the
underlying assumption that the usury mortgage
creates a deathgamble
with real world consequences.
:: You're not supposed to continue to not
understand when there's a
:: working model for you to get on and
pedal.
:
:I would have to say ditto for the current
system.
:
I see 5,000 years
of testing on the current model with the same
series of malfunctions reported generation
after generation. I see 700
years of testing of the Tally model with
no malfunctions reported
generation after generation. I see the
tally model inherent in the
LETSystem creating gardens out of alleys
around the world today. To
even hint that the current slavery model
is "working" is an
abasement of the word "working."
:: If the
non-existence of interest cannot be sufficiently
:: demonstrated when it's been designed
out of the blueprint, then
:: you've got your eyes closed. I call
this "judicial disease."
:
:Economics, at the very least, attempts
to follow scientific methodology.
:Scientists like to isolate out other
possible causes in order to
:sufficiently prove that two things are
positively related.
:
They might like
to isolate the causes but they have not isolated
the interest to consider what would happen
if it were set to zero.
It's an experiment that has never been
considered because interest is
an economist's given.
:Economists
:don't often have the normal luxury of
doing experiments with control
:groups, but nevertheless attempt to use
the same concept in our
:methodology.
:
This experiment
you can do with just a few buddies. Get them to
put up their watch as collateral for some
tokens, make them all try to
pay back more in some kind of game and
keep taking the watches of the
losers until you have all the watches.
This is a trivial of game
theory at work, so trivial, anyone can
do and understand it.
:Hence, the cateris paribus (all else being
equal) statement
:that we use.
:
You mean "I'm
not convinced and all else being equal, Turmel
could be wrong half the time."
:Hence models that unambiguously show the isolated effect.
He's way past
us plumbers. We're trying to locate the source of
the TAP and he's talking models that isolate
effects. Well, isolate
the effect of new liquidity and show us
plumbers the TAP.
:Because of scientific methodology, science
is generally more reliable
:than speculation or opinion.
:
And your Economic
science had better concord with the plumbing
because I'm trusting the plumbers and
not the guys checking the dial.
:If Turmel wishes to merely use opinion
:versus economic science and claim that
opinion carries more weight, then
:I see no reason for continuing in this
thread.
:
No. I wish to
use plumbing versus economic science and claim that
plumbing carries more weight. And if you
want to treat plumbing with
the same disdain as opinion, I have to
agree. You have nothing to
gain. I've been trying to pin you on the
connection between the loans
and the TAP for cycles now. I keep hitting
you with the same plumber's
objection. Before I believe that your
bank machine is creating new
liquidity, show me the tap. Otherwise,
I'll always believe that you're
running up deposits by rolling the same
money over and over again.
I understand
your aversion to accepting that the loans pipe is
connected to the tap. It goes against
the cover stories which have
been bred into you. "I must pay interest
or he won't lend it to me" is
easier to imprint than "I must pay interest
or the tap won't lend it
to me."
But I must say
your discussions have provided a wealth of new
examinations of this intricate usury slavery
device. It would be a
shame for you to duck out without at least
verifying or not that the
plumbing model is right. Leaving it up
in the air when it would seem
elementary to ask your Economics prof
if the diagram helps him in his
presentation implies that you're afraid
of what you'd find out. And
afraid of how you'd have to handle explaining
how your profession
could have been so silly in its study
of something as elementary as
poker chips.
I would note
that the repetitive condemnation of the money
madness caused by interest in the Holy
Books would have been a clear
clue that usury is not a subject to be
treated lightly. As the
greatest sin of all time, discounting
any connections between it and
all the death around us seems less than
prudent.
How can
so many people race to their graves defending interest?
With death and extinction all around him
and zeroing interest rates as
the only suggestion that's showing positive
results with LETS, how can
he not be riveted on the topic? Won't
he want to follow and see if the
Calgary LETS grows to help substantial
numbers of people. With that
result or even before, won't he not think
of starting one on his
school's database?
It's like sitting
with a new key that's fallen through your
prison window and not trying it out because
nothing's ever worked
before.
The fact that
Tim perceives these exchanges as distressing means
he's concentrating more on the pain of
the destruction of his
philosophy and less on the good times
of his own interest-free credit
card.
One last note
of optimistic news. In the Nov. 26, 1995 Ottawa
Sun, Peter Stockland a study which pointed
out that the Earth's
resources are sufficient to 35 to 105
billions people. We've hardly
scratched the Earth's crust in our quest
for minerals, we've hardly
put our agricultural resources to use.
It's quite nice
to think that there's nothing standing between us
and the harvesting of abundance but the
collaboration of 50 of the
world's richest men. That is unless they
want to keep it all for
themselves in case of scarcity.
Seeing all those
starving people on TV fosters the false notion
that scarcity is the cause. That's it's
only a scarcity of money which
manifests itself even in rich societies
where homeless sleep outside
palaces, if abundance were acknowledged,
why are there so many poor
people which reflects right back on the
guys who were running the
economic system, economists?
Imagine believing
that there was scarcity in a Garden of Eden by
an artificial scarcity in the accounting
supply. We've been slaves
yoked to our debts through centuries where
abundance was available for
all. What a crying shame. And what a crying
shame it's still going on.
Like Christ said:
Earth could be Heaven is we get rid of the
Alleys where men weep and gnash their
teeth caused by usury." I'm a
firm believer that someday, I'll wake
up and Death-gamble will be
over. But each day of delay costs lives.
Usury is our greatest
question of life and death. If we master
it, we live. If it masters
us, we die a slow and horrible ecological
death.
I'm for switching
money software rather than suffering a slow
horrible ecological death. If you think
about it, aren't you really
for upgrading the buggy bank software
to stabilize the value of money
before getting to use some yourself?
Final note. I'd
like you to tell me about the next TV drama or
tragedy that isn't motivated by insufficiency
of money somewhere.
Without such automatic insufficiency of
money, such tragedies would
never again be shown on the news. I do
believe these movies detailing
the money madness prevailing during our
generations will continue to
be shown in the study of how usury tricks
men into accepting life
under "kill-or-be-killed" elimination
mort-gage rat race rules.