| Subject: | Re: [socialcredit] The Rabbit | | Date: | Wednesday, April 20, 2005 07:46:42 (-0700) | | From: | William B. Ryan <w_b_ryan @.....com>
|
1. "liabilities = D + K" -- capital is conventionally
regarded as an asset, not a liability.
-------------------------
--------------------------
No, certainly not "conventionally." It is
conventional to think of the firm's capital as being
a liability owed to the firms owners.
I'm more interested at the moment in resolving this
formatting problem with Elistas than discussing the
arcane details of accounting. I'll continue my
criticism of your post later. If this problem is not
resolved, the utility of the list is seriously
truncated, as it was at Topica.
:- What did you do differently between this message
and the one you sent earlier, which couldn't get
through? You apparently made some change in format.
What?
-
--- John Hermann <hermann@picknowl.com.au> wrote:
> At 04:38 AM 19/04/2005 -0700, Bill Ryan wrote:
>
> Douglas' theorem from *Social Credit* first
> published in 1924 holds as a
> statistical matter between zero and the upper limit
> which is continually shifting:
>
> "In respect of financial institutions, let deposits
> = D, loans etc. = L,
> cash in hand = C, and capital = K. Then: assets = L
> + C,
> liabilities = D + K, so that L + C = D + K.
> Differentiating with respect to
> time: dL/dt + dC/dt = dD/dt; K being fixed, dK/dt =
> 0.
> Assuming cash in hand is kept constant, dC/dt = 0.
> Therefore dL/dt = dD/dt,
> which means that loans create deposits and the
> repayment of loans cancel deposits."
> --
>
> Comments:
>
> 1. "liabilities = D + K" -- capital is
> conventionally regarded as an
> asset, not a liability.
> 2. It is not absolutely clear in this example
> why C and K are being
> held fixed.
> 3. For depository institutions, "cash in hand"
> may be more broadly
> interpreted as reserves.
> 4. The movement of interest payments has been
> completely ignored here.
>
> Using the accounting equation L + R = D + K
> ("L"=loans, "R"=reserves,
> "D"=deposits,
> "K"=capital) one may analyze two important
> scenarios:
>
> (a) Advance of money Q from Bank A to an 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
>
> The deposits and loans both decrease by Q;
> However deposits decrease by i, and capital
> increases by i.
>
> Obviously net profit will be obtained from i
> (together with other sources
> of income) after all costs have been deducted.
>
> John Hermann
> --
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