[GJM] Replying to Peter Challen (Steve Consilio)

Sun Jan 20 03:06:59 MST 2008

Steve,
Thanks for writing.
It would have been clearer if I had said that, in order to provide for interest, the banks create more and more interest-bearing principal to be lent.

Rodney Shakespeare.
  ----- Original Message ----- 
  From: Steve Consilvio 
  To: discussion at globaljusticemovement.net 
  Sent: Wednesday, January 16, 2008 7:47 PM
  Subject: Re: [GJM] Replying to Peter Challen

  Rodney wrote these comments (this is edited.)  While they were not directed at me, I thought I would chime in.

  On WednesdayJan 16, 2008, at 1:09 PM, discussion-request at globaljusticemovement.net wrote:

    1.  Where is the whopper when  I say the banking system creates money out of 

    nothing and you say exactly the same? 

  No whopper. It's true, just not limited to the banking system.

    2.  Where is the whopper when I say that the banks do not create enough 

    money for the repayment of interest? 

  Not a whopper per say, but unclear. First you suggest that they create money out of thin air, but then you state they don't create enough to cover the interest.  So now you know WHY they create more money!  There is never enough money because they are always reacting.  Like the police, they show up after the crime, except in this case it is people doing "business."  If the businesses don't have enough money, then they create more so that the status quo is maintained.  This is Ben Franklin 101, and the belief that paper money would solve the specific problem that a lack of currency creates.

    I am sure that you can explain where 

    in the process the banks create the money for the interest.

  easy. 2+2=5  If you need to repay the 5, then you use 2+2=6 with your customers instead.  If you have to repay the 6, then you use 2+2=7 with your customers instead, and so on.  Everybody is both a buyer and a seller, so they shift everything forward.  Buy low, sell high.  The bank pays interest to its depositors, so therefore it must charge interest to the borrowers.  Isn't the WHERE obvious?  It is the WHY that is strange.

    3.  Please display your expertise further in explaining your statement that, 

    when interest is repaid, it is cancelled.

  The debt is cancelled, but the interest continues to exist as a number (value) added into the economy.  The values are never subtracted as they shift , they grow progressively and geometrically eventually.  This is why more money is constantly needed, the cause and effect are both the same.  Creating money (income) out of thin air (it doesn't matter who does it) requires creating more money out of thin air to pay for it.  One man's profit is another man's expense.

    4. Please also explain how banks pay their employees etc if the interest 

    the banks receive is cancelled.

  The interest isn't cancelled, it's collected.  Huge difference.  They pay their employees with the interest they collected, which is that pay plus the amount of interest they pay to depositors.  The banks are not evil.  They are stuck in the middle, the same as everyone else.

  Think of the economy as a hole in the ground.  The more you dig, the deeper the hole gets, but also the pile of dirt gets taller, too.  People like John Stossell are always writing about how "good" capitalism is, because he looks only at what was built (the pile of dirt being roads, buildings, etc) and he refuses to look at the huge hole that people fall into.  When people fall in, the usual advice is to dig.  Then they will have a pile that they can stand on, and maybe get out of the first hole, but that just leaves a deeper hole for someone else.  And so it goes over generations.  The values keep getting bigger.  The cost of living gets higher BECAUSE we work so hard.  We gain efficiency by using bigger shovels, but that just makes the holes deeper faster too.  The piles of dirt are ALWAYS directly related to the size of the hole.  Zero interest and low profits will keep the values close (a pricing equilibrium,) high interest and high profits will create a large amount of inflation.  Nobody can outpace inflation, and the more transactions in the economy (the more shovelfuls) the greater the problem becomes.  Yet, we can't live without shoveling, either.  That is why an equilibrium is preferable to both inflation or deflation.  

  200 years ago, making a profit of 50% would have seen you tarred and feathered, today we think of that as "normal."  The same cultural change has occurred with the semantics between interest and usury.  Today usury (using other's definitions) is charging 50% interest, but 18% is "normal."  But if you go back in history, at one time 6% interest was considered "usury," and interest was 2%.  As all the values shift upward, the system becomes increasingly insane, but it has always been the same insanity.  Imperialism and the search for more gold and silver was a result of this mathematical phenomenon.  They could never have enough money in the system because the value of the goods changed too rapidly.  Now we have paper money, but the mathematical phenomenon is still the same.  Land that cost 16 beads 200 years ago costs millions per parcel today.  (Hoarding acerbates the problem, but inflation would be present even without hoarding and with a zero interest rate.  For-profit transactions are enough to imbalance the system initially.)

  It isn't the money that is the root of the problem, it is the value that we assign to goods as we "trade."  2+2=5 grows into 2+2=trillions.  Every transaction adds to the imbalance, one shovelful at a time.  The great irony of doublehink is that we call this "trade" when in fact it is not a trade at all.  One side wins and the other loses.  Buy low, sell high.  There is no even trading (which is why planes fly into the "Trade Center," too.)  The red states (farmers) and the blue states (factories) and the black states (oil) don't trade fairly with one another.  Everyone is to blame equally, and everyone is equally a victim, too.

  David Hacket Fischer's book The Great Wave documents the social effects of inflation (unrest) and pricing equilibriums (renaissance's) excellently.  Of course, he does not understand the underlying economics, but he tells the narrative wonderfully.  We are re-experiencing an old story.  I would suggest everyone taking the time to read it.

  Math has no mercy, only people do. 

  peace,
  steve consilvio
  www.behappyandfree.com

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