[GJM] Replying to Peter Challen -- debt-free issuance and Tower Number Seven

[Myro Ashenopolitus]

Rodney, my replies are inserted below [Reply].

Myro
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Dear Myro,

This correspondence is quite extraordinary.  I deal
here with the money-creation aspects but there are two
 post-scripts.
 
1.  By avowing that the banks create money are you 
saying they create interest-bearing (repayable) 
money;  or debt-free  (non-repayable) money?  Or both?
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[Reply]  Both.  The sum total of customer accounts are
credited both when loans are granted and when bank
checks written for ordinary business expenses plus
dividends to stockholders are deposited.
- 
 
You have stated that the banks create money to pay
their stockholders.  That can only mean that you are
saying they create debt-free, non-repayable money with
which to do it.  Stock dividends are not repayable.
 
I am not aware that this particular creation of
debt-free money is generally admitted.  Are you in
agreement with others about this, or is this your own
view (which does not necessarily mean it is wrong)?
------------------------------------------------------

[Reply] There is no controversy whatsoever over the
mechanics.  It's just that the vast majority of
economists who understand the mechanics are not
directly responding to "debt virus" adherents like
you.  They simply do not regard the "debt virus"
thesis to be worthy of serious consideration.
-
 
2. I quoted President Obasanjo on compound interest
(and, yes, did not supply the original contract).  It
is astonishing that you deny the existence of compound
interest and appear to be saying that all such
references to compound interest are lies,
fabrications, screw loose etc.  I am gob-smacked by
your evident belief that compound interest is never
involved in these international transactions.
 
May I ask -- again --  if others agree with you on
this?  Of course, being the only person to have such a
view does not invalidate it but -- goodness me! --
your independent reasoning appears to be taking you
into unusual territory.
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[Reply] Loan contracts contemplate their amortization,
which means that interest is paid when due.  Only when
interest is not paid when due does it compound to
principal, against which interest is being charged. 
Such lending contracts are in default and are not
being paid according to their terms and conditions. 
So the enormous numbers being written up become quite
meaningless, and become impossible to pay, and
inevitably become written off or down at some
point--which is exactly what happened in Nigeria,
whose debt was written down and forgiven by two thirds
before Obasanjo left office.
-
 
3.  As regards the meaning of the Arabic terms on riba
etc, I am daily on Islamic lists where they argue
endlessly about such things and, rather than get
involved with Arabic translation, historical context
and the like, I prefer to take the views of those who
are  the most balanced and sensible and, in
particular, those with whom I discuss face to face.
------------------------------------------------------

[Reply] In other words, you "prefer" to "take the
views" of those who agree with you, and close your
eyes and mind to contrary views.
-
 
4.    Here is the Humber Bridge information you asked
for.  Please do not bother asking if I have the
original contracts.

The Humber Bridge

A bridge over the river Humber (in the UK ) was
required.  The materials and expertise were available;
the finance was by the UK government which provided
interest-bearing loans; and construction was begun in
1972 at an estimated cost of £28,000,000.  Because of
price inflation, difficult ground conditions, labour
relations difficulties and adverse weather, the cost
rose to £98,000,000 but, by the time the bridge
opened to traffic in 1981, interest charges had taken
the cost up to £151,000,000.

At which point an important fact should be noted?
every year since being opened in 1981 the bridge has
made an operating profit i.e., its running costs
(basically, repair, maintenance and staff salaries)
are exceeded by the fees it receives from travellers
crossing the river Humber.  Put simply, it’s a
money-maker.

With that fact in mind, now consider what happened in
the years that followed.  In 1982, because of compound
interest, the debt was up to £164,000,000.  However,
by 1992? only ten years later? it had shot up to an
amazing £439,000,000!  Wow!!

Whereon, to stop the huge repayment burden falling on
the Humberside residents, the UK government intervened
to reduce the rates of interest, write off amounts and
give grants of £40m per year so that the debt was
effectively pegged for six years.  Further
‘re-structuring’ then took place to reduce the
debt, i.e., a large proportion of it was cancelled. 
Readers are advised not to even think of the horrific
level the debt would be at today if the government had
not ‘re-structured’ the debt by cancelling a large
part of what was due.

The story of the Humber Bridge then gets egregiously
preposterous and completely outrageous.  The original
money was lent, at interest, by the UK government,
which had borrowed the money at interest!  Thus,
today, the National Debt carries the burden and the UK
public as a whole (as opposed to the residents of
Humberside) will be eternally paying for the
never-ending interest on the Humber Bridge!
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[Reply] Let me begin by criticizing one of your last
assertions here, another really big whopper: the one
about the "original money" being lent "at interest, by
the UK government, which had borrowed the money at
interest!"  It is true that the construction money was
lent by the UK government to the bridge authority, but
as with all disbursements by the UK government, most
of it is covered by taxation, not by borrowing.  Let's
say, for the sake of discussion, I don't know what the
actual ratio was at the time, that the ratio of
government disbursements covered by taxation was
eighty percent at the time, with twenty percent being
covered by borrowing, it is only correct to assert
that twenty percent of the funds advanced to the
bridge authority for the bridge's construction was
borrowed in the first instance by the UK government,
the rest being covered by taxation.  As for that
twenty percent, the UK government pays the very lowest
interest rates on its debt, much lower than the
"market rates" charged by the UK government to the
bridge authority, during a period of high inflation
and rising interest rates.  So the UK government had
effectively purchased for itself a steady stream of
money from bridge tolls, a form of tax on the users of
the Humber Bridge.  So the actual situation is not
nearly as dire as the superficial examination of the
numbers would seem to suggest.

This is from the bridge's official site:

http://www.humberbridge.co.uk/finance.php

"Construction of the Humber Bridge began in 1972,
funded by Government loans. The cost (original
estimate £28m) soon grew to £98m as a result of high
price inflation during the construction period and
delays caused by ground conditions, labour relations
difficulties and adverse weather. By the time the
bridge opened to traffic in 1981, loan charges had
already brought the bridge debt up to £151m. Every
year since opening the bridge has made substantial
operating profit but initially this was insufficient
to cover the loan charges, so interest was capitalised
and the debt continually increased. In 1998 an
agreement with the government led to the project being
re-financed. It is now anticipated that the
construction loans will be paid off by 2032. Despite
the bridge's escalated construction cost, the user
benefits (arising from mileage savings) are very large
and exceed the cost of the project by a considerable
margin."
-

Rodney Shakespeare.

PS

1. Myro, I consider my relationship with you to be
something akin to the paternal one and so I come under
an obligation to tell you when there comes to my
notice what others are saying about you.  One email
gives extensive detail of some of your activities and
I suggest it is time to set boyish escapades behind
you (we all behave badly at some time or another)  and
move on to more positive activity.
------------------------------------------------------

[Reply] Why don't you email me a copy of the email
that "gives extensive detail of some of [my]
activities." Please be aware that we have dossiers on
you and your colleagues in our research project.
-

2.  Please ask Bill Ryan your supervisor what is his
view on the collapse of (9/11/2001) World Trade Center
 tower Number Seven -- that's the building which
collapsed (around 4.30 in the afternoon) into its own
footprint without being hit by an aeroplane.  GJM
members will be delighted to hear Bill's considered
view on this matter.
------------------------------------------------------

[Reply]  Obviously, you have some sort of conspiracy
theory about that building.  It's the Martin Luther
King federal holiday here, and I won't have the
opportunity to see Ryan before Tuesday.  I'll ask him
about this once I see him.


--- Rodney Shakespeare
<rodney.shakespeare1 at btinternet.com> wrote:
[snipped]


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