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HOW TO RESOLVE THE CREDIT CRISIS: GIVING CREDIT WHERE CREDIT IS DUE

163 Responses

1. 

   Brock Moore, on January 21, 2009 at 10:22 pm said:

   Personal Message to Ellen Brown

   Ms. Brown,

   Regarding the claim that I disputed with you that the “real cause” of the Revolution was Britain’s monetary policies towards America:

   You earlier admitted that while the Franklin “quotation” may have been apocryphal, that historians supported that claim. I think that what we can actually find are qualified and reputable historians who say it was the mercantilist policies of Britain in general towards America that were the cause of the Revolution, not Britain’s monetary policy specifically, which was merely an element of mercantilist policy.

   I asked you for references to those historians, not to embarrass you, but toward “cleaning up” the reformist case, to make it stronger and more credible. Much of it is full of blatant falsehoods, many of which date back to concoctions that date no earlier than the Greenbacker era of the second half of the nineteenth century, when the propaganda machine of that then robust political movement was in full swing.

   These falsehoods are so easily exposed, that exposing them by our opponents in public debate blemishes and demeans the essence of the reformist case, which is based on fundamental truth.

   Particularly easy to expose is this “real cause” claim, so often associated with the name of Benjamin Franklin. Franklin was a member of the Committee of Five, which drafted the Declaration of Independence. The claim is not in the Declaration. One would think that the “real cause” for the Revolution would be enumerated in the Declaration of Independence by a drafter of that document.

   The other and perhaps by far the most egregious claim in my estimation is the “debt virus” theory that all money comes from bank loans, but the banks do not create the money to pay interest in the lending process, therefore more money must be borrowed from the banks to pay interest back to the banks, thereby compounding the debt.

   You begin almost every interview that I have listened to or seen with this fallacy. I think it must degrade the essence of your argument to informed audiences, if only through guilt by association.

   Even the consensus of the discussants in this blog is that at least some of it is spent into circulation by the banks, though I would contend and demonstrate that more than enough is spent into circulation to pay interest to the banks.

   There is an alternative theory as to why debt tends to compound. That is the “A + B theorem” of C. H. Douglas, the founder of the Social Credit movement. It is the analytically correct alternative to “debt virus” that explains the endemic shortage of purchasing power.

   In that theory the problem is due to a flaw in national accountancy, that with the broadening and lengthening to the structure of production, what is called in the jargon of Social Credit, “labor displacement,” the ratio of “B” payments is increasing in respect to “A” payments. “A” payments are going to final consumers, while “B” payments are going into the “working capital” balances held by firms. These balances are therefore increasing in respect of balances held by consumers, as the structure of production lengthens and broadens, and more working capital becomes increasingly required for the day to day operations of the firms. The costs of production that are being charged against retail sales through the rules and conventions of accounting equal A + B, while income going to consumers equals A. If the ratio of B is increasing to A, then A must be falling in respect of A + B. This means that an increasing increment of the costs of production are never being liquidated through sales to final consumers, adding incrementally to debt. The solution is to supplement consumer purchasing power in ways that do not enter the accounted for costs of production. For this Social Credit suggests remedies like the National Dividend and Retail Discount. This theory is easily reconciled to the “magrinal utility” theory of neo-classical economics.

   I wish you would consider this alternate theory. I can help explain it to you in further discussion. There is also a Social Credit discussion group at Elistas. I can ask the moderator to invite you to join.

   Brock

   Reply
2. 

   moneycreation, on January 21, 2009 at 11:20 pm said:

   Brock
   I think you underestimate the readers of this blog (an inherent superiority due to religion, perhaps?)

   There’s a common denominator concerning the Cromwell, revolution, The French Revolution,, the FED, the Russian revolution, the American revolution and I think all reading this know this.

   So I think people here understand your purpose and your agenda. Just because people don’t express it doesn’t mean they don*t know this connection.

   You haven’t proved the fallacy regarding “debt virus” theory. Just repeating it’s a fallacy without any logical reasoning. Repeating the same mambo jumbo all over again won’t change that.

   Reply
3. 

   John Williams, on January 22, 2009 at 12:49 am said:

   I think Brock is right about the absolute “debt virus” where no interest is created only principle. The absolute “debt virus” idea has evolved because it is an easy way to spread an understanding of the problem which is more complex but has the same outcome only slower.
   Brocks belief that a modified “debt virus” is untrue without providing an alternative explanation for pervasive long term inflation is perplexing. If the “debt virus” is partially true it would explain inflation since money would be loaned that would replace the interest that was not spent but deposited causing money to grow faster than goods. If the people who earn interest from banks such as depositors, employees and stock holders deposit some of the the money (which they surely do) where it used as “checkbook money” to “create a new deposit” through a loan the results will be the same as the “debt virus”. Interest will still be earning interest through debt which would compound growing faster than goods. If the banks spend money in high finance investments which are not available to borrowers the results will be similar to the “debt virus”. Until there is a better explanation for pervasive long term inflation other than this I will not believe someone just because they say it cannot be so. This will also have the same result as Social Credit attempts to solve namely there will be increasingly more money in costs of production or investments and decreasing money available for consumer purchasing power. Social Credit proposes a solution to this problem but never enumerates the underlying cause beyond accounting.
   As long as Brock cannot explain why the Pennsylvania colonial scrip was not inflationary while our current system is his explanations are lacking because a modified “debt virus” would explain this.

   Reply
4. 

   Brock Moore, on January 22, 2009 at 1:52 am said:

   I think Brock is right about the absolute “debt virus” where no interest is created only principle. The absolute “debt virus” idea has evolved because it is an easy way to spread an understanding of the problem which is more complex but has the same outcome only slower. Brock’s belief that a modified “debt virus” is untrue without providing an alternative explanation for pervasive long term inflation is perplexing.
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   Except the other day you gave three explanations for inflation, not one of which had anything to do with “debt virus.” In fact, none of them was even a monetary explanation.

   As for “debt virus” lite, which is another name for the bankers’ underconsumption hypothesis, I offered a refutation in asking why should the banker behave differently than any other firm or business. It is a fact that when the economy is growing or expanding, every firm, as a matter of statistics or average, is disbursing more in cash flow than it is receiving back through sales, yet is booking a profit through the rules of double entry accounting. The banker’s fee and interest income is equivalent to an ordinary firm’s sales. Why would the banker be behaving differently than any other firm? Why would he be spending less than his income when every other firm on average is spending more than its income? I suppose it would be possible, but the anomaly would have to be explained. It is incumbent on the proponent of debt virus lite to explain it.
   –

   If the “debt virus” is partially true it would explain inflation since money would be loaned that would replace the interest that was not spent but deposited causing money to grow faster than goods.
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   Okay, so here’s your tie-in to debt virus.
   –

   If the people who earn interest from banks such as depositors, employees and stock holders deposit some of the money (which they surely do) where it used as “checkbook money” to “create a new deposit” through a loan the results will be the same as the “debt virus”.
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   This sentence is not even coherent. I have no idea what you’re trying to say.
   –

   Interest will still be earning interest through debt which would compound growing faster than goods.
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   This is also not coherent, but I think you’re trying to say that people who earn interest from their deposits in the bank let it ride, thereby earning interest on interest. That would have to be in offset to interest that is owed TO banks, would it not. This would be anti-debt-virus, in that it works in the opposite direction, I should think. But I’m only guessing what you’re trying to say.
   –

   If the banks spend money in high finance investments which are not available to borrowers the results will be similar to the “debt virus”.
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   All the investments are similar to loans because they involve the creation of money with the expectation of profit.
   –

   This will also have the same result as Social Credit attempts to solve namely there will be increasingly more money in costs of production or investments and decreasing money available for consumer purchasing power.
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   As is explained through the A + B theorem.
   –

   Social Credit proposes a solution to this problem but never enumerates the underlying cause beyond accounting.
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   Because the underlying cause is the flaw in accounting. Debt virus and debt virus lite are fallacies.
   –

   As long as Brock cannot explain why the Pennsylvania colonial scrip was not inflationary while our current system is his explanations are lacking because a modified “debt virus” would explain this.
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   But the Pennsylvania scrip was loaned into circulation “moderately,” according to Adam Smith, while the similar scrip in the other colonies was inflationary, presumably because the authorities in the other colonies were not so “moderate.” You simply cannot compare the Pennsylvania system, which was before the Industrial Revolution, where the colony’s total expenditure was 4500 pounds, to the current situation, where government expenditure is in the trillions.

   Please note also that Pennsylvania’s system, according to Smith, was very much like the modern banking system. Perhaps you didn’t notice. The notes were loaned into circulation, at interest, where the interest income was spent into circulation by government. So the bank was a profit making operation, with the profit going to government, rather than private investors. One significant difference was that the loans were up to twice the value of pledged security in land, as Smith described it, while the present standard is 80% of pledged security. I think that the Pennsylvania system had the potential for very high inflation, in the hands of irresponsible authorities. According to Smith, that was indeed the situation in the other colonies.

   Brock

   Reply
5. 

   John Williams, on January 22, 2009 at 3:27 am said:

   —-Except the other day you gave three explanations for inflation, not one of which had anything to do with “debt virus.” In fact, none of them was even a monetary explanation.—

   Inflation does not have to be monetary it can be psychological that is generally why it is so erattic. The pervasive long term inflation is not erratic but monetary. You are the one who said it was complex but now expect one answer for the cause of inflation?

   As for “debt virus” lite, which is another name for the bankers’ underconsumption hypothesis, I offered a refutation in asking why should the banker behave differently than any other firm or business. It is a fact that when the economy is growing or expanding, every firm, as a matter of statistics or average, is disbursing more in cash flow than it is receiving back through sales, yet is booking a profit through the rules of double entry accounting. The banker’s fee and interest income is equivalent to an ordinary firm’s sales. Why would the banker be behaving differently than any other firm? Why would he be spending less than his income when every other firm on average is spending more than its income? I suppose it would be possible, but the anomaly would have to be explained. It is incumbent on the proponent of debt virus lite to explain it.

   A refutation would be a better explanation for inflation other than saying it is an unexplainable phenomena.

   —This sentence is not even coherent. I have no idea what you’re trying to say..—

   Read it again because it is coherent unless you have preconceived notions that preclude new understanding. If people who are paid with the interest the banks make (stockholders, employees, interest on deposits etc..) deposit it at the bank which is then used by banks for new loans through the fractional reserve system the problems associated with the debt virus will still arise. This is exactly the same as the debt virus except the bank is not lending the needed interest whoever earns the interest is. Also your arrogant attitude speaks volumes about your nature and explains your inability to understand anything outside your obviously cemented world view.

   —Because the underlying cause is the flaw in accounting. Debt virus and debt virus lite are fallacies.—-

   Then changing accounting rules should suffice to solve the problem. I do not see how a national dividend has anything to do with accounting. The national dividend amount may be determined by accounting but the cause is nothing to do with accounting. This is circular logic.

   The Pennsylvania system written by Benjamin Franklin is basically monetizing goods. All money is backed by assets irregardless of your belief that banks magically give it value. Without goods money would be worthless but without money goods still have value. In a system where this was explicit and the guiding principle the only way to earn money would be production. A nationalized bank system would follow closer to this principle and I do not believe they would be more inflationary than the current system which has inflated a dollar to a worth of 2 cents during its existence.

   The reason the Pennsylvania system was not inflationary is because the interest was spent by government allowing loans to be repaid without new loans being issued. You have still not given a cogent explanation for long term pervasive inflation.

   Reply
6. 

   Brock Moore, on January 22, 2009 at 4:26 am said:

   Read it again because it is coherent unless you have preconceived notions that preclude new understanding. If people who are paid with the interest the banks make (stockholders, employees, interest on deposits etc..) deposit it at the bank which is then used by banks for new loans through the fractional reserve system…
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   This is more incoherency, John. Loans are not made from deposits, loans create deposits. Your second sentence here is just bass-ackwards.
   –

   Then changing accounting rules should suffice to solve the problem.
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   No, because the problem is not correctable at the accounting level of firms, but only at the level of the economy as a whole. The problem is correctable at the level of the macroeconomy. The Dividend and Retail Discounts are effectively macroeconomic accounting adjustments. The analogy is to leap adjustments to the calendar. The Earth does not revolve about the Sun in exactly three hundred sixty five days. It is not possible to construct the perfect calendar, so we periodically make leap adjustments.
   –

   The Pennsylvania system written by Benjamin Franklin is basically monetizing goods.
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   No, goods are never monetized, except when they are sold. Loans are made against security, which has the effect of lowering the rate of interest that otherwise would have to be charged.
   –

   All money is backed by assets irregardless of your belief that banks magically give it value.
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   It’s not true that all money is backed by assets, meaning assets as security. Credit card debt is unsecured. Signature loans are unsecured. And where did you get the idea that I believe that banks magically give money value? Money gains its value through the integrity of the clearing system, in that it is generally recognized and accepted in trade and commerce.
   –

   Without goods money would be worthless but without money goods still have value.
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   This statement is just nonsensical. I’m astonished that you think it’s meaningful.
   –

   The reason the Pennsylvania system was not inflationary is because the interest was spent by government…
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   Not according to what Adam Smith said. The scrip in the other colonies was inflationary even though their governments spent their interest income into circulation.
   –

   …allowing loans to be repaid without new loans being issued.
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   That’s how the present system works. Nothing special about that.
   –

   You have still not given a cogent explanation for long term pervasive inflation.
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   Well, you certainly haven’t.

   Brock

   Reply
7. 

   John Williams, on January 22, 2009 at 5:12 am said:

   —-This is more incoherency, John. Loans are not made from deposits, loans create deposits. Your second sentence here is just bass-ackwards.—-

   Banks get Central Bank Money then make a loan based on that then when the loan has been deposited after it was spent it is used to make another loan. Is this incorrect? Because if it is not then loans come from deposits starting with a Central Bank Money deposit and continuing from there.

   —No, because the problem is not correctable at the accounting level of firms, but only at the level of the economy as a whole. The problem is correctable at the level of the macroeconomy. The Dividend and Retail Discounts are effectively macroeconomic accounting adjustments. The analogy is to leap adjustments to the calendar. The Earth does not revolve about the Sun in exactly three hundred sixty five days. It is not possible to construct the perfect calendar, so we periodically make leap adjustments.—

   Accounting explains phenomena that occurs in reality it does not create it. I can explain gravity with an equation but the equation is not the cause of gravity.

   —No, goods are never monetized, except when they are sold. Loans are made against security, which has the effect of lowering the rate of interest that otherwise would have to be charged.—

   The loans given in Pennsylvania were essentially monetizing goods because %90 of production was agrarian. Currently goods are not monetized through loans but there is no reason it could not be done.

   —It’s not true that all money is backed by assets, meaning assets as security. Credit card debt is unsecured. Signature loans are unsecured. And where did you get the idea that I believe that banks magically give money value? Money gains its value through the integrity of the clearing system, in that it is generally recognized and accepted in trade and commerce.—

   I am not talking about policy only reality. I am saying without goods money is worthless but goods have worth without money. I am saying money derives its worth from goods upside down thinking figures it is the other way around.

   —This statement is just nonsensical. I’m astonished that you think it’s meaningful.—

   Here again an absolute lack of tact. So you think it is untrue? Money has some magical value of its own through clearinghouses according to you but if nothing was produced the clearing houses would mean nothing to the value of money because it would be worthless.

   —Not according to what Adam Smith said. The scrip in the other colonies was inflationary even though their governments spent their interest income into circulation.—

   I am talking about Pennsylvania the other colonies most likely printed as much revenue as they thought was needed or did not follow the policy put forth by Franklin in some other way.

   —That’s how the present system works. Nothing special about that.—

   According to you and your rigid understanding

   —Well, you certainly haven’t.—

   The explanation I have given is much better than saying it is an unexplainable phenomena and to complex to ever understand. Pervasive inflation is explained much better by a partial “debt virus” than anything you have so far offered. Saying the A+B theorem is the cause is nonsensical it causes nothing it only explains what is happening not what the real world cause is. Accounting explains it not causes it your thinking is very upside-down.

   Reply
8. 

   Brock Moore, on January 22, 2009 at 5:46 am said:

   Banks get Central Bank Money then make a loan based on that then when the loan has been deposited after it was spent it is used to make another loan. Is this incorrect?
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   It is incorrect. This is not how it works at all. Banks grant loans and spend from their power to credit customer deposit accounts. Reserves in central bank credit are needed to meet withdrawal demands. Banks are required to redeem their deposit liabilities with central bank credit on demand.
   –

   Accounting explains phenomena that occurs in reality it does not create it. I can explain gravity with an equation but the equation is not the cause of gravity.
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   Flawed accounting distorts reality, John.
   –

   The loans given in Pennsylvania were essentially monetizing goods because %90 of production was agrarian.
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   This argument makes no sense at all. Think about it. Goods are monetized only when they are sold.
   –

   Currently goods are not monetized through loans but there is no reason it could not be done.
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   My God, more nonsense! The Pennsylvania land bank was lending on the SECURITY of land. Presently, banks lend on the SECURITY of land and other valuable assets. Not much difference.
   –

   I am not talking about policy only reality.
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   A rather twisted vision of reality.
   –

   I am saying without goods money is worthless but goods have worth without money.
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   And this is a completely nonsensical statement.
   –

   I am talking about Pennsylvania the other colonies most likely printed as much revenue as they thought was needed or did not follow the policy put forth by Franklin in some other way.
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   They inflated the money supply, John. I have for that the authority of Adam Smith.
   –

   The explanation I have given is much better than saying it is an unexplainable phenomena and to complex to ever understand.
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   John, you’re of those fellows who is displaying an inability to understand what you have read. I NEVER said that inflation was unexplainable or too complex to understand. And your most recent explanation is based on the demonstrably fallacious debt virus hypothesis.
   –

   Saying the A+B theorem is the cause is nonsensical it causes nothing it only explains what is happening not what the real world cause is.
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   And this sentence is incomprehensible. The only thing I can get from it is that you don’t like the A + B theorem. Perhaps I should suggest that you also learn to write.
   –

   Accounting explains it not causes it your thinking is very upside-down.
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   Again, incomprehensible.

   Brock

   Reply
9. 

   John Williams, on January 22, 2009 at 6:28 am said:

   —It is incorrect. This is not how it works at all. Banks grant loans and spend from their power to credit customer deposit accounts. Reserves in central bank credit are needed to meet withdrawal demands. Banks are required to redeem their deposit liabilities with central bank credit on demand.—

   So all explanations of how fractional reserve system works are tossed out because it is inconvenient to your world view. Show me one place where all rules of fractional reserve are tossed away to conform to your understanding because I have not seen one.

   —Flawed accounting distorts reality, John.—

   Then a correction to accounting will solve the problem. If anything other than that is required than the cause is not accounting but something else.

   —This argument makes no sense at all. Think about it. Goods are monetized only when they are sold.—

   You think a loan to a company does not involve a sale? The company sells that the good/service they are making will be worth the loan otherwise it is not given. It is not hard to understand that this is basically what was happening in Pennsylvania. A loan was given on property which would be used to grow produce. For example when 2 farms got this loan they could purchase each others produce then repay the loan.

   —My God, more nonsense! The Pennsylvania land bank was lending on the SECURITY of land. Presently, banks lend on the SECURITY of land and other valuable assets. Not much difference.—

   No difference except in Pennsylvania the interest was spent by government and it was not inflationary. I guess to you this is a coincidence or more likely greenback propaganda as anything that shows the current system isn’t perfect or can be improved must be.

   —They inflated the money supply, John. I have for that the authority of Adam Smith.—

   According to Adam Smith Pennsylvania was not inflationary so obviously the other states did not follow their policy.

   —John, you’re of those fellows who is displaying an inability to understand what you have read. I NEVER said that inflation was unexplainable or too complex to understand. And your most recent explanation is based on the demonstrably fallacious debt virus hypothesis.—

   Where is the explanation of the cause of long term inflation then?

   —And this is a completely nonsensical statement.—
   —Again, incomprehensible.—

   It seems you are running into a lot of cognitive dissonance since very simple ideas are totally incomprehensible to you. Sorry about that.

   Reply
10. 

    moneycreation, on January 22, 2009 at 6:57 am said:

    I’m still looking for some mathematical proofs or at least examples.

    As Nobel Prize winning scientist, Frederick Soddy, had to say about the monetary system:
    “I thought that, as a scientific man, I ought to know something about economics. So I studied the money system for two years and could make nothing of it. Then, one day, the truth dawned on me. What I was studying was not a system, but a confidence trick.”

    Or why not Tolkiens words:
    “Throned above all, in a manner without parallel in all past, is the veiled prophet of finance, swaying all men living by a sort of magic, and delivering oracles in a language not understood of the people.”

    That Brock think that he has any credibility is laughable . Stockpiling nonse isn’t trustworthy. He’s a troll trying to make things as incoherent as possible

    Reply
11. 

    Brock Moore, on January 22, 2009 at 12:03 pm said:

    Then a correction to accounting will solve the problem. If anything other than that is required than the cause is not accounting but something else.
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    Indeed, all that is required is macroeconomic accounting adjustment.
    –

    You think a loan to a company does not involve a sale? The company sells that the good/service they are making will be worth the loan otherwise it is not given.
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    Okay, the borrower is “selling” to the bank that he is a good risk for the loan by pledging his land as collateral. Except the Pennsylvania land bank as described by Adam Smith could lend on the security at TWICE its value. In that case the land would be worth only HALF the value of the land that secures the loan. Let me repeat, goods are monetized only by selling their ownership to someone else for money.
    –

    No difference except in Pennsylvania the interest was spent by government and it was not inflationary.
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    But the same money would be spent by whoever owns the bank. Only the profit from the bank could be spent toward ordinary government expenditure. The rest of the interest received would go to paying the costs of supplying the bank’s services, the salaries and wages of the bank’s employees, and so on. Even in Pennsylvania, profit was the smallest component of interest received.
    –

    According to Adam Smith Pennsylvania was not inflationary so obviously the other states did not follow their policy.
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    Have you not read the quotation from Adam Smith? According to Smith the other colonies set up similar land banks but the authorities in the other colonies were not as “moderate” as the authorities in Pennsylvania. In other words, they inflated.
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    Where is the explanation of the cause of long term inflation then?
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    Again, you haven’t provided one. Please tell us how the current Zimbabwean inflation is caused by debt virus. The rate of inflation in Zimbabwe is at several million percent. It is the highest rate of inflation the world has ever seen. I think I know what the cause of the Zimbabwean inflation is. Do you?
    –

    It seems you are running into a lot of cognitive dissonance since very simple ideas are totally incomprehensible to you. Sorry about that.
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    I’m talking merely about your sentence structure. You have a difficulty in expressing your ideas in the English language.

    Brock

    Reply
12. 

    moneycreation, on January 22, 2009 at 4:19 pm said:

    Brock
    Never ending nonsense!

    Going back to my example:
    All loans in a country equals L dollar in debt money (since all money in this system is money)
    On the banks balance sheet (combining them to one common):

    (assets side) L = L (liability side)

    Let’s say L-M=K and equals the amount of debt after M dollar has been paid, but killing a debt is the same as killing the equal amount of debt so the banks total balance sheet:

    (asset side) M = M (liability side)

    So after one year with an interest of I percent the banks total balance sheet have to be:

    (asset side) M+M*I = M+M*I (liability side)

    Since the credit expansion always should expand with the same amount on both sides of the of the banks balance sheets (they are’nt balanced otherwise).

    .Case 1
    The banks create the M*I as a new loan (new assets to the banks) and an equal amount credit that is put nh deposit side of the banks (new liabilties to the banks). Hence new money is created in orderto service the debt and the money supply growths forcing the system to never ending expansion, bringing more and more debts slaves pawning their assets or future work .

    Case 2
    The banks don’t create the credit to serve the Interest, (M*I part). The banks total balance sheets would then be:

    (asset side) M+M*I not equals to M (liability side)

    Leading to scarcity of money and an contraction.

    Show how it can be otherwise mathematically and don’t resort to more mumbo jumbo.

    Reply
13. 

    moneycreation, on January 22, 2009 at 4:22 pm said:

    correction, should be:
    :
    “Let’s say L-K=M and equals the amount of debt after K dollar has been paid”

    Reply
14. 

    Brock Moore, on January 22, 2009 at 6:11 pm said:

    The banks don’t create the credit to serve the Interest.
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    But this is a false assumption because banks do indeed create the money to pay interest back to the banks when they spend for ordinary business expenses and pay dividends.

    Haven’t you learned in your study of logic that if you start from false premises you will end with unreliable conclusions, that whatever your conclusions might be, they have not been derived through the rules of logic. The best you will have done is arrived at your conclusions from false premises.

    And you’re the guy who talks about “mumbo jumbo.”

    You’ve got to work into your formula the money that the banks spend into circulation, otherwise it’s meaningless and doesn’t prove anything.

    The fact that I point this out to you does not mean I am in a “conspiracy” against you, my naive and paranoid little fellow.

    Brock

    Reply
15. 

    moneycreation, on January 22, 2009 at 6:42 pm said:

    Show it in the form of a balance sheet. where M+M*I is on the asset side after 1 year and the increasement M*I=divendends don´t show on the other side of the balance sheet as a liability . Hence the increasement in loan has given rise to the divedent=new credit. How do you balance the M*I increasement otherwise or do you suggest that Interest don’t lead to more debt hence more loans?

    Playing around with words not being able to show it mathematicaly will only show that you are a troll.

    Reply
16. 

    Alex, on January 22, 2009 at 7:06 pm said:

    I’m still trying to figure out where this extra money to pay interest Brock talks about comes from. When and where are the banks creating this money to pay interest? I don’t get that. I can possibly see how bank spending can mute or temporarily halt the debt virus, but I still don’t understand where this extra money is coming from. This money would have to be interest-free. When the Fed monetizes government debt, it basically creates near interest-free money. But that money just theoretically ends up as bank reserves. Unless reserve money is being used in the economy somehow to pay interest??? Tell me exactly where this money comes from.

    Reply
17. 

    John Williams, on January 22, 2009 at 7:13 pm said:

    —Indeed, all that is required is macroeconomic accounting adjustment.—

    A macroeconomic accounting adjustment or a national dividend is not an accounting correction it is a macroeconomic correction figured out with accounting. To fix problems with the calender a day is added etc they do not try to change the speed of the earth. Social credit and the A+B theorem are good and the national dividend could be a solution but they are not correcting accounting they are correcting underconsumption brought about by the effects of monetary policy. The problem is that interest is not used for consumption but is instead used for investment increasing production costs while lowering money available for consumption.

    —Okay, the borrower is “selling” to the bank that he is a good risk for the loan by pledging his land as collateral. Except the Pennsylvania land bank as described by Adam Smith could lend on the security at TWICE its value. In that case the land would be worth only HALF the value of the land that secures the loan. Let me repeat, goods are monetized only by selling their ownership to someone else for money.—

    This is not true since most land then was equivalent to a factory that produced farm goods. A succesful factory today would not sell for the woth of its assets if it was producing goods worth a decent percentage of those assets. The worth of the farms was worth more than the land alone it also had a productive value and this is why the loan was more. Today that is not the case and so todays property cannot be compared to the property used as collateral then. Goods may be monetized by selling them to someone else but you already said “the borrower is “selling” to the bank that he is a good risk for the loan by pledging his land as collateral”. Is this not a sale? It is a sale based on the price goods sell for using an assesment. It is a monetization of assets through a bank and without it very few houses or anything would be sold. Benjamin Franklin definitely considered it monetizing assets because he referred to it as “Coined Land”.

    —But the same money would be spent by whoever owns the bank. Only the profit from the bank could be spent toward ordinary government expenditure. The rest of the interest received would go to paying the costs of supplying the bank’s services, the salaries and wages of the bank’s employees, and so on. Even in Pennsylvania, profit was the smallest component of interest received.—

    Whoever owned the bank would get wages out of the interest and the rest would go to government. The amount must have been decent because taxes were replaced by the revenue from interest. The lack of moderation of other states most likely involved creating more tax money than interest owed on loans or some other inability to follow the policies set forth by Franklin in his essay causing inflation. The amount of taxes saved might seem small but there has been tremendous inflation since then and on a per-capita basis there is no reason to believe a similar system today would be any different. People would gain the value of the interest through government services etc instead of it being invested into ventures that require more money for consumers to acquire.

    —Again, you haven’t provided one. Please tell us how the current Zimbabwean inflation is caused by debt virus. The rate of inflation in Zimbabwe is at several million percent. It is the highest rate of inflation the world has ever seen. I think I know what the cause of the Zimbabwean inflation is. Do you?—

    Inflation in Zimbabwe is number 2 of 3 types of inflation I listed above it has nothing to do with anything like the “debt virus”. Not all inflation is caused by “debt virus” like problems as I said before. It is caused by an expectation that the value of money will quickly decrease causing higher velocity and demand for goods that it is believed are a store of wealth such as property gold other currencies etc or needed goods are quickly bought. Unrestrained Government monetary policy would cause this problem if money was in no way coupled to goods creating a reinforcing cycle as the devaluation becomes expected. If the Zimbabwe government could regain the trust of the people then implement and strictly follow the policies of Benjamin Franklin there would be no inflation and prosperity would increase drastically. The Government there is most likely much to corrupt to regain the trust of the people or to follow strict policies regarding money which should include complete transparency to the public.

    —I’m talking merely about your sentence structure. You have a difficulty in expressing your ideas in the English language.—

    As far as the interest earned by employees talked about above you did not understand then I wrote it again in almost exactly the same form then you understood and said I was mistaken and that loans create deposits. Then I wrote the common understanding of fractional reserve starting with Central Bank money deposit then you said that is wrong then completely drop the entire subject since it is not convenient to your understanding. I believe you are not understanding simple ideas because they are not convenient to your understanding. The sentences you quoted above are very simple.

    Reply
18. 

    Brock Moore, on January 22, 2009 at 10:13 pm said:

    Show it in the form of a balance sheet.
    ——————————————————–
    ———————————————————

    You’re the guy who wants to play around with algebraic formulation. It is incumbent on you to include the money that the banks spend into circulation in your formula, or it’s irrelevant, ipso facto, to how the real world works.

    Brock

    Reply
19. 

    moneycreation, on January 22, 2009 at 10:42 pm said:

    The banks creates credit. If the M*I equals the amount you say the banks spend into circulation it’s credt, something I also showed with the balance sheet.

    It’s up to you to show that they balance their balance sheets in another way or point whats wrong in my description. Or are yor dividents of the balance sheet?

    Reply
20. 

    Brock Moore, on January 22, 2009 at 10:45 pm said:

    A macroeconomic accounting adjustment or a national dividend is not an accounting correction…
    ——————————————————–
    ———————————————————

    It is an accounting adjustment because accounting is reporting a falling rate of profit whereas the real rate of profit is increasing. This is sending a false message to the entrepreneur and his financier, who cut back on production in the face of falling demand. But real demand and productive capacity are increasing. It goes to waste and is scrapped. With the National Dividend and Retail Discount, because they sustain the rate of profit, more productive capacity is utilized, and consumption increases.
    –

    The problem is that interest is not used for consumption but is instead used for investment increasing production costs while lowering money available for consumption.
    ——————————————————–
    ———————————————————

    Why should interest income that is invested behave any differently than income from any source that is invested? Look, any income that is invested rather than spent on consumption has the potential to cause a shortage of purchasing power. Spending and investing are going on all the time. They are simultaneous components of a continuous dynamic process. But only if the rate of spending from income is falling in respect to income does this potentially cause a shortage of purchasing power in respect to prices. Your income is your income; you have the right to do with it what you want, because it is yours, even bury it in jars in your backyard, if that’s what you want. The Gesellist solution picked up by Keynes is to crack the whip and motivate you to spend your money faster. The rational solution is to accommodate your behavior through the National Dividend and the Retail Discount, so the rate of profit is sustained while you are saving or investing. This can be reversed if you begin to increase your spending from your savings or decreased investment.

    Brock

    Reply
21. 

    Brock Moore, on January 22, 2009 at 10:53 pm said:

    The banks create credit.
    ————————————————
    ————————————————-

    Yes, they create credit when they extend loans, and also when they spend money into circulation to pay their bills and dividends. The money that they lend is debt to the banks, plus interest. The money they spend is in offset to that debt. It becomes available to pay interest back to the banks. The principal is there when they lend; the interest is there when they spend.

    Brock

    Reply
22. 

    moneycreation, on January 23, 2009 at 12:07 pm said:

    Hence the dividends are derived from the Interest of the loans. In other words they are credits derived from the interest on the loans. On the balance sheet the new loans due to interest is balanced with banks issuing the dividends more accurately credits. So my previous post is valid.

    Reply
23. 

    Alex, on January 25, 2009 at 2:12 pm said:

    There is missing interest money! Where does it come from? Yes, when banks are paid interest money they can spend it back into the economy. So what? Where did the interest money come from to pay the first wave of interest if it didn’t come from someone else’s principle? If the country had a nice size trade surplus, it could extract interest money from other countries. But trade surpluses in the U.S. ended in the 60s (then the gold window was closed; gold is interest-free money and demands a trade surplus). Defaults on unsecured loans can put interest-free money into the system; that money can be used to pay interest like a game of musical chairs. Progressively lower interest rates can put money into the system that, while not interest-free, carries less interest. But that game ends at zero percent interest, which is the required interest rate for money used to pay interest in the first place. Unless there is someone somewhere putting adequate interest-free money into the system to pay interest, there is still a debt virus, albeit perhaps less extreme. Show me the interest-free money! The fact is, that missing interest money creates pressure to ever-increase the debt (money) supply. There is a constant, system-wide struggle to extract money to pay interest from other people’s principle. That causes people with pricing power to drive up prices. For people without pricing power it holds down pay, leads to more debt and leads to bankruptcies. Unless, adequate interest-free money is in the system, the system sucks and it is doomed.

    Reply
24. 

    Dan, on January 25, 2009 at 4:45 pm said:

    Alex said: “Show me the interest-free money! ”

    Ok, just about all the cash pumped into the system by the Fed this past few months has been interest-free! whether via open market transactions, or the 0% over the counter discount rate. Much of it is actually negative-interest (after adjustment for inflation), that is the Fed will owe money to the banks after they borrow.

    Reply
25. 

    Alex, on January 25, 2009 at 6:08 pm said:

    Right, now that the system’s tapped-out, zero interest money is attempting to come in and fix the resulting mess. But the system needed interest-free money to pay interest from the beginning; that would have prevented the whole mess from ever growing into what it grew into. So, the recent stuff doesn’t count.

    Reply
26. Bankruptcy Is Worth Considering | What Assets Are Taken In Bankruptcy, on January 30, 2009 at 2:29 am said:

    […] HOW TO RESOLVE THE CREDIT CRISIS They can’t be discharged through bankruptcy and you can’t walk away from them as from […]

    Reply
27. 

    AnnT, on February 7, 2009 at 7:12 am said:

    Ellen,

    Great book. I want everyone in Congress, as well as the President, to read it! I almost feel like mailing each one of them a copy.

    What countries, if any, presently have “public” banks?

    A big fan,
    AnnT

    Reply
    • 

      Ellen Brown, on February 7, 2009 at 7:43 pm said:

      Thanks Ann! I was just in Malaysia. Their central bank is government-owned. In fact, they had trouble believing it when I said our “Federal” Reserve isn’t federal. Malaysia managed to retain their public central banking system and to avoid the 1998 Asian crisis by standing up to the IMF and international banking pressures, but most countries in that region did not. China of course still has a publicly-owned central bank.

      Reply
28. 

    Jeff, on February 9, 2009 at 2:51 pm said:

    I think Gold is what ensures fraud is not happening. The introduction of paper money is a ‘tickler event’ that says something is wrong.

    http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=49851184

    Reply
29. 

    Shakuur, on February 15, 2009 at 3:27 am said:

    First, let me say that banks are not in control! Stop for a moment and think, how do banks make money? They make money by using your money to lend and leveraging it thirty times.

    Banks pay you a return far below the rate that they lend your money out at. What happens if people demand their money out of the bank. If your money is in a CD and you try to take your money out early you are charged a fee. Ask yourself, why should I be charged a fee at anytime to get my own money.

    Banks know that the mass population are like sheep and don’t ask questions. The more you complain and make your voice heard by moving you money to banks that are consumer friendly, the more banks will conform to who is really in control, YOU!!!

    Reply
30. 

    Dean's Credit Ideas Guide, on August 12, 2009 at 12:38 am said:

    Your article was a good read, but these comments have been even better…

    Reply

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