| Subject: | Re: [socialcredit] The Rabbit | | Date: | Wednesday, April 20, 2005 17:02:16 (+0930) | | From: | John Hermann <hermann @............au>
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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."
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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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