| Subject: | [socialcredit] Re: Relation between loans and deposits | | Date: | Sunday, May 1, 2005 04:39:51 (-0700) | | From: | William B. Ryan <w_b_ryan @.....com>
|
"Thus, decreasing deposits by Q also decreases
deposits by Q. Also in this case deposits decrease
by i, while capital increases by i."
---------------------------
----------------------------
While I don't know what you mean by "decreasing
deposits by Q also decreases deposits by Q," I think
you've inadvertently gotten something garbled, the
fallacy here is what is implied by the second
statement: "...deposits decrease by i, while capital
increases by i."
The point you are trying to make is that the money
supply is decreased by interest payments which have
to be made up by further lending, compounding the
public's debts to the banks. The point is nonsense.
Capital is effectively the banker's deposit account
which he keeps with himself. He can write checks to
himself from his capital account, or to any third
party, as anyone can from his personal transactional
account. The quantity of system deposits remains the
same, regardless.
You cannot logically differentiate the banker's
failure to spend from his income from any other
transactor's failure to spend from his income,
whatever its source. The failure creates a shortfall
against the costs of production at the point of
retail. The financial system should rationally
accommodate (not prohibit) that behavior, which it
presently does not.
A falling "propensity to consume" is exactly what we
should expect with increasing wealth. Neither the
banker's failure to spend, or the non-banker's
failure to spend, increases the imperative for other
parties to borrow (go into debt) more than the other,
in order to accommodate the costs of production.
You must also remember that not only does the banker
receive interest from the public, he pays interest to
the public. The differential is his gross profit,
against which he charges his ordinary business
expenses, like wages, timidities, etc., all of which
representing payments to the non-bank public.
Interest merely represents the transfer of deposits;
one person to another, in exchange for services
rendered, in this case, financial services.
The banker is, however, due to his encompassing
position (the Monopoly of Credit) perhaps able to
extract more than his fair share from the economic
pie for his services. But that is a matter for
regulation, as it is with any monopoly providing an
essential public service.
I know you want to use some arbitrary definition
(that excludes the banker's capital from deposits) to
contradict this, but that's the reality.
-
--- John Hermann <hermann@picknowl.com.au> wrote:
>
> Bill Ryan seems to have mislaid my previous posting
> on
> this topic and has requested a resend. Here it is
> -- JH
>
>
> Using the accounting equation L + R = D + K
> ("L"=loans,
> "R"=reserves, "D"=deposits, "K"=capital) one may
> analyze
> the following two scenarios:
>
> (a) Advance of money Q from Bank A to account in
> Bank B:
>
> Bank A:
> D1 --> D1, R1 --> R1-Q L1 -->
> L1+Q K1 --> K1
> Bank B:
> D2 --> D2+Q, R2 --> R2+Q, L2 --> L2 ,
> K2 --> K2
>
> Net: D --> D+Q, R --> R, L -->
> L+Q, K --> K
>
> Thus, increasing loans by Q also increases deposits
> by Q.
>
> (b) Loan repayment Q from account in Bank A to the
> lending
> Bank B; Let i be the interest payment:
>
> Bank A:
> D1 --> D1-Q-i, R1 --> R!-Q-i, L1 -->
> L1, K1 --> K1
> Bank B:
> D2 --> D2, R2 --> R2+Q+i, L2 -->
> L2-Q, K2 --> K2+i
>
> Net: D --> D-Q-i, R --> R, L -->
> L-Q, K --> K+i
>
> Thus, decreasing deposits by Q also decreases
> deposits
> by Q. Also in this case deposits decrease by i,
> while capital
> increases by i.
>
> Obviously net profit will be obtained from i (and
> with other
> sources of income) after all costs have been
> deducted.
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