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Message 1161
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| Subject: | [socialcredit] Ryan's debt virus bogey | | Date: | Sunday, May 1, 2005 20:07:05 (+0930) | | From: | John Hermann <hermann @............au>
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At 11:55 PM 30/04/2005 -0700, Bill Ryan wrote:
[Ryan] How is this not debt virus, John?
Answer: It is not debt virus for the following reasons:
1. As I understand it, the debt-virus explanation of
banking assumes that interest payments disappear
into an economic void or black hole -- never to be
seen again. It also ignores the existence and role
of the central bank. I have already mentioned on this
list (were you paying attention?) that part of a lender's
income derived from interest and other charges is
SPENT back into the transactive economy.
2. The debt virus hypothesis also seems to lead to the
conclusion that debt must grow in an unrestrained
manner in relation to the money supply. I did not say
or imply such a thing - because I believe it to be false.
What I DID say is that the growth of money is locked
into the growth of debt. That's a different statement.
There are good theoretical reasons - supported by
empirical evidence - for believing that aggregate debt
cannot grow faster than does the money supply, at
least in regard to the long-term (secular) trend. And
also for believing that the volume of aggregate "debt
to deposit-taking institutions" cannot exceed twice
the volume of broad money.
[Ryan] And how is it not the pinheaded alternative
to A+B?
Answer: It is not an alternative to A+B, and is not
directly related to A+B. I have also explained this
point to you previously. You seem to be suffering
from a (selectively?) poor memory Bill. The flaw in
the modus operandi of the financial system that I
have been discussing exacerbates the existing
A+B effects.
-- John Hermann <hermann@picknowl.com.au> wrote:
Only the loan principal is created when a deposit-
taking institution implements a new loan. Of course
the interest needed to repay the loan in full also needs
to be created, however under the present arrangement
interest must be created continuously into the future -
as an integral part of the debt-driven process of
monetary growth.
At every point in time the transactive part of the money
supply (ie, M1) is quite insufficient to pay off the
aggregate of principal and interest due on all loans,
because a significant part of the interest income
received from previous loans was not spent back into
the transactive part of the economy, but instead was
absorbed into the investment sector. A significant part
of interest income is always transformed into the
general reserves of lending institutions. This dynamic
translates to a tendency for a shortfall of money required
by the production and consumption sectors alike. And
the ongoing deficiency can only be made up for under
current arrangements by an ongoing and ever-increasing
level of borrowing by producers and consumers - that is,
an upward spiral in the growth of debt and money. The
growth of the money supply is locked into the growth of
debt. -- John H.
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