eListas - My Lists: socialcredit: Messages

Frankly, this is the sort of gibberish that does Social Credit no favours whatever. Note, for example, the comment about businesses borrowing .."if they do not have the capital ..." when the other day we were insisting that all new production must be financed by new credits.

Bank loans precede deposits, bank loans or purchases, under the present system, increase the money supply. I can think of ways in which the lending can be controlled, as per Martin's earlier suggestion, that when they create money, they would be deemed to have used the national credit, a system hinted at in a lengthy way by part of what Vic wrote. Or perhaps the sort of system we envisage, that they are allocated by the central bank the right to create a certain amount over a certain time. Basically the same.

But nobody has suggested a practical means of preventing them from creating money, if they are to provide anything like the services they now do. "Their own funds" or reserves currently serve to finance transfers to other banks resulting from their lending and the deposits being made with their competitors.

Let's not worry about what someone "wrote". Let it not be a religeon based on the teaching of prophets, but an exercise based on precise logic.

Regaards. John R.

From: Joe Thomson <thomsonhiyu@shaw.ca>
Reply-To: socialcredit@elistas.com
To: socialcredit@elistas.com
Subject: Re: [socialcredit] Question from the Confused
Date: Tue, 05 Jun 2007 21:51:35 -0400

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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--------------------------------------------------------------------- Some introductory materials to the discussion topic of this list are at http://www.geocities.com/socredus/compendium You're subscribed to this list with the email thomsonhiyu@shaw.ca For more information, visit http://www.eListas.com/list/socialcredit

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