| Subject: | [socialcredit] In Reply to Per Almgren | | Date: | Thursday, July 19, 2007 09:28:58 (-0700) | | From: | william_b_ryan <william_b_ryan @.....com>
|
Replying to Per Almgren's post of July 8.
"Can you explain, in detail, how this extra 1 is spent
into circulation without creating a corresponding
debt?"
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There is a credit for every debit, and a debit for
every credit. In the example, the banks spend 1 into
circulation in payment salaries, wages, dividends,
plus ordinary business expenses. It is available in
the community for payment of interest plus other fees
back to the banks for services rendered.
-
"If the borrowers' debt accounts are charged daily
with the daily interest part of what they are supposed
to pay in cash or from other accounts at the end of
the period..."
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The borrowers' accounts are not charged daily but only
as their individual loan contracts stipulate.
-
"...but they themselves are not entitled to use that
money at the corresponding credit accounts..."
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Perhaps I'm not following you here. They are free to
use the positive balances in their transaction
accounts, whatever they might be.
-
"...doesn't that mean that the bank is borrowing
interest-free from the credit accounts until the
borrowers actually pay their accrued interest
amounts?"
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Not interest free because there is a real cost to
supplying financial services, even to themselves. The
real cost is for salaries, wages and resources
utilized in providing the service.
-
"And what happens if the bank doesn't completely use
the interest for payment of expenses?"
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This is what I call the bankers' underconsumption
hypothesis, which I began to address in my posting
yesterday, entitled, "10 can't pay 11, RIP." Please
read it. The answer requires a dynamic perspective of
the economic process. The simple answer is that your
question is based on a false premise. In a steady
state economy entrepreneurs are always spending
exactly what they are receiving back in reflux. In an
expanding economy they are always spending more than
they are receiving back, yet are recording a profit in
their double entry accounts.
This holds true for bankers as with any classification
of entrepreneurs.
-
"But even the bank can't use money to pay with until
they actually have got them, either from inpayments
from outside or by borrowing internally from their
customers accounts."
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You simply do not understand how double entry accrual
accounting works. Look again at the flux-reflux
diagram appended below and archived at
http://www.geocities.com/new_economics/flux-reflux.gif
Please note that in an expanding economy spending
always leads its reflux. Again, this holds true for
bankers as with any classification of entrepreneurs.
It is not possible for the continuing increment of
increase in the rising flux curve to be funded by
"sales" or "saving" from income, but by the financial
sector's ability to increase fungible credit in
support of the entrepreneur. The totality of spending
is funded by what is tantamount to a revolving fund,
plus the incremental increase accommodated by credit.
Please see the "stream of increasing spending"
description in my post of July 16. Also, look at the
second diagram appended below, archived at
http://www.geocities.com/new_economics/accounting_profit.gif
--------------original message-------------
At 12:50 2007-07-06, you wrote:
> "The money for the interest is not created,
>that's my beef. Sure, the debt for the interest
>is added to the debt for the money principle
>but you can't say the interest is 'created out
>of thin air' like the chips are created out of
>thin air."
> -----------------------------------
> ------------------------------------
>
> Again, the word is spelled p_r_i_n_c_i_PAL
>when referring to the principal of loans. But
>sure it is, the money for the interest is
>most definitely created. Banking is a function
>of double entry accounting in a creditary
>economy. At the beginning of T1, 10 are lent,
>and 11 must be repaid at the beginning of T2
>in loan amortization and interest payments.
>During T1 the banks spend thereby creating 1
>into circulation for their salaries, wages,
>dividends and ordinary business expenses, so
>at the beginning of T2, 11 is in circulation.
Can you explain, in detail, how this extra 1 is spent
into circulation without creating a corresponding
debt?
> The money that the banks spend is charged,
>as a matter of accounting, against their
>accrued profit accounts.
If the borrowers debt accounts is charged daily with
the daily interest part of what they are supposed to
pay in cash or from other accounts at the end of the
period, but they themselves are not entitled to use
that money at the corresponding credit accounts,
doesn't that mean that the bank is borrowing
interest-free from the credit accounts until the
borrowers actually pay their accrued interest amounts?
;-)
And what happens if the bank doesn't completely use
the interest for payments of expenses? It may prefer
to increase its liquidity (cash money) so it stays
compatible with the increasing amounts on different
accounts. In that case the borrowers are forced to
borrow more to fill the difference, or they will
experience a society with a shrinking economy!
> This is allowable because by the rules of
>accounting profit accrues contractually even
>if not yet received in cash receipts.
But even the bank can't use money to pay with until
they actually have got them, either from inpayments
from outside or by borrowing internally from their
customers accounts. So debt is created before money
can be spent. That means that interest is hard to pay
if you don't have anybody that borrows that money in
advance.
Per Almgren
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