| Subject: | [socialcredit] Re: Replying to Bob Taft: The quiet coup...Simon Johnson - Atlantic Monthly | | Date: | Wednesday, April 1, 2009 06:14:40 (-0700) | | From: | william_b_ryan <william_b_ryan @.....com>
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"The bank deposits are not what gets loaned out. Regardless of the number of
loans made the depositors can always withdraw their deposits. The loans are
created when loaned out. Were these loans cancelled both sides of their balance
sheets would shrink equally. At least that's how I see it."
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No, the loans create deposits, which are liabilities of the banks. To balance
these liabilities, the banks have the promissory notes of the borrowers. If the
promissory notes were canceled, the liabilities would remain. The only way the
banks would not lose would be if the deposits, which are liabilities, were also
canceled commensurately. But that would completely wreck trade and commerce. It
would also be tremendously unjust to the holders of the deposits.
In preparing this reply, I remembered C. H. Douglas' recommendations in New
Zealand. They were presented in his address in Auckland, which is archived at
http://www.geocities.com/new_economics/douglas-auckland-1934
Douglas presumed that the banks and insurance companies had large hidden assets,
so that their net worth was understated. He proposed that the hidden assets be
"monetized," with the amount being credited to the benefit of the public.
This amounts to a debt cancellation of sorts, with the increasing liabilities of
the banks balanced by the newfound value in the revealed hidden assets. So, from
an accounting perspective, after the adjustments, the books would still balance.
The question arises: Were there in fact large hidden assets?
We are told today that the net worth of the banks is over, not under, stated,
that they hold in their portfolios large "toxic" assets, in the form
non-performing or risky residential mortgages. When these assets are marked down
to market value, the banks are revealed to be undercapitalized in respect of
their current leverage. This induces a contraction of credit that is paralyzing
trade and commerce, which the authorities are attempting to address by pumping
large amounts of cash into the system.
So M1 has increased substantially in the past few months, whereas, within two
years of the 1929 crash, M1 decreased by a third. I think the idea is good, but
I think it would be significantly more effective to introduce the new money from
the bottom up, in the Social Credit fashion, as credits to consumers, rather than
have it trickle down from Wall Street. The rate of profit would increase
immediately, which would percolate up into the credit markets.
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