Hi John,
You've asked some good questions.
(John Rawson wrote:-) Joe, for a start it might be wise to sit back and
ponder if it is possible to stop banks creating credit money, and if so,
how? By what means, in detail.
(Joe replies:-) I'll reproduce for you part of what Vic wrote to me
previously, about a month ago now , since that seems to be one answer to
your question.
He wrote, "To do this would require removing that control
{over credit creation as if it were their own ~ Joe}from the
banking system (private companies) and “look for such alteration in the social
structure as would be self-protective against capture for interested
purposes”.
"It is logical to extend
this by saying that if we remove the control (i.e. the monopoly of credit
(money) creation from private banking institutions that it would be necessary
to institute another bank (viz. a People’s Bank). In this
manner the credit (money) creation would be decentralized for the benefit of
the people who should recognized as the real owners of the Real Credit against
which financial credit (money) is issued to utilise that Real Credit."
end of quote.
(John Rawson continues:-) Lending their demand deposits is, certainly to
all appearances, impossible, because they are their liabilities. To
issue money now, they must create it, and frankly, I can see no means of
stopping that. All that is possible, I believe, is some control of
the system.
(Joe replies:-) Again, let me quote from what Vic has told me
previously. He said, in response to the following questions:-
Joe: So the Banks then
are to only lend their own funds, or that which their depositors have placed
with them for the express purpose of lending, (for a share of the interest
take)? And this is the ONLY 'money' they can lend?
No more ''loans create deposits'' in the same sense that phrase is used
now?
Vic: Correct. Current account deposits would not be able to be lent
directly. the banks would have to rely on their own Capital, money they
borrowed from other institutions and whatever money was invested in the bank
in term deposits and other facilities. However, banks could like any other
financial institution in the lending game could utilise their current deposits
as a backing but they would need to be very cautious in the amount lent in
this manner. Sudden large withdrawals could make life difficult for
them.
Joe: Or do the private Banks
also have access to credit from the "People's Bank"? In other words,
do they 'borrow' directly from the "People's Bank", or the Reserve Bank,
'credit' that these institutions have 'created' and then 'on-lend', much as
any finance company might do in its relationship with private banks
now?
Vic: The People's bank would not be a lending institution to private banks.
Private banks can borrow from the Reserve bank if they wish to or have to but
that is a separate matter which can be exercised under the current
system.
Joe: If private Banks do
lend only their customer's deposits, then those customers will not have
access to that money until the loan the Bank has made is repaid? It's
'locked in' for some specific period of time? Or does the private Bank
engage in a simple type of 'fractional reserve' lending, where it lends,
say, 70% of what it's customers have placed with it, and uses the other 30%
to meet any withdrawals? So if, just for
example, $ 1,000 was
deposited, $ 700 could be lent, and $ 300 is
retained in a pool to meet any expected needs for customer
withdrawals?
Vic: Even under the fractional reserve system no depositor has ever
experienced difficulty in withdrawing their money. The whole point of
fractional reserve banking is maintaining the ability to meet all current
demands placed upon the bank. The argument we have is not that the banks lend
that which they do not have but that they create new money and lend it as
their own. I know it sounds a little difficult to understand but their is a
difference. Any financial institution in the business of lending must take
into account the amount lent the ability of the borrower to repay and
just as important the rate at which repayments are made.
The People's bank has one function. The distribution of the National
Dividend and the reimbursement for the Compensated Price Discount. the
people's Bank would not lend to private banks. In so far as the Reserve Bank
is concerned any lending by the Reserve Bank would only be at the request of
the private banks who found themselves in trouble. It would be at the
discretion of the Reserve Bank and would depend on the circumstances. However
this is speculative and nothing to do with Social Credit.
Joe: Now in a previous
reply you said that the National Accounts would be computed in
respect to what had already happened. To cover a period,
over whatever length of time it may be, that's
ended.
Vic: Correct.
Joe:That this way we would know,
at least as close as it could be possible to determine, how much 'new
credit' was necessary to distribute to consumers to allow the deficiency in
purchasing power prevalent in that period, (if any, and normally there would
be some), to be made up. This is all done 'after the fact', so to
speak. I have no problem with that. But how then can we have a
'creditary system' in regards to new loans? Which is based on the
'future', and expectation of earnings in that future, is it
not?
Vic: I assume you are referring to new loans by the banking system. I fail
to see the problem. New loans can be made by the banks in the same manner as
any other financial institution who are in the business of making
loans.
Joe: Would not any perceived
necessity for industrial expansion or further progress become exceedingly
difficult to finance? Where would the money (credit) come form?
The private Banks can't 'create it'. They can only lend their own
money, or what they've 'borrowed' from their
depositors.
Vic: Note! All new money comes into existence under the current
fractional system through the loans by private banks which at the same time
create the deposits. Under a Social Credit system all new money
would come into existence as a result of the National Credit Authority's
National Accounts. (emphasis mine~ Joe) The People's
Bank, responsible for the distribution of the new money via the National
Dividend and the reimbursement of the Compensated Price would see deposits in
banks increase to that extent. The new money would come into deposits but it
would not mean an increase in debt to the banks. Exactly the same happens now
when the government pays pensions into pensioners accounts. The only
difference is that pensions come from taxation which is money already in
existence and represented as a loan somewhere in the system. Paying the
National Dividend would present no more difficulty than the distribution of
pensions.
(I've included the following for your benefit, John. From Vic, and
with what he has written below, (in bold italics) I agree:-)
The reimbursement of the Compensated Price Discount, again, would
present no more difficulty that the collection of the current Goods and
Services tax or Valued Added Tax. there are some detractors who suggest that
the Compensated Price mechanism would be a nightmare and too difficult to
administer. These people have little understanding of how the GST works.
Retailers and end suppliers would still need to complete their monthly or
quarterly returns but instead of sending a cheque to the Taxation Department
they would receive a cheque based on the discounts given (in total). It is
simply a matter of reversing the process.+
That's one method of dealing with it, and a relatively simple one at
that. There are undoubtedly others, which may be more
advantageous. Or not.
Joe:- If they are borrowing to
'on-lend' from the "People's Bank", (or the Reserve Bank), what is the
criteria for them getting this credit? Does it automatically come
available to them as they request it? Or does some 'central' authority
decide what will be funded and what will not, even though this may be done
'indirectly'? This is the question I can never seem to get a satisfactory
answer to. At least one I can clearly understand, (which may be my
fault, for being so thick
headed!)
Vic: Forget the people's bank as a lending institution. No central
authority will decide on what will be funded in so far as private bank lending
is concerned any more than the decisions to lend by any other financial
institution at this very moment. Why should it? If people or business wish to
borrow because they do not have the capital that is the business of the
borrower and that of the lending institution who will determine if the
borrower has the capacity to repay based on current income or perhaps in the
case of a business, a projected income and cash flow." end of quoted
parts.
So that's one interpretation, and from someone who has made a long study of
Douglas and his works. If it's true that "all new money
would come into existence as a result of the National Credit Authority's
National Accounts" then that seems to lay to rest the idea
that "loans create deposits" as it exists now. But is that what Douglas
intended? Perhaps, but I'm not totally convinced. Yet.
Regards,
Joe
Regards. John R.
From: Joe Thomson <thomsonhiyu@shaw.ca>
Reply-To:
socialcredit@elistas.com
To:
socialcredit@elistas.com
Subject: [socialcredit] Question from
the Confused
Date: Tue, 05 Jun 2007 08:37:37 -0400
There seems to be some difference of opinion as
to whether, under a 'social credit' system, private banks would continue to
'create credit'.
Bill Ryan has stated recently (again) that the
theorem "loans create deposits" would continue. And under a 'Social
Credit' system private banks would still 'create credit' as they now
do.
Vic Bridger has told me privately
'off-list' prior to that that it would not. That the only "new
credits" created would be the amounts distributed through the National
Dividend and Compensated Price Discount.
Amounts which would be determined 'after the
fact', through the information derived from a proper set of 'national
accounts' recording the production and consumption that had taken place
over any chosen previous period.
That the present 'private banks' would only ,
in future under a 'Social Credit' system, lend their customer's
deposits. Or their own funds, or money they had borrowed from
elsewhere. That this would be adequate to finance any ongoing needs
for credit, since with the ND and CPD in place bank account balances would
continually grow.
Vic envisions a "People's Bank" being set
up to keep the 'national accounts' and make the necessary 'distributions' of
'debt-free' new credits to consumers. It would not 'lend' to
'producers', or anyone else.
Though Vic did not say so, other
'authentic' Social Credit literature, (not written by
Douglas himself, though), often seems to envision the 'Government'
getting its hands on 'some' of these 'new credits' directly, (not through
taxation), to fund its needs. Either entirely, or partially, depending
on the perception of the author.
Now I am certainly not qualified to say who is
correct. For I have gone back and tried to apply what Vic has told me
to what Douglas has written himself and it certainly could be
interpreted the way he has said. At least I think it
could.
Alternately, what Bill has said and developed
in his study of the subject seems to fit with Douglas, too. And in some
ways, considering things as they are, is possibly a more practical way to
look at it, and to move forward. If there is any practical way to move
forward.
What troubles me about the 'traditional'
(Vic's) appoach is something which I can't quite 'put my finger on'.
Not yet. Yet, rightly or wrongly, my
'intuition' tells me there's something missing.
What I think it is involves that
statement repeated in Social Credit writings that 'credit' is "the
belief in the beneficial outcome of some line of action", or "faith"
~ "The substance of things hoped for, the evidence of that not
seen".
Now if this is true, and I believe it is,
could we really only 'loan' what already exists, i.e. a "customer's
deposit"? And could we really only base 'financial' credit on what has
ALREADY happened? Does there not have to be that 'faith', (that
'belief' in the beneficial outcome of some line of action ~ in the
'future'), that would preclude the ONLY 'new credits' coming from the
National Dividend and Compensated Price Discount?
Or am I imagining things, and way, way off
track?
Joe
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