[GJM] Robert Ashford, and Larry Gell........and P.E.and H. on Binary Economics!!
E. Crockett
echojurist at yahoo.com
Fri Jan 4 08:55:19 MST 2008
--- "E. Crockett" <echojurist at yahoo.com> wrote:
>
> --- robert searle <dharao4 at yahoo.co.uk> wrote:
>
> >
> > Dear All,
> >
> > Two interesting items from You Tube on Binary
> > Economics. The first link goes to another Channer
> > interview with Robert Ashford, and Larry Gell. The
> > second link is provided as kind of unusual
> > "amusement"
> > if such it can be called!!!
> >
> > >
> > >
> > >
> > >
> >
>
http://www.youtube.com/watch?v=UkAnC_Hrl_8&feature=related
> > >
> > >
> > > http://www.youtube.com/watch?v=CrpAXASVuC4
> > >
> > >
> > >
> > >Robert Searle
> >
>
__________________________________________________________
> > > Sent from Yahoo! Mail - a smarter inbox
> > > http://uk.mail.yahoo.com
> > >
> >
> >
> >
> >
> >
> >
>
__________________________________________________________
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> > http://uk.mail.yahoo.com
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> >
> > _______________________________________________
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> > Discussion at globaljusticemovement.net
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http://globaljusticemovement.net/mailman/listinfo/discussion_globaljusticemovement.net
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---------------------------------
CAN THE FED FIGHT AN EFFECTIVE WAR ON POVERTY?
Kelso’s most radical proposition, however, was that
the public’s power of money creation be harnessed to
the task of democratizing ownership. Without
disturbing monetary policy’s usual functions, the
central bank could force-feed the development of
universal ownership by providing low-interest credit
directly to these citizen trusts -- buying their loans
at discount as the preferred method for increasing
the money supply, rather than buying government
bonds as the Federal Reserve does now.
Every year, as it enlarges the nation’s money supply
to meet the needs of commerce in an expanding
economy, the Federal Reserve creates $30 billion to
$40 billion in new money -- literally “free money”
that is created out of nothing more tangible than
the public’s shared faith in the currency and the
economic system. This new money is now distributed
through the private banking system, lent out by
commercial banks to people and businesses at market
interest rates and for private gain. If the newly
created money was instead lent directly to
citizen-ownership trusts, it would provide very cheap
capital for a large public purpose. Economists who
have grudgingly accepted Kelso’s other ideas still
choke on that proposition, though it is the core of
his vision for achieving a synthesis of democracy
and capitalism.
William Greider, One World, Ready or Not, p. 422
Imagine a rural community in the late 1800s made up
of fifteen farming families. Between the fruits of
their individual farms and the cooperative “barn
raising” activities of all, each family finds its
subsistence needs are met. As free and equal
individuals, the adults of the community (at least
those who care to) meet from time to time to establish
mutually beneficial rules to govern their
interactions.
One day, one of the farmers gets a bright idea. His
farm is so large, it will support many more people
than the number in his family. He invites a group
of immigrants to become laborers on his farm.
Eventually, he is able to dedicate his time to other
creative activities while his subsistence is
provided by the work of the laborers. He uses the
surplus of their labor to purchase the unused land
of the other farmers and invites more immigrants to
come and work on his growing farm. Finally, a
three-tiered system evolves. One farmer owns 50% of
the land, the other 14 own the other 50% which is
enough to maintain their standard of living. The
population of laborers has grown by this time to 85
families.
Our large landowner pays a fair wage and sells his
surplus back to the laborers, to his neighbors and
exports some outside the community. Over time, the
landowner invests in capital intensive power farming
equipment which allows him to increase his production
while cutting his workforce in half (which also
allows him pay less as the workers compete for the
opportunity to work). At first he is very pleased
because his labor costs have been cut greatly, but
after a while he finds that he is unable to sell his
production, because 43% of the population has no
source of income.
The government announces a national Homestead Act
and opens up new lands for those landless people who
want to become productive farmers. Everybody
benefits. The unemployed now become self-sufficient
and even have a little surplus which they can use to
purchase the production of our large landowner.
Government economists begin worrying about the
future. There is no more land to distribute. Some
fear that leftists will rise to power by promising
to nationalize the large landowner’s land. Others
fear that the liberals will get elected with the
promise to build a welfare state to take care of the
disenfranchised. Kelso proposes a third solution
which will neither expropriate the wealth of the rich,
nor build a class of disenfranchised dependent on
the state. Kelso proposes to give everyone the
opportunity to become owners of the new growth in
productive assets, so that as production grows, the
income will be spread among a broad base of consumers
-- so demand will grow along with supply and no one
will become dependent on the welfare state.
The Kelsonian School of Political and Economic
Thought
A school of political and economic thought distinct
from both those of Adam Smith and Karl Marx accept the
following assumptions:
Assumption 1: Democracy, defined as a system where
individuals of relative equal power freely choose to
mutually govern themselves through elected
representatives, is good.
Assumption 2: Political freedom rests on the
economic independence of individuals.
Assumption 3: Economic independence comes from
ownership of capital, defined as productive assets,
which generate enough income for the owner to
subsist.
Assumption 4: Capital has displaced labor as the
primary source of production. Income from labor
cannot produce sufficient demand for the supply of
which capital is capable of producing. Only by
avoiding the concentration of capital, can a broad
enough distribution of income from capital exist to
create increasing demand to match increasing supply.
Assumption 5: The accumulation of capital sufficient
to create economic independence cannot occur through
savings alone; rather it requires access to capital
credit.
Based on these assumptions, the argument is made
that in order to preserve democracy, the state should
provide access to capital credit for those citizens
who lack a sufficient accumulation of capital to
maintain their economic independence. Economist
Louis Kelso proposed using the money-creation
capacity of the Federal Reserve as the source of the
necessary credit.
This paper will explain why capital credit is the
most effective tool for capital accumulation, describe
the citizen stock ownership trust proposed by Kelso
as the mechanism for channeling credit to
undercapitalized citizens, discuss the limitations
of past attempts to use tax policy to encourage
access to credit, explain how the Federal Reserve
currently uses its money-creation capacity, and
describe how Kelso would have the Fed use this
capacity. Then we will examine this proposal with
an eye towards its impact on inflation, and its
effectiveness for achieving the goal of allowing every
family to subsist on capital income.
Leverage Is the Source of Wealth
Ben Franklin said, “A penny saved is a penny earned.”
But anyone, other than entertainment and sports
superstars, who has ever gotten wealthy knows that
they did not do it by saving money. They got wealthy
by letting other people save, borrowing their
savings at the going interest rate, and investing
this in productive assets which returned a higher
rate.
For example, if I had $1 million, I could buy a
business worth $1 million. If this business generated
$300,000 the first year, I would then have $1.3
million. This would be a nice 30% return on my
investment. What if I used leverage instead? What
if I borrowed $4 million at a 10% interest rate and
bought five companies? At the end of the first year,
I would have $2.1 million [$1 million (initial
investment) + $1.5 million ($300,000 X 5 companies)
- $400,000 ($4 million X 10% interest)]. In one year
I have more than doubled my money with a 110%
return! And I gained all of this new wealth without
sacrificing any consumption or increasing the sale
of my labor. My productive assets paid for
themselves.
So why doesn’t everybody get in on this game? The
answer is that not everybody has access to capital
credit. To obtain credit, the borrower must
demonstrate the 5 “C”s: Character, Conditions,
Capacity, Collateral, and Capital. Individual
undercapitalized people are not in a very good
situation to meet these requirements. Kelso’s
solution is to create a Citizen Stock Ownership
Trust, an investment club. Like a mutual fund, each
club member has an account. The difference is that
money is put into the account, not from the account
holder’s savings, but through a loan from a commercial
lender. The CSOT is represented by a fiduciary who
acts as the investment fund manager. The CSOT
manager seeks out private companies in need of
investment. Together, they approach a commercial
lender for a loan to the CSOT which, in turn, is
used to make an investment in the company. As with
any request for a bank loan, the borrowers must
demonstrate the viability of the project. The
economic conditions must be right and the project must
have the capacity to generate sufficient cash flow
to cover the debt service. While the productive
assets purchased with the loan proceeds will serve as
collateral, the bank will require an additional
guarantee, either that the company provide some of the
funds to purchase the productive assets, or pledge
the existing capital of the company as a guarantee.
And finally, the character of the company will be
judged.
Getting Companies to Play Along
But why should a private company capable of obtaining
a commercial loan bother to go through a CSOT. We
have already demonstrated that using leverage
increases the return to the equity holder. An
entrepreneur with unlimited capital would not have
any strong financial incentive to involve a CSOT in
his or her company’s financial structure. Even with
(as described below) the possibility that the CSOT
could obtain its money at a low rate of interest,
and even though the company could deduct dividends
paid to the CSOT from taxable income, the fact that
the earnings of the company would accrue to the
CSOT’s stock would simply reduce the beneficial effect
that leverage would provide the entrepreneur (see
Exhibit 1).
On the other hand, entrepreneur’s without unlimited
capital are often in need of gap financing. Suppose
the investment needed for a company worth $15
million to complete an expansion project is $10
million (see Exhibit 2). The current owner will use
the existing assets to complete the collateral for
the expansion loan without contributing new equity,
but the projected growth in sales is not expected to
support the increased cash flow necessary to cover
the additional debt service on a 5 year 10% commercial
bank loan. Such a loan would require an annual debt
service of $2,637,975. However projected pre-tax
cash flows are only $3 million per year, and the bank
wants 1.25 coverage or $3,297,469. Furthermore, the
company needs to reinvest at least 5% of total
assets back into the company annually. The CSOT
offers to invest the needed $10,000,000 in new
equity. The company must guarantee an annual
dividend of 6% on the nominal value of the CSOT’s
investment. The original owners only see a 1.12%
increase in the return on their equity in the first
year, however the $12 million in new assets have
increased operating income by $3 million, 25% of
assets versus the previous 16.7%. Their company is
not subject to the risks of being highly leveraged
but they have modernized.
Taxpayers Cry “Foul!”
While the scenario described above would be made
possible, if Kelso had his way, through government
intervention, it would not increase government
spending nor decrease tax revenues. Taxes in the CSOT
scenario were actually $400,000 higher than if the
company had some how borrowed the money and deducted
$1 million in interest from their pre-tax earnings.
Employee Stock Ownership Plans are financed through
government tax policy. When money is borrowed
through an ESOP, both the principal and interest are
deducted from the company’s taxable income because
the loan is repaid with tax deductible contributions
to the ESOP. In the above scenario, the company paid
a $600,000 dividend in after tax dollars to the
CSOT. If this had been an ESOP, it would have cost
taxpayers $240,000. While some of us believe these
are tax dollars well spent, it leaves ESOPs
vulnerable to government deficit worriers constantly
looking to close tax loopholes. Furthermore, under
current circumstances, an ESOP would have had to
obtain credit through the same commercial bank at
10% with a 5 year term. The CSOT in our example was
using credit made available through the US Federal
Reserve.
The Fed to the Rescue
The Federal Reserve is the US Central Bank. It has
the power to create money. According to William
Greider, the Fed creates $30 billion to $40 billion
in new money every year out of thin air. This money
is added to the US money supply available to purchase
existing products and services. As Milton Friedman
teaches us, an increase in the money supply to
purchase a fixed amount of products and services will
result in inflation. Since more dollars are chasing
the same amount of output, the price of that output
naturally increases. But, as Friedman points out, if
output increases and there is not increase to the
money supply, the opposite will happen. Prices will
drop. Deflation can be just as bad as inflation
because it makes your property values drop and the
value of your outstanding home mortgage increase.
So Friedman supports the Fed’s use of its money
creating powers to increase the money supply as long
as this is benchmarked to the annual increase in
output.
How does the Fed currently use its power to increase
supply. For the past several years, the Fed has done
so by buying US Treasury financial instruments,
bonds, notes and bills. When the Treasury issues
bonds for example, it receives the savings of the
bond buyers. This is existing money which the
government proceeds to spend on existing output.
However, when the Fed buys those bonds, either from
the government directly, or from current bondholders,
it is releasing new money into the economy. By
increasing the demand for US bonds, the Fed is
actually subsidizing government borrowing because this
drives the interest rates and raises the price of
the bonds. If the Fed did not buy the government’s
financial instruments, the government would be forced
to rely solely on market rate capital markets to
finance deficit spending. Deficit spending
increases consumption (by the government) but does not
increase output.
Kelso believes a better use of the Fed’s money
creating powers would be to increase the money supply
by providing subsidized credit for the purpose of
investment in productive assets which would increase
output. The Fed would make new money available at its
cost of producing it, say, 0.5% to commercial
banks. The banks would continue to originate loans,
bare the risk of default, and service the repayment,
however the Fed would provide the funds. The banks
would continue to tack on their 2% spread to cover
costs and generate a profit, and where additional
risk were involved they would add the additional
percentage needed for default insurance.
Of course this public subsidy would be for a public
purpose -- broadening the ownership of capital to
undercapitalized citizens. The banks would lend the
money to Citizen Stock Ownership Trusts managed by
professional investment managers. These CSOTs would
have to invest these funds in productive assets for
projects which stood up to normal conservative
bankers’ scrutiny. The productive assets being
purchased would serve as collateral, and the balance
would be guaranteed by the company receiving the
investment. The terms of the loans could be as long
as necessary to make CSOT investment attractive.
For example, in Exhibit 2 above, the CSOT had a 22
year, 2.5% interest loan. Its annual payments were
$596,466. This was paid with the proceeds from the
annual dividends.
In a project where the CSOT purchased 100% of the
stock, for example an employee-CSOT buying its own
company, the dividend payments could be increase to
support a shorter term loan. In the case of Exhibit
2, $1,904,000 was available for debt service. This
would allow the term to be reduced to 5.7 years.
What could the Fed achieve in the effort to increase
the wealth of our country’s undercapitalized. Let’s
make the following assumptions. The starting point
for annual output is $2 trillion. This will grow at
a real rate of 2%. Let’s assume zero inflation since
the Fed will increase the money supply only by the
growth in output plus the annual CSOT principal
repayments. Why do we add these in to the equation?
The Fed only lent enough money to the CSOTs to match
the growth in the money supply required by growth in
output. However when the CSOT repays the loan, this
money is removed from the money supply without a
corresponding decrease in output. So it can be
recycled back in. As time goes on, the amount of
money being recycled through this revolving loan
fund will actually exceed the amount of new money
issued to keep up with growth in output. Let’s fix
the term at 10 years, somewhere between the 5.7 and
22 years in our two examples. Furthermore, as the new
capital accumulated, it would generate an additional
return for its owners -- let’s estimate this at
15%. Exhibit 3 illustrates that in 20 years,
undercapitalized US families will have accumulated a
collective $6.382 trillion. Assuming a population
of 300 million and an average family size of 4, we
have 75 million families. Since we earlier pointed
out that 85% [1] of the population only owns 5% of
the wealth, let’s allow those 63.75 million families
to participate in CSOTs. These families will have
accumulated $100,110 providing them with an annual
capital income of $10,000 to supplement their wage
income.
And It Gets Better
Kelso predicts, furthermore, that with the increase
in income available to a broader population, rising
consumer demand can support a growing real growth
rate in output. Exhibit 4 assumes that the growth
rate increases by 0.5% each year. With these new
figures, the average undercapitalized family will
have accumulated $279,772 generating an annual capital
income of $28,000. If each citizen were allowed a
tax free capital accumulation threshold, future
generations would not have to begin at zero. Just
like the family farm, the family capital would be
passed on from generation to generation.
It is unlikely that the Fed will ever be used to
eliminate poverty in the US. First of all, as the
fourth branch of US government, the Fed is
relatively independent of political pressures. It
would be hesitant to give up the current lever which
it uses to regulate the money supply. Money supply
is not only affected by growth in output, but also by
the habits of US citizens to hold money. Friedman
estimates that national money holdings in the US are
close to 9 months of national income. This money is
effectively kept out of circulation. If people
began spending more and reducing this figure to 8
months for example, an inflationary increase in the
money supply could emerge. The Fed would want to
reduce the money supply rather than increase it.
When the vehicle is US government financial
instruments, this is a relatively easy task. There
is a liquid market for Treasury instruments and the
Fed could soak up excess money by selling off part
of its supply of such instruments. However, if the
Fed were to deplete its supply of Treasury
instruments, and replace these with CSOT loans at
2.5%, it would have a difficult time finding buyers,
and its ability to regulate the money supply would be
curtailed. On the other hand, it could sell CSOT
loans at a discount from face value in order to
stimulate a market for them.
Bibliography
Arshadi, Nasser, and Gordon Karels, “The Federal
Reserve System,” in Modern financial intermediaries
and markets, Upper Saddle River, NJ: Prentice Hall,
1997.
Bailey, Norman, “Fed should share the wealth,” in
Journal of Commerce, May 5, 1989.
Beckner, Steven, Back from the brink: The Greenspan
years, New York: John Wiley & Sons, Inc., 1996.
Conte, Michael, and Rama Jampani, “Are ESOPs as good
as other pension plans?”, in Owners at Work, v. VIII,
n. 1, Summer 1996, pp. 4-7.
Deninger, Klaus, and Lyn Squire, “Economic growth
and income inequality: Reexamining the links,” in
Finance & Development, v. 34 I. 1, March 1997, pp.
38-41.
Friedman, Milton, Money mischief: Episodes in
monetary history, New York: Harcourt Brace Jovanovich,
Publishers, 1992.
Greider, William, “A radical idea as old as Lincoln,”
C1, Washington Post, March 11, 1979.
Greider, William, One world, ready or not: The manic
logic of global capitalism, New York: Simon and
Schuster, 1997.
Greider, William, Secrets of the temple: How the
Federal Reserve runs the country, New York: Simon and
Schuster, 1987.
Kardas, Peter, Jim Keogh and Adria Scharf, “Wealth
and income consequences of employee ownership: A
comparative analysis,” Washington State Department
of Community, Trade and Economic Development, 1997.
Kelso, Louis, and Mortimer Adler, The capitalist
manifesto, New York: Random House, 1958.
Kurland, Norman, The Federal Reserve discount
window: An untapped off-federal budget source of
expanded bank credit for accelerating private sector
growth, new ESOPs and genuine economic empowerment for
all, Washington, DC: Center for Economic and Social
Justice, 1995.
Kurland, Norman, “Prices and money: Rapid growth
without inflation under Kelso plan for expanded
ownership,” Washington, DC: Center for Economic and
Social Justice, unpublished paper, 1994.
Merrick, Bill, “Income disparity - Part 1,” in
Credit Union Magazine, v. 63, I. 4, April 1997, pp.
38-40.
Solomon, Steve, The confidence game: How unelected
central bankers are governing the changed world
economy, New York: Simon and Schuster, 1995.
Vijverberg, Chu-Ping, “Macroeconomic conditions,
class mobility, and inequality,” in Journal of
Macroeconomics, v. 18, I. 2, Spring 1996, pp.
315-340.
EXHIBITS
1. CSOT Equity Reduces Opportunity to Increase
Return from Leverage
2. Proposed Expansion Project
3. Families Accumulate $110,000 Capital
4. Families Accumulate $279,772 Capital
EXHIBIT 1: CSOT Equity Reduces Opportunity to
Increase Return from Leverage
NO CSOT
Year 1
Year 2
Year 3
Year 4
Year 5
Working Capital Liabilities @ 0%
$6,000,000
$6,300,000
$6,615,000
$6,945,750
$7,293,037
Debt @ 9%
$6,500,000
$6,500,000
$6,500,000
$6,500,000
$6,500,000
Equity
$6,500,000
$6,500,000
$6,500,000
$6,500,000
$6,500,000
Retained Earnings
$0
$950,000
$1,962,500
$3,041,375
$4,190,731
Total Liabilities & Equity
$19,000,000
$20,250,000
$21,577,500
$22,987,125
$24,483,769
Operating Income
$2,600,000
$2,730,000
$2,866,500
$3,009,825
$3,160,316
Interest @ 9%
$585,000
$585,000
$585,000
$585,000
$585,000
Earnings Before Income Tax
$2,015,000
$2,145,000
$2,281,500
$2,424,825
$2,575,316
Tax
$806,000
$858,000
$912,600
$969,930
$1,030,126
Profit After Tax
$1,209,000
$1,287,000
$1,368,900
$1,454,895
$1,545,190
Dividend
$259,000
$274,500
$290,025
$305,539
$321,001
Accumulated Dividends
$259,000
$559,400
$905,365
$1,301,440
$1,752,586
Earnings on Dividends @ 10%
$0
$25,900
$55,940
$90,536
$130,144
Return on Equity
18.60%
20.20%
21.92%
23.78%
25.77%
EXHIBIT 1: CSOT Equity Reduces Opportunity to
Increase Return from Leverage (Continued)
WITH CSOT
Year 1
Year 2
Year 3
Year 4
Year 5
Working Capital Liabilities @ 0%
$6,000,000
$6,300,000
$6,615,000
$6,945,750
$7,293,037
CSOT Equity
$6,500,000
$6,500,000
$6,500,000
$6,500,000
$6,500,000
Equity
$6,500,000
$6,500,000
$6,500,000
$6,500,000
$6,500,000
Retained Earnings
$0
$950,000
$1,962,500
$3,041,375
$4,190,731
Total Liabilities & Equity
$19,000,000
$20,250,000
$21,577,500
$22,987,125
$24,483,769
Operating Income
$2,600,000
$2,730,000
$2,866,500
$3,009,825
$3,160,316
Interest
$0
$0
$0
$0
$0
Earnings Before Income Tax
$2,600,000
$2,730,000
$2,866,500
$3,009,825
$3,160,316
Tax
$1,040,000
$1,092,000
$1,146,600
$1,203,930
$1,264,126
Profit After Tax
$1,560,000
$1,638,000
$1,719,900
$1,805,895
$1,896,190
Dividend
$305,000
$312,750
$320,512
$328,269
$336,001
Accumulated Dividends
$305,000
$648,250
$1,033,588
$1,465,216
$1,947,738
Earnings on Dividends @ 10%
$0
$30,500
$64,825
$103,359
$146,522
Return on Equity
12.00%
13.07%
14.23%
15.48%
16.84%
Dividend on CSOT
$305,000
$312,750
$320,512
$328,269
$336,001
EXHIBIT 2: Proposed Expansion Project
NO CSOT
No Change
Expansion
WITH CSOT
Year 1
Working Capital Liabilities @ 0%
$5,000,000
$7,000,000
Working Capital Liabilities @ 0%
$7,000,000
Line of Credit @ 12%
$10,000,000
$10,000,000
Line of Credit @ 12%
$10,000,000
Expansion Debt @ 10%, 5 Years
$0
$10,000,000
CSOT Equity
$10,000,000
Equity
$15,000,000
$15,000,000
Equity
$15,000,000
Retained Earnings
$0
$0
Retained Earnings
$0
Total Liabilities & Equity
$30,000,000
$42,000,000
Total Liabilities & Equity
$42,000,000
Operating Income
$8,000,000
Operating Income
$5,000,000
$8,000,000
Interest @ 12%
$1,200,000
Interest @ 12%
$1,200,000
$1,200,000
Earnings Before Income Tax
$6,800,000
Interest @ 10%
$0
$1,000,000
Tax
$2,720,000
Earnings Before Income Tax
$3,800,000
$5,800,000
Profit After Tax
$4,080,000
Tax
$1,520,000
$2,320,000
Reinvestment @ 5% of Assets
$2,100,000
Profit After Tax
$2,280,000
$3,480,000
Dividend to CSOT
$600,000
Reinvestment @ 5% of Assets
$1,500,000
$2,100,000
Dividend to Other Shareholders
$900,000
Cash Available for Debt Service
$780,000
$2,380,000
Retained Earnings
$2,580,000
Bank’s 1.25 Coverage Ratio
NA
$1,904,000
Total Earnings forOther Owners
$2,448,000
Return on Equity
15.20%
23.20%
Return on Equity
16.32%
EXHIBIT 3: Families Accumulate $100,110 Capital
Year
1
2
3
4
5
6
7
8
9
10
Growth Rate
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
Annual GNP (billions)
2040.00
2080.80
2122.42
2164.86
2208.16
2252.32
2297.37
2343.32
2390.19
2437.99
Increase to Money Supply
40.00
40.80
41.62
42.45
43.30
44.16
45.05
45.95
46.87
47.80
Pure Credit
40.00
44.80
49.70
54.69
59.78
64.98
70.28
75.68
81.20
86.82
Repayments
0.00
(4.00)
(8.08)
(12.24)
(16.49)
(20.82)
(25.23)
(29.74)
(34.33)
(39.02)
Accumulated Pure Credit
40.00
80.80
122.42
164.86
208.16
252.32
297.37
343.32
390.19
437.99
Accumulated New Capital
40.00
89.80
150.95
225.22
314..66
421.64
548.85
699.43
876.96
1085.57
Growth @ 15%
6.00
13.47
22.64
33.78
47.20
63.25
82.33
104.91
131.54
Less Interest @ 2.5%
(1.00)
(2.02)
(3.06)
(4.12)
(5.20)
(6.31)
(7.43)
(8.58)
(9.75)
Year
11
12
13
14
15
16
17
18
19
20
Growth Rate
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
Annual GNP (billions)
2486.75
2536.48
2587.21
2638.96
2691.74
2745.57
2800.48
2856.49
2913.62
2971.89
971.89
Increase to Annual GNP
Increase to Money Supply
48.76
49.73
50.73
51.74
52.78
53.83
54.91
56.01
57.13
58.27
971.89
Increase to Money Supply
Pure Credit
92.56
98.41
104.38
110.47
116.67
123.01
129.47
136.06
142.78
149.63
1831.37
Pure Credit Made Available
Repayments
(43.80)
(48.67)
(53.65)
(58.72)
(63.90)
(69.17)
(74.56)
(80.05)
(85.65)
(91.36)
Accumulated Pure Credit
486.75
536.48
587.21
638.96
691.74
745.57
800.48
856.49
913.62
971.89
971.89
Outstanding Pure Credit
Accumulated New Capital
1330.02
1615.76
1949.09
2337.24
2788.53
3312.52
3920.23
4624.31
5439.32
6382.02
$100,110
Capital Per Family
Growth @ 15%
162.84
199.50
242.36
292.36
350.59
418.28
496.88
588.03
693.65
815.90
$10,011
Annual Capital Income @ 10%
Less Interest @ 2.5%
(10.95)
(12.17)
(13.41)
(14.68)
(15.97)
(17.29)
(18.64)
(20.01)
(21.41)
(22.84)
Assumptions: Growth rate based on historical
performance remains 2% consistently
Base GNP equals $2 trillion
Increase in money supply equals increase in GNP
Increase in pure credit equals increase in money
supply plus repayments on past credit
Repayments of principal are in equal amounts over ten
years
Acquired productive assets grow in value at an annual
rate of 15%
Interest rate on the pure credit equals 2.5%
EXHIBIT 4: Families Accumulate $279,772 Capital
Year
1
2
3
4
5
6
7
8
9
10
Growth Rate
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
Annual GNP (billions)
2040.00
2091.00
2153.73
2229.11
2318.27
2422.60
2543.73
2683.63
2844.65
3029.55
Increase to Money Supply
40.00
51.00
62.73
75.38
89.16
104.32
121.13
139.90
161.02
184.90
Pure Credit
40.00
55.00
71.83
90.75
112.08
136.15
163.39
194.28
229.38
269.37
Repayments
0.00
(4.00)
(9.10)
(15.37)
(22.91)
(31.83)
(42.26)
(54.37)
(68.36)
(84.47)
Accumulated Pure Credit
40.00
91.00
153.73
229.11
318.27
422.60
543.73
683.63
844.65
1029.55
Accumulated New Capital
40.00
100.00
184.56
299.15
450.37
646.12
895.86
1210.92
1604.85
2093.83
Growth @ 15%
6.00
15.00
27.68
44.87
67.56
96.92
134.38
181.64
240.73
Less Interest @ 2.5%
(1.00)
(2.28)
(3.84)
(5.73)
(7.96)
(10.56)
(13.59)
(17.09)
(21.12)
Year
11
12
13
14
15
16
17
18
19
20
Growth Rate
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
Annual GNP (billions)
3241.62
3484.74
3763.52
4083.42
4450.93
4873.77
5361.14
5924.06
6575.71
7331.92
5331.92
Increase to Annual GNP
Increase to Money Supply
212.07
243.12
278.78
319.90
367.51
422.84
487.38
562.92
651.65
756.21
5331.92
Increase to Money Supply
Pure Credit
315.02
367.28
427.25
496.25
575.85
667.93
774.75
899.03
1044.05
1213.78
8143.44
Pure Credit Made Available
Repayments
(102.96)
(124.16)
(148.47)
(176.35)
(208.34)
(245.09)
(287.38)
(336.11)
(392.41)
(457.57)
Accumulated Pure Credit
1241.62
1484.74
1763.52
2083.42
2450.93
2873.77
3361.14
3924.06
4575.71
5331.92
5331.92
Outstanding Pure Credit
Accumulated New Capital
2697.19
3438.01
4343.85
5447.59
6788.49
8413.42
10378.35
12750.10
15608.57
17835.46
$279,772
Capital Per Family
Growth @ 15%
314.07
404.58
515.70
651.58
817.14
1018.27
1262.01
1556.75
1912.52
2341.29
$27,977
Annual Capit. Income @ 10%
Less Interest @ 2.5%
(25.74)
(31.04)
(37.12)
(44.09)
(52.09)
(61.27)
(71.84)
(84.03)
(98.10)
(114.39)
Assumptions: Growth rate increases by 0.5% annually
as increasing ability to consume drives the economy
Base GNP equals $2 trillion
Increase in money supply equals increase in GNP
Increase in pure credit equals increase in money
supply plus repayments on past credit
Repayments of principal are in equal amounts over ten
years
Acquired productive assets grow in value at an annual
rate of 15%
Interest rate on the pure credit equals 2.5%
---------------------------------
[1] The productive assets of the 20th century
are owned through corporate stock. Since the
wealthiest 15% of the population owns about 95% of
corporate stock, the inverse is also true -- 85%
of the population only owns 5% of corporate stock.
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