No hope for the planet unless we reform economy

I've asked it before, and I'm asking it again: can we ever hope to achieve a truly sustainable civilisation while our economy depends on endlessly recycling money as debt - and on constant growth, to repay the interest?

As this film (embedded) spells out, it's almost impossible for us to make a significant difference to environmental problems by installing solar panels or growing our own vegetables as long as we leave the debt-based money system unreformed.

While lending at interest was for centuries regarded as an evil, we take it so much for granted today that we actually pity people "unable" to burden themselves with vast debt. Consider much of the reporting of the ongoing decline in the housing market, and yesterday's government interference in it. Some media coverage seems to suggest that the government's initiative is designed to help individuals step onto the housing ladder. But are such individuals - anyway few in number - really so horribly deprived by being unable to tie themselves to an asset that, in all likelihood, will lose value?

The truth is that the government is interfering because if people stop borrowing money through mortgages the amount of money in circulation to pay off the vast amount of money we all owe already will shrink, with ghastly effects on the wider economy.

Other reports suggest that banks have become "unwilling" to lend money to buy houses. This, again, is nonsense: mortgages are a no-risk bet for banks. Under the terms of a typical home loan, householders pay interest at whatever rate the bank sets, and if they stop doing so, the bank takes the house.

The reality is that first-time buyers can easily get a mortgage if they want, so long as they put up a deposit (providing the bank with at least a tiny amount in the virtual safe to offset against their vast loan books).

Banks create loans out of thin air, by pressing a few keys on a computer. They do no work, and incur no risk. Borrowers, on the other hand, agree to work for years to repay the interest - effectively rendering themselves slaves to the bank for a certain time. (I've done it myself.) For these reasons, lending at interest - or usury - was for centuries reviled by every major religion and by great philosophers such as Plato and Aristotle. It's still forbidden by Islam and when Rowan Williams, the Archbishop of Canterbury, talked recently about Britain learning from sharia law, there's evidence to suggest that debt-free money was one of the things he had in mind.

What mystifies me is why the government doesn't simply create more debt-free money instead of borrowing from banks itself, with the result that taxpayers must meet the interest payments - more than all defence spending put together and not much less than the total amount spent on the NHS.

Gratifyingly, it turns out that a (still rather small) cross-bench group of MPs has put down a motion calling on the government to do exactly that - to issue "green credit for green growth". Among other things, they recommend "that the Treasury should use its powers to create non-interest bearing money so as to fund activities to combat climate change along the lines developed by the submission of the Forum for Stable Currencies."

By the way, I'm not going to pretend that the film is short. It's 47 minutes long. But perhaps that's how long it needs to be, to explain the many questions that are thrown up by this complex topic. I very strongly recommend that you download it and watch it when you can. I'd be delighted to hear what you think - but please do watch the film first!

Comments

[Sandy Sanders]

All this quibling over profit through interest is wasting valuable energy. The truth is that money IS debt. The minute it exists, and is the sole transaction agent, the person who has it (banker, govt, ruler, etc.) is rich and the one without it is the debtor because he must obtain it to survive. In early civilizations people had multiple options of sharing, barter, you-name-it-options-other-than-money. Now that the planet is full of humans beyond expansive carrying capacity, and the means of production of survival essentials (food and water, shelter, and clothing) has been removed from availability (urban areas are designed as desert islands devoid of resources, thus enslaving it's population to working for money from the "master" of the money), 95% of humanity is trapped by this phantom debt of consensual delusion. Money has no intrinsic value past that of belief. You can't eat it, ride it or use it to design. It's a consensual trick like monopoly money used to run a game as long as everybody plays along. This trick has been used by us humans to get us to this advanced state of technological development. But like any trick, when the illusion fails to work anymore (like when the price of a house on Park Place has no limit), and there is no more suckers left in the maxed out pyramid scheme, it fails.

Now it's back to reality. Back to neighborhood food garden collectives. Back to simple generic mechanical, non-toxic and speed safe transportation like bikes and trains. Back to sunlight, wind, wave and geothermal for energy. Back to the public sector (which is all of us 95% left of the benefits of the capitalist pyramid scheme) to provide our technology tools, such as machinery and electronics, in generic industries based upon human need rather than a mechanism of the rich, and neardowell rich, to profit. This is the path of ecotopia, the morning-after oif the tyranny of "money".

This is the future of a sustainable future for humans on earth. It will bring us not the one-world monoculture of the Money-God, but the ultra diverse self-sustaining micro cultures free of war, free of work-slavery, and free of tin gods of authority, too busy living life (and having fun!) to try being a greedy Gollum.

[Ian Greenwood]

In the eyes of some people any charge to the banks for what is acknowledged as "free" credit money - instead of diverting some of it to the public purse - may be seen as "taxation"

CURRENCY IS NOT A TAX, SO

WHY SHOULD REDIRECTION OF

SOME OF WHAT IS NOW A FORM OF

ELECTRONIC CURRENCY (as created by banks during the "normal course of banking business") TOWARDS

SURVIVAL BE CALLED A TAX?

as in our full, but brief paper on Sept 8 this weblog.

An opportunity exists for the media to use some of the practical,

innovative proposals on the available texts from Ian.greenwood [at] STEERglobal.org

- texts as inspiration to improve on Keynes

(the ETI/ET proposal is like his "bancor" but simpler and more effective, as the funds

would be well directed) for fundamental reform of the global economy, fast re-education and

co-operate in getting a real and simpler solution to the credit crunch. Otherwise

oncoming accelerated sea level rise crisis will

probably start to hit within 10 years if not sooner. The power

O of the sea is not to be underestimated.

THE FIRST STEP IS USE SOME GOVERNMENT-CREATED MONEY - IN either CREDIT OR IN PAPER FORM - TO GET A WIDE-SCALE new type of super-NSULATION PROGRAMME IN PLACE and stimulate to soften the crash - literally investing ourselves out of it, PENDING THE ACTIVATION OF THE REFORMS SHOWN IN "CLIMATE, ENERGY and CREDIT REFORM" a short paper with supporting remarks as to why this can be bolted onto the existing system. THE SIMPLE< EFFECTIVE REFORMS WOULD NOT BE DIFFICULT TO START and are easyfor a layman to understand - ring for answers to queries and to see how the insulation is 4 times better than the current building regulations and ten times better than solid walls or double glazing!! Now THATS worth spending money on!.

No hope for the planet unless we reform economy - as John Paul Fintoff says

[Stephen Hilder]

By the way Mr. Grignon, I accept your surrender, conditional on everybody agreeing that "there's something rotten in Denmark", and validation of your upsetness.

[Stephen Hilder]

Mr. Grignon,

Haha, mystic cats, eh? Very poignant. This little plea of yours made me suddenly realize that you're genuinely befuddled by all the complex financial goings on of the world around you. The good news is that it's really all much simpler than many conspiracy-theory-spouting chicken littles would have you believe. The bad news is, that to understand how make things better requires math and numbers, and discipline. The price of freedom as they say.

I will try to help in a less abusive way, since no one wants to hurt your feelings just for the sake of hurting your feelings. So, I'll ignore most of the below, and focus on a few, more important issues. The general theme being, that maybe you shouldn't believe everything you read.

First of all, no one thinks people must have a fixed income. I said that very clearly below, so you can go read it again if you're so inclined. If on the other hand, you just want to stick your fingers in your ears saying "nyah nyah nyah", that's up to you, and it's not my fault if you look silly. In terms of personal incomes having grown since 1950, so what?

Second of all, on forestry, this is a well known situation that has been studied ad nauseum for hundreds if not thousands of years. It's also well understood how to deal with these situations. You say that trees grow 2-3% per annum, which is less than current interest rates, therefore sustainable forestry is impossible. No. This means one of two things. If you believe that "sustainable" necessarily implies "no growth of the economy", then this means that this particular type of forest is a common good which must be owned/regulated by the government, since there is no economic incentive for individual players to act in the common interest. If you believe that "sustainability" is possible even with economic growth, then this means that in equilibrium, the price of this type of wood will continually increase to make up the difference between the 2-3% growth rate and the equilibrium interest rate. This price increase is what would cause the per capita demand of this wood to fall, such that the total demand is fixed at what is sustainably producable. Those involved in forestry will all implicity be speculating on the continued rise of said prices. (Please don't start squawking about "inflation", this is not inflation.) In either case, there is no problem of sustainability.

Thirdly, you didn't understand the Nuri paper. It's also not a particularly good paper, but never mind that. If you think you did understand it, then please point me to the statement you think supports your views, and the assumptions of the underlying model used. I'm perfectly happy to go through this paper with you in gory detail, but since you seem to lose patience with corn growers and desert islands, I doubt you'd stay interested. It's also ironic that you don't hold with all that "science" of economics mumbo-jumbo, but you'll swallow wholesale the modeling work of a physicist, who drew some of his conclusions based on analogy with the ideal gas model. It would seem that theory is only valuable when it supports you?

Fourthly, I'm sorry but the Kutyn paper is, to be generous, useless for your purposes. Pick one section in there that you think most supports you. What do you think about the bottom of page 64, does that support you? What part of this paper is the "rigorous analysis" that you are trying to impress everyone with?

Looking forwards to "Money as Debt 2".

[Paul Grignon]

Stephen Hilder gladly accepts my "unconditional surrender" which was never offered.

The fact is I am leaving in disgust at both his abusiveness and the lack of substance in his arguments. If one goes back through our debate to review Mr. Hilder's arguments, when they are not merely distractions or an attempt to blame the faults of a systemically bankrupt system on the "personal irresponsibility," of borrowers, they tend to be like that email where the "mystic cat" shows you five face cards at the beginning and asks you to pick one. Then you stare into the eyes of the mystic cat as it "reads your mind" and the cat removes the card you picked. Sure enough the card you picked is not among the four cards left at the end!!! Amazing. Of course the cat always manages to pick your card because NONE of the initial five cards are among the final four. The trick is getting us to accept the false assumption that they are.

Mr Hilder uses similar mental parlour tricks that are indeed taught in economics textbooks, and have been criticized by many as useless at best and deceptive at worst. The convenient assumption of a lifetime fixed income being a perfect example.

I learned economics from real world land developers, on a real development project that sealed the fate of the tiny island I live on. Real world land developers, like any other business I can think of, DO NOT have a lifetime fixed income. They have unlimited ambition. They do however, have a fixed expectation of profit for each project they take on. The higher the rate of interest they have to pay, the more they have to sell, the higher the price they have to get, and the faster they have to sell it to "beat the interest clock" and make that expected profit. As we live in a competitive system where most everyone is in the same position, raising prices can only be done in tandem with one's competitors. This leaves only the produce more, sell faster ( and cut costs wherever you can) option.

In our specific case, the interest clock prevented any consideration of the minimal development and minimal destruction options. I earlier reported that our Forests Minister once said that interest made sustainable forestry financially impossible. So I don't really care what the textbooks say. I know from real life.

And anyway.. given that personal incomes expressed in fixed 2004 dollars have doubled or more since 1950, how does one come up with an assumption of anyone's "fixed income", even that of the "wage earner"? One would have to take into account the CONSTANT CHANGE in personal incomes to arrive at such a prediction of a FIXED INCOME. I know that mathematically it can be done as a projection but the truth is personal incomes change, they are not fixed.

http://en.wikipedia.org/wiki/Personal_income_in_the_United_States

However, as Ian Greenwood has pointed out, these issues are almost red herrings.

Ultimately the really important question everyone should be asking is...

"If the governments have so much money to inject into the banks in order to help them survive, why - at the same time - are the governments borrowing money from those very banks? Who now provides the governments` borrowing requirements if the banks are short of cash?" (Dr. Sahib Mustaqim Bleher)

The answer is you and I the citizen-taxpayer and borrower are the source of ALL credit, government and bank, and ALL real productivity. Borrowers, including governments fund their own accounts with their promissory notes. That is where money comes from... us.

Banks are parasitic "mystic cats" that we assume are "lending" money because they call this money "loans".

Because we fall for this assumption, just as we fall for the assumption about the cards, we let bankers run our personal lives, our businesses and our governments because they have fooled us into believing we are in debt to THEM when we are not. We issued the credit ourselves and if we didn't have to pay interest, it would be much easier to honour that credit with real productivity given to the real creditor, society at large.

Instead, thanks to the deliberate obfuscation of this fact, most of us deliver the major portion of our lifeblood to the bankers through interest payments on money we ourselves created. We let banks get rich on the interest on their non-loans and when their greed for this interest gets the better of their judgment, the scam falls apart as it is doing right now, revealing banking for what it really is... the biggest con job in the world.

Then the price of keeping these crooks in business is added to the debt of the productive people, because that is what money is... the debts of the people. There is nowhere else it comes from. As I said in my movie No Debt, No Money.

Mr. Hilder, the only thing I concede to you is that you are well-versed in the misleading rationalizations of the banking con, the so-called "science" of conventional economics.

Why Philosophers Should Decertify Economics as a Science By Stephen Zarlenga
http://www.monetary.org/radfordphilosophers.htm

For fans of all the mathematical analysis you can stand, I recommend reading the following two essays on which my work is largely based. Then you can make whatever judgements you please about my understanding and interpretation of economic issues.

Fractional Reserve Banking as Economic Parasitism
A Scientific, Mathematical, & Historical Exposé, Critique, and Manifesto
Vladimir Z. Nuri

and The Nature of Money by John Kutyn

Both can be downloaded from my references page at

http://paulgrignon.netfirms.com/MoneyasDebt/references.htm

[Ian Greenwood]

Ian Greenwood's reply to post by Mr Hilder http://timesonline.typepad.com/environment/2008/09/limits-to-growt.html?cid=129077216:
Ian Greenwood's reply to Mr Hilder:

Mr Hilder says "Otherwise, all we have is this sweeping claim that banks are crooked".

I return patiently to the point: I have not said that banks are crooked, only that the credit money system grew up and the banks were allowed to get away with it (although others are beginning to join in questioning the morality). As Mr Grignon says, many on the staff of banks do not know precisely how the bulk of money creation works. I have recently had comments from senior accountants to the same effect "fascinating". If the detail of this system is not widely known by auditors or those that devise policy then it is no wonder that a problem of instability grew.

As said below, earlier in history the system grew to allow the banks about an equal amount of FREE paper money (X proportion as described below in this blog on 8 Sept) in addition to the actual deposits. This went on for a long time until the UK woke up and nationalised the Bank of England - the printing of paper currency then became a value into the public purse.

This is not now questioned internationally. Private printing of a nation's currency -counterfeiting- is illegal. Meanwhile CREDIT MONEY continues to be allowed via the loan/mortgage process (from a proportion of about 2X in 1946 -see the 8 Sept description) FREE to the commercial banks (and now, more recently to other forms of commerce - watch out banks!).

But the entirely obscene thing is that this free credit money (which appears not to have been disputed by Mr Hilder) grew to 20X in the 60 years to 2006 and is, once it is properly understood, now known to be a main source of inflation and of the global financial instability of the last year or so, growing over the last couple of decades since the demutualisation of building societies . No wonder we have had "divides" and "terror".

This "free money" aspect should be an entirely separate issue: as this is in in addition to other bank revenue - charges, penalties, fees, investments and interest rate mark-up on "real" wealth creation and deposits. Under our proposal the interest rate mark-up would still be allowed on the free money created as would repayments of the free capital (but less money to the commercial banks would help to reduce inflation as that revenue would tend to reduce taxes - one of the main planks of US Republican policy!).

All we are saying is that Credit money must in future (and SOON) be subject to a charge, that this charge can be set at the Base rate - directed preferably for hypothecated (ring-fenced) purposes. This is now ESSENTIAL to the public purse (the currency part of which is rapidly shrinking as a proportion collected by government due to the popularity of electronic money and tax revenues generally declining in the credit crumble). Lets call this CCC or CMBA as described in the paper posted on 8 Sept.

To answer some mild comments by critics (who have suggested that instead of a gradual incremental charge ALL credit money should be directed to the public purse IMMEDIATELY) I suggest the CMBA change will come in quickly enough, growing each year over the average life of loans, stabilising after 20 or 30 years..

OTHERWISE INSTABILITY WILL GROW AGAIN.

For government to rely on revenue from only the corporation tax element ( a decade or two of increases in the economy thru the Credit money part of "growth") looks increasingly problematic in times of recession/contraction of the credit money supply. To have decreased revenue at a time of climate crunch appears to bear out what I was saying for the last few years about the importance of a dedicated Environmental Tax equally returned towards investment against climate change threats across the world instead of relying entirely on aid or debt for essential infrastructure in the poorer countries or on a politically-led government system in rich ones.

The credit crunch has been somewhat of a distraction from the climate issue but has had the dual advantage of highlighting the credit money injustice and lowering some consumption.

By partly allocating such a Charge as an offset to enable an Environmental and Energy investment Tax (which WILL be needed) some of the proposed tax can in turn enable the necessary climate change investments on the other side of the world. Otherwise with accelerated inundation - imminent loss of land, culture, value from trade etc (again, see the paper and other supporting docs also available direct from ian.greenwood@STEERglobal.org) we are sunk. We should be fast-tracking wide-scale insulation on external walls in both hot and cold climates to keep energy resource prices stable. Why not get behind this with a message of support or at least contact me to understand it further?

Best wishes

[Stephen Hilder]

Mr. Grignon,

I gladly accept your unconditional surrender. For your information, I am, as you say, "unreachable", not because of any cleverness on my part, but simply because my intellectual position is perched on top of a high tower in an impregnable fortress of righteousness, built by great thinkers before me, some of whom wrote textbooks. You might want to read them. Or, you can continue your descent into drooling foolishness muttering about those "theoretical economists" and all that newfangled mathematical hooey, such as Mr. Greenwood and millions of others have done. If you choose this route, be prepared to be taken advantage of by those who would ruthlessly turn these tools against you, instead of just poke some fun at you.

It should be painfully obvious to anyone capable of clear thought, that economic growth is only connected to lending at interest in that the concept of "buy now pay later" is a powerful sales tactic used by lenders to trick consumers into spending beyond their means, as your sister has discovered. This works much the same way that record executives (almost as close to ones heart as bankers) use tits and lipstick to sell music. Of course, no one wants to ban tits and lipstick, because they can be understood by anyone, even without math. The only way to prevent irresponsible spending is better education. It's really not that complicated. Just because some people cut their fingers off, we don't ban circular saws.

It is the height of irony for you to claim that a fixed, predictable income is some kind of theoretical construct. It is, in point of fact, a way of life for many salaried employees, retirees, welfare recipients, most anyone with a stable career. Most people do in fact know with reasonable accuracy what they will make the next year. When these people choose to borrow, in point of fact they are specifically choosing to forgo future spending for the privilege of consumption now. On the other hand, when someone says, I'll buy now and take on a second job to earn the money, this is what grows the economy. Note that this happens whether or not they decide to buy with financing or without--- it's the fact of increased production that IS the growth.

It's also tremendously ironic that an eco-whiner would stomp off with a parting shot complaining about an approximation with a fixed income per person. Don't you think the planet has some sort of Malthusian carrying capacity for humans? Wouldn't this assumption necessarily result in a fixed, sustainable production level per person, inversely proportional to the population? Anyway, that's a whole other debate which I'm sure you would also lose handily.

I'll give you a hint--- you would end up stomping off muttering about scientists and engineers and all their theoretical new technology, totally divorced from reality.

Looking forwards to "Money as Debt 2".

[Paul Grignon]

Hilder: "We are discussing these toy models in an effort to isolate, in simplicity, exactly what sequence of transactions you claim is unjust, necessitates growth in the economy, or whatever it is you are not in favor of. Otherwise, all we have is this sweeping claim that banks are crooked."

What a load of nonsense. I have presented very clearly my claim that EVERY interest charge is an imperative to either produce more or raise prices, whether it is a bank, a building society, a credit union, a mafia loanshark or your Uncle Bob.

Mr. Hilder avoids confronting this truth by sticking to his theoretical economist's model in which everyone's lifetime earnings and consumption are defined as FIXED. He then works backwards to conclude that by borrowing, one consumes less despite the fact that to pay off the loan PLUS interest requires more output not less!

I really see no point in continuing this conversation as Mr. Hilder is truly unreachable and has only convinced me that people who buy into these fallacious economics axioms have lost all connection to reality.

[Stephen Hilder]

Mr Grignon,

Please forgive any disrespect, as I'm sure you know it's not directed towards your person.

We are discussing these toy models in an effort to isolate, in simplicity, exactly what sequence of transactions you claim is unjust, necessitates growth in the economy, or whatever it is you are not in favor of. Otherwise, all we have is this sweeping claim that banks are crooked. Well, I agree there is crookedness there. I just don't agree with you that lending at interest is the culprit.

Here's the summary so far:

You: Desert island, banker, borrower, no other cash. Borrower can never repay because the cash doesn't exist.

Me: Take into account banker spending, which the borrower earns and uses to make payments.

You: That's not realistic, the banker can hoard.

Me: No, in the real world the borrower would know there is demand for his services before he makes the borrowing decision, otherwise it's not responsible borrowing.

You: But what if the banker re-lends out his earnings, at INTEREST (Muah-ha-ha)

Me: So what? Again, who borrowed without the ability to repay?

You: But people don't borrow tractors to build tractors, they borrow them to grow food.

Me: Maybe. Maybe he wants to grow food, the surplus of which he trades for an additional tractor. Maybe he is a metalworker who actually plans to disassemble the tractor to copy it part by part. I don't care why he borrows it. Maybe the "tractor" is just a stand in for some abstract, generic marketable good and isn't intended to be restrict the discussion specifically to actual farm equipment. In any case, he would not agree to borrow it under terms of 2 tractors repayment in a year, if he wasn't capable of doing so, or is stupid.

You: Well, he wouldn't HAVE to produce if there weren't interest.

Me: Again, he is capable of said production, and therefore can be assumed to engage in said production anyway, in order to enrich himself. That's what people do, to ensure a better life for themselves and their progeny.

You: Well, the borrower uses up resources he otherwise would not have.

Me: No, your accounting is backwards. Again, the borrower FORGOES some utility in order to borrow and consume now, rather than later. This reduces the total production overall. The tractor is built in any case, because Jack wants to live the good life.

You: But environmental impact isn't directly proportional to income! That's specious nonsense!

Me: Very interesting. I think I agree with you! But aren't you saying that somehow it's directly proportional to interest payments?

You: It's not fair, because if Jack were just allowed to build his tractor up front in the first place, then he would never need one from Jill.

Me: You're right. If he is able, it's better for him to build his own tractor up front, and he knows this. Therefore, it must be that he's not able to do so if he chooses to borrow one. Maybe he needs time and doesn't want to starve while building a tractor. Maybe he doesn't know how to build a tractor, and needs to reverse engineer one. I don't care, he should do what is best for him.

You: But maybe he's just a farmer, and NEEDS the tractor, and is being extorted into unreasonable terms in order not to go hungry.

Me: That would be bad. Did that happen to you or someone you know? If so, let's hear about the details of how it happened. Was interest really the culprit?

You: But it's unethical that Jill should profit just from HAVING a tractor over Jack, this is an accident of fate.

Me: Well, probably not, probably she or her ancestors worked hard to build it. In any case, by lending it out she forgoes her opportunity to use it and therefore deserves compensation for this forgone income opportunity. This amount might be called, for lack of a better term, "interest".

You: But who guarantees that the amounts and rates result in perfect "100% recycling".

Me: A large ensemble of lenders, borrowers, producers and consumers all dancing the global economy dance to produce to miracle of "market forces".

You: Too much tractor borrowing and the food gets too cheap, and and the farmers get too poor, and they default on their loans and can't pay back all those tractors and everything collapses!

Me: Don't worry about it. Thanks to the miracle of modern technology, there are hardly any farmers left because of factory farms, economies of scale, and yes, market forces. "Mamas... don't let your babies... grow up to be cowboys..."

You: Hogwash to your market forces.

Me: You dirty communist.

You: Look, I'm an entrepeneur, and my income isn't fixed. It's nonsense to assume so.

Me: Bully for you, that you can earn whatever you want. Stop producing and messing up our environment.

You: My sister is struggling under her suddenly increased variable rate mortgage payments!

Me: I'm sympathetic. Who told her to take one out? I recently moved and bought a house. Believe me I was offered this sort of deal, which would have been cheaper, at least initially. I didn't take it. I bought somewhat less house than I would have liked, because of this. Oh well, that's called using a budget and accounting for risks and uncertainties in life, and not listening to glib salesmen and pundits and politicians who lie. Oh, did I mention that being able to do this requires math?

[Paul Grignon]

As both Mr. Napier and Mr. Hilder keep coming back to my first 'desert island" example to berate me for my apparent "dumbness" let us first return to that example. I posited that if a banker created $1000 on Jan 1, lent $100 to each of 10 people at 10% flat interest all payable in one lump sum on Dec 31, full payment of all these loans would be impossible as $1100 is required by the banker on Dec. 31 but only $1000 exists. This example is to demonstrate when interest would be clearly impossible to pay. I never claimed it represented reality.

Napier and Hilder scoff at this example because I have omitted spending by the banker. However, it should be clear to anyone that, in this example, the banker has not collected any interest yet and so he has no income to spend. Of course, if real world loans worked like this, there would be no credit system as the impossibility of paying the interest would be obvious. That was the point of the example.

I said that in the real world "payments are usually made monthly" as a statement of fact, not necessity. Of course, the banker could just arrange for payment in two half-yearly sums of $55. Now the equation works. The first payment of $55 leaves $45 in circulation, retires $45 of principal and gives the banker $10 interest to spend. If the banker spends the $10 of interest it can be earned by the borrower and the remaining $55 principal debt cleared. There, do I get it?

Now do you get it? If the banker or for that matter anyone on this desert island re-lends any of this money at interest, the debt cannot be cleared without borrowing the money from the secondary lender and incurring even more interest.

Now to my mind, the interest charged by the banker already required an extra 10% production over what would be required to pay back just the $100 of principal. Unless we bring in the argument that inflation makes the repayment dollars easier to earn, how can this be denied? 110 is more than 100.

Yet both Mr. Napier and Mr. Hilder claim that an interest charge does NOT necessitate economic growth.

Even more additional real world production is required to pay off the secondary lender's interest charge, which Hilder proves in his tractor example.

Hilder: "Note that it's perfectly permissible for Jack to borrow a tractor from Jill, and promise to pay back two tractors in a year. (100% interest!) He just needs to build a tractor at some point."

The second tractor is clearly real world economic expansion necessitated solely and entirely by Jill's interest charge but Mr. Hilder argues that it isn't. Let's bring this into the real world. Why did Jack borrow the tractor? So he could build another tractor? Apparently Mr. Hilder thinks so. He even states this absurdity.

Hilder: "You see, Jack must have intended to produce the tractor anyway, or he would not have entered into the agreement."

How does Mr. Hilder arrive at this assumption? Just because Jack agreed to the terms?

I would assume that Jack's only intention was to grow food, not build a second tractor. Jack was forced to build the second tractor because Jack is a farmer (labour), people need food, and there is only one tractor, Jill's. Jill (capital) has made her condition 100% interest and that is the only way Jack is going to get to use her tractor. The only legal defense we all have against Jill is that we do without the tractor and suffer the consequences which might include going hungry.

To my "dumb" way of thinking three things seem abundantly clear:

1. If Jack didn't have to pay Jill the extra tractor, he would NOT have to grow the extra food to pay for it.

2. Or... if he DID grow and sell the extra food and built his own tractor just ONCE he would never have to borrow Jill's again.

3. Jill's interest charge makes it doubly difficult for Jack to build his own tractor and escape her trap; a trap in which Jack, in order to grow food, has to build a new tractor for her every year and never gets to keep one.

Here is another example of Hilder's artful circular reasoning which sounds good, even amazingly sophisticated but is in reality completely invalid.

Hilder: "Jack expects to grow 1,000,000 pounds over the course of his working career. He has a wide spectrum of choices in behavior. He can borrow considerably less that that amount now (at interest) and use the borrowed amount immediately, or he can save everything and have one wild party on the last day of his life. Either way, interest or not, his production and the impact on the environment are the same."

How could it be otherwise? Hilder has ASSUMED that Jack's lifetime income is FIXED at one million pounds and nothing can change that. He also assumes that Jack's environmental impact is directly proportional to Jack's income.

Both assumptions are specious nonsense.

Mr Hilder, I am a self-employed entrepreneur not some statistician's FIXED INCOME model. My lifetime earnings are not fixed. Nor are the earnings of corporations. Nor are the earnings of someone who has to rustle up a second or third job (like my sister) because the payments on their variable interest rate mortgage just took a big jump .

The question is: does paying interest drive Jack to have to earn more (lifetime income NOT FIXED) than he would if he did not pay interest?

The real situation is that Jill has the only tractor (capital ) and Jack (labour) needs it to produce food. Jack needs to produce more food than he would otherwise, in order to buy the materials to build the second tractor . Yet somehow Stephen Hilder refuses to acknowledge that this is an INCREASE in the real economy necessitated entirely by the interest charge and would not happen if Jack could just return the one tractor.

Furthermore, with a lot of Jacks all competing for earning opportunities to pay the added burden of interest, the imperative is to produce both more food and more tractors than are needed, necessitating a constant expansion into new markets for selling food and loaning tractors until all markets are saturated. A glut of food results in lower prices meaning even more work is required to pay off the principal as well as the interest. And because the demand for food is finite, at some point the earning opportunities can no longer expand and competition drives prices so low that debts cannot be paid off and a wave of defaults begins. Too many defaults and the credit system collapses.

In addition, the overproduction, due entirely to this interest burden, depletes the resource base faster than may be sustainable, even causing resource collapse and irreversible environmental damage. The increasingly intense competition for markets and profits causes all kinds of nasty shortcuts to be adopted, from adding poisonous chemicals to boost production to gaining access to markets by means of political corruption. The cheap food leads to much of it being wasted.

Case in point. Some years ago a British Columbia Forests Minister, in a rare candid admission, told an environmentalist reporter friend of mine that sustainable forestry was not financially possible because the interest rate was higher than the 2-3% annual growth rate of timber. If a buyer buys a stand of timber at fair market value, and doesn't immediately clear cut and retire the debt, his financing charges will cause him a loss (unless there is a very large rise in the value of timber).

The only sustainable forestry project in my area is on Merv Wilkinson's PAID UP land. As Wilkinson himself describes it, his type of forestry is collecting the interest on the trees, not the principal. As the interest is only 2-3% per year that is only enough to operate and live on, not make interest payments to a bank.

http://www.zerowaste.ca/articles/column88.html

Now to Mr. Napier

Napier: "So you ask how I see this. I see the example as showing an interest bearing loan, where the interest is hoarded (not recycled 100%), and which does not inherently create a need to generate growth or additional loans to pay the interest. There will, however, be a downward cycle in consumption and income because the interest is hoarded, in exactly the same way that a downward cycle would occur if Adam suddenly decided to start saving and buy less massages."

and..

"Napier: Well, I agree that in the real world Candice often chooses to re-lend the interest earned (just as, in the real world, people choose to lend money that they have saved from their salaries). But this is beside the point. We are talking about the economic theory behind your claim that interest inherently creates a growth imperative. The choice to re-lend is not an inherent growth imperative."

Secondary re-lending of existing bank-credit money requires even MORE economic output to pay off the added interest. The more re-lending of bank-created money, the bigger the total interest burden, the more economic activity it takes to pay it off. This isn't just in terms of direct debt payments affecting only those in debt. Interest charges are included in prices and taxes as well. And as Napier admits, even salaried employees with money in excess of their spending needs try to make it grow through some form of re-lending. Re-lending and the added expectation of gain from having money is everywhere.

But Mr. Napier considers re-lending to be "beside the point" and "not an inherent growth imperative". On what basis does he make this assertion? I see debt at interest, in fact the simple expectation that money should grow from money in any fashion, as a growth imperative and I have explained why.

"Downward cycle"? No problem according to Mr. Napier. In the real world, downward cycles are called recessions, long ones depressions. They result in cascading defaults, massive waves of foreclosures, bank and business failures, unemployment, and the threat of total economic disintegration.This threat is so great right now it is causing unprecedented desperate government bailouts almost every week with the taxpayer left holding the bag for a debt so huge it is impossible to imagine, never mind repay.

But for Mr. Napier a downward cycle "does not inherently create a need to generate growth or additional loans to pay the interest."

Life must be different in Napierland.

[Stephen Hilder]

Mr Greenwood,

By the way, I looked into this latent heat of sea ice thing. The latent heat is a non-issue. If you don't think so, show me the numbers on which you base your claims.

[Stephen Hilder]

Mr Greenwood,

I propose we prioritize a minimal level of education in critical skills, such as math. A person who cannot balance his own budget should keep his big mouth shut about everyone else's.

I propose that with these new found skills, we can begin to close the many imperfections in corporate accounting rules and banking regulations that allow these crises to happen. As with any democracy, this requires public outrage. Currently, the only mechanism to generate that outrage is through some kind of crisis.

Our problems are not complicated and deep conspiracies. They are simple abuses, driven by greed, of obvious loopholes and opportunities for conflict of interest. Off balance sheet obligations to special purpose entities, allowing an institution to issue securities from one desk, with ratings issues by another desk. The whole concept of an interest-only mortgage under existing bankruptcy laws. Obvious things.

Everybody knows that money is being stolen by greedy criminals. By making a big hoo-ha about a non-issue, you are making it more difficult to draw attention to the the real ones.

Without educated voters, these crises are inevitable. That's democracy. If you want, move to bring on the philosopher kings.

[Ian Greenwood]

Thanks very much for the clarity of your intent Mr Hilder.

Do you accept that the recent figures of $48 trillion meltdown, etc necessitate some action of the "right" kind? If so, can you suggest anything better than The CMBA/ETI which you kindly refer to?

(If you really exist, that is?) So long for now.

[Stephen Hilder]

Hi Mr. Greenwood,

I don't intend to distract from what you are saying at all. I wish you continued success in your efforts.

Hypothetically, if I were to try to argue against your proposals (I won't try, I support you!), the argument might go something like this:

A new reality for new times. Sustainability for the next century. Scaling of economic process no longer tracks the historical paradigm! The unjustice must be corrected. Pig farmers continue to benefit to excess from the public consumption of franks in a blanket. How long must the public bear the yoke of so-called "standard" pub fare? ABC Radio National today hosted a program (FG-1728-4) wherein the Pig Farmer Excess Methane Reduction Adjustment (PFEMRA) was espoused by one forward thinking John Holmes Quinn. Why should pig farmers foist their unwanted tetrahedrons on the unwitting public at no cost? Such funds generated, easily several billion in the first year, would be earmarked for the de-orbit the moon (yes, DE-ORBIT the MOON) project, expected to stop parasitic bleeding of tidal energies from our oceans. A very good value! Such action would render the CMBA/ETI entirely redundant and unnecessary. Email ian@StEErGLObal.CoM for the full proposal (with graphs!)

[Jamie Napier]

Mr Grignon,

With regards my Example 2, you note that Beatrice's shortfall (10) equals the total interest. This is because Adam's annual rent equals the annual principal plus interest. If, for example, annual principal was 2 and interest 1, Beatrice's shortfall would equal 30 which is the interest (15) plus Adam's surplus (15). With a different loan agreement Beatrice's shortfall could be interest 1 and Adam's surplus 29. In fact, Beatrice could have a shortfall which is 100% because Adam decides to save, nothing to do with any loan. So it is savings that create the shortfall, not interest.

So you ask how I see this. I see the example as showing an interest bearing loan, where the interest is hoarded (not recycled 100%), and which does not inherently create a need to generate growth or additional loans to pay the interest. There will, however, be a downward cycle in consumption and income because the interest is hoarded, in exactly the same way that a downward cycle would occur if Adam suddenly decided to start saving and buy less massages. This is back to my comparison some days ago to Keyne's Paradox of Thrift argument.

In your later comment you foresaw that
I would claim Candice's savings as the key, not the interest. You are right. You then counter, "The problem is it doesn't happen in the real world because Candice wants her excess money to grow. She doesn't want to spend it or give it away. she wants to get rich and use lending money at interest to do so." Well, I agree that in the real world Candice often chooses to re-lend the interest earned (just as, in the real world, people choose to lend money that they have saved from their salaries). But this is beside the point. We are talking about the economic theory behind your claim that interest inherently creates a growth imperative. The choice to re-lend is not an inherent growth imperative.

Let me try and stir things up with a totally different point. Could there be more loans, more growth and more problems of indebtedness if there was no interest charged ? If there was no cost to borrowing, wouldn't the demand for loans be much higher ? Isn't one of the causes of the current crisis that, for too long, interest rates were too LOW ? If interest rates had been higher historically, maybe that would have kept debt levels more manageable?! Don't worry, I know it misses the point of what you are saying.

Anyway, it is all very interesting but unfortunately I head north tomorrow by bus to El Salvador where I will be staying with a fishing family. So it will be a few weeks before I can access another internet cafe and read any further comments. But it gives you plenty of time to walk through my Example 1, which is surely not too complex (and has but one obvious typo)!

[Ian Greenwood]

Hullo again Mr Hilder

Good to see you are still willing and able to create further diversions from the fundamental question which I have asked you: WHAT IS WRONG WITH MAKING COMMERCIAL BANKS PAY FOR THE MONEY WHICH THEY CREATE? Especially as they have been the prime causes of the current instability by creating about 10 times more than in the 1940s, ie at least 20 times more than we get into the public purse from actual currency (notes etc, 2006 figures).

[In the 1940s apparently the banks got X worth of free money as currency in addition to deposits (i.e. doubled the money to get an extra X free) and 2 X worth of free "credit money" on top by fractional reserve banking on the basis of loans and mortgages, but since the demutualisation of many building societies into banks this has exploded the money supply and revealed these sources of money to the public - because of the sheer volume of it. ]

I am beginning to think that you, Mr Hilder must have an interest in this source of free money to be defending such an injustice. Without the transition I suggest the credit meltdown is likely to cause meltdown in the wider economy as virtual money withers and no clear road map out of the "credit mess" has been made available to engender confidence by the authorities. Acceptance of CMBA and ETI published here and elsewhere could enable that confidence. I encourage Mr Hilder and other readers to examine these proposals and take them forward constructively to those whose responsibility it is to give a clear direction and solutions. Please reconsider my proposals.

In response to your point about lack of connection between the floating ice melt and the global economy, it may have escaped your notice that the absorption of latent heat has protected the planet from more extreme climate change than we've had until now. The heat being generated by the vast degree of consumerism currently going on will finish the floating ice in a relatively few years.

From now on then, the land ice will begin to take up that latent heat, eventually melting 3 times as quickly as now because in the north the Land ice is about a quarter of the area of the floating ice. The oil-based economy has been proven to have accelerated this melt and the proposal is to fund alternatives, fast-track insulation etc.

I am only asking that the banks be brought into line with the old building society system where deposits went in and they charged interest markup for the cash handling, mortgage and loans service. COMMERCIAL BANKS SHOULD NOT BE GETTING THE BENEFIT OF FREE MONEY (or certainly not all of it). All this talk about tractors is a red herring to distract readers from the point of the video and Mr Flintoff's initial comments. The money is there to do the necessary job it just needs to be directed and USED - used more efficiently as it says in comments back to the text given. Please try reading about the credit Money banking Adjustment and ETI/ET with an open mind.

Best wishes to all

[Ian Greenwood]

Hullo again Mr Hilder

Good to see you are still willing and able to create further diversions from the fundamental question which I have asked you: WHAT IS WRONG WITH MAKING COMMERCIAL BANKS PAY FOR THE MONEY WHICH THEY CREATE? Especially as they have been the prime causes of the current instability by creating about 10 times more than in the 1940s, ie at least 20 times more than we get into the public purse from actual currency (notes etc, 2006 figures).

[In the 1940s apparently the banks got X worth of free money as currency in addition to deposits (i.e. doubled the money to get an extra X free) and 2 X worth of free "credit money" on top by fractional reserve banking on the basis of loans and mortgages, but since the demutualisation of many building societies into banks this has exploded the money supply and revealed these sources of money to the public - because of the sheer volume of it. ]

I am beginning to think that you, Mr Hilder must have an interest in this source of free money to be defending such an injustice. Without the transition I suggest the credit meltdown is likely to cause meltdown in the wider economy as virtual money withers and no clear road map out of the "credit mess" has been made available to engender confidence by the authorities. Acceptance of CMBA and ETI published here and elsewhere could enable that confidence. I encourage Mr Hilder and other readers to examine these proposals and take them forward constructively to those whose responsibility it is to give a clear direction and solutions. Please reconsider my proposals.

In response to your point about lack of connection between the floating ice melt and the global economy, it may have escaped your notice that the absorption of latent heat has protected the planet from more extreme climate change than we've had until now. The heat being generated by the vast degree of consumerism currently going on will finish the floating ice in a relatively few years.

From now on then, the land ice will begin to take up that latent heat, eventually melting 3 times as quickly as now because in the north the Land ice is about a quarter of the area of the floating ice. The oil-based economy has been proven to have accelerated this melt and the proposal is to fund alternatives, fast-track insulation etc.

I am only asking that the banks be brought into line with the old building society system where deposits went in and they charged interest markup for the cash handling, mortgage and loans service. COMMERCIAL BANKS SHOULD NOT BE GETTING THE BENEFIT OF FREE MONEY (or certainly not all of it). All this talk about tractors is a red herring to distract readers from the point of the video and Mr Flintoff's initial comments. The money is there to do the necessary job it just needs to be directed and USED - used more efficiently as it says in comments back to the text given. Please try reading about the credit Money banking Adjustment and ETI/ET with an open mind.

Best wishes to all

[Ian Greenwood]

Hullo again Mr Hilder

Good to see you are still willing and able to create further diversions from the fundamental question which I have asked you: WHAT IS WRONG WITH MAKING COMMERCIAL BANKS PAY FOR THE MONEY WHICH THEY CREATE? Especially as they have been the prime causes of the current instability by creating about 10 times more than in the 1940s, ie at least 20 times more than we get into the public purse from actual currency (notes etc, 2006 figures).

[In the 1940s apparently the banks got X worth of free money as currency in addition to deposits (i.e. doubled the money to get an extra X free) and 2 X worth of free "credit money" on top by fractional reserve banking on the basis of loans and mortgages, but since the demutualisation of many building societies into banks this has exploded the money supply and revealed these sources of money to the public - because of the sheer volume of it. ]

I am beginning to think that you, Mr Hilder must have an interest in this source of free money to be defending such an injustice. Without the transition I suggest the credit meltdown is likely to cause meltdown in the wider economy as virtual money withers and no clear road map out of the "credit mess" has been made available to engender confidence by the authorities. Acceptance of CMBA and ETI published here and elsewhere could enable that confidence. I encourage Mr Hilder and other readers to examine these proposals and take them forward constructively to those whose responsibility it is to give a clear direction and solutions. Please reconsider my proposals.

In response to your point about lack of connection between the floating ice melt and the global economy, it may have escaped your notice that the absorption of latent heat has protected the planet from more extreme climate change than we've had until now. The heat being generated by the vast degree of consumerism currently going on will finish the floating ice in a relatively few years.

From now on then, the land ice will begin to take up that latent heat, eventually melting 3 times as quickly as now because in the north the Land ice is about a quarter of the area of the floating ice. The oil-based economy has been proven to have accelerated this melt and the proposal is to fund alternatives, fast-track insulation etc.

I am only asking that the banks be brought into line with the old building society system where deposits went in and they charged interest markup for the cash handling, mortgage and loans service. COMMERCIAL BANKS SHOULD NOT BE GETTING THE BENEFIT OF FREE MONEY (or certainly not all of it). All this talk about tractors is a red herring to distract readers from the point of the video and Mr Flintoff's initial comments. The money is there to do the necessary job it just needs to be directed and USED - used more efficiently as it says in comments back to the text given. Please try reading about the credit Money banking Adjustment and ETI/ET with an open mind.

Best wishes to all

[Stephen Hilder]

Mr Grignon,

Just to save some time, would you mind not responding along the lines that everyone knows that building tractors requires raw materials?

I agree, everyone knows this.

I just wonder why you brought it up in the context of loans and interest.

[Stephen Hilder]

Mr. Greenwood and Mr Grignon,

Since you ask, just let me confirm that I did in fact hear everything you have said. With great "interest". I apologize for not having responded sooner.

Mr. Greenwood, I have not responded to you because your comments here are so wide-ranging (floating sea ice?) and loosely coupled that it's really hard for mere mortals to get to the bottom line of what you are saying. Not everyone can follow you in the breathtaking gyrations of logic which you are capable of. It would seem that you are a revolutionary thinker, and I'm sure that you have something to be proud of in this dramatic synthesis of seemingly unrelated things. I particularly enjoyed your pot shots at math and calculators, and "pure logic". I agree that these things are a crutch for those who do not have your level of perception. I might draw the analogy to that which has been commonly observed in young children, where bright and talented kids are often misdiagnosed as having ADD. Therefore I wish you nothing but continued success in your efforts, and hope that you would be willing to employ your talents in the public service as a politician.

Incidentally, are you really curious about my lifestyle, and whom it is I think are idiots? If so, let me know. I will answer. To reciprocate, out of pure curiosity, I wonder if are either of you gentlemen are romantically involved with Ms. McNeill?

Mr Grignon, recently you have been insisting that I have been proving to you what is perfectly obvious and known to you since the early days of the empire. That is perfectly fine by me. I have no interest in what you know or don't know, I am only interested in what you have been saying. If you are considerably more clever than you appear, I am cheered by the news. You see, someone reading your comments of Sep 5 (search below for "Santa Claus") might accidentally think that you were asserting various dumb things. For example, "monthly" payments, rather than yearly, as if it makes any difference whatsoever what units we use to measure time. Also, the idea of bankers collecting payment in "goods and services only", again, as if money were anything but a medium of exchange for goods and services in the first place. The uneducated reader might actually believe you thought something dumb, and are just backpedalling now to save face, but we know better, that you were just (over)simplifying things for the unwashed masses.

OK, given all this. I would like to try a slightly different approach than that of Mr. Napier, who is far more fearless.

Firstly, I am not guilty of circular reasoning. My statements were simply a counterexample to your comments that interest bearing instruments are, in brief, "impossible contracts" because of the scenario where the banker hoards money. You for some reason thought I was arguing that "interest is 100% recycled", using my example where interest is "100% recycled". No. My argument that interest is "100% recycled" is simply that everyone is responsible for their own borrowing. (See my comments about everyone doing their own accounting and not going bankrupt.) Therefore, everyone who borrows expects to be able to produce enough to cover their payments. That's called using a "budget". Your problem, simply put, boils down to this: "What happens if Jack lends 10 coconuts to Jill, and refuses to take payment in anything but trained orangutangs, which cannot be found on the island". To beat the dead orangutang completely dead, note that the problem has nothing to do with interest. Even if the loan were at 0%, Jill can never make her payment of 10 coconuts' worth of orangutangs. What happens in the real world, is that Jill never enters into this agreement with Jack, knowing that no orangutangs are to be found. If Jill is ignorant, and just assumes the presence and her capability to catch and train orangutangs, well then she's done something dumb. Nothing can protect people from stupidity. You might say, but Jill was hungry and had no choice because she had to eat, and did what she did only to survive. OK. You give me some case studies and let's see if I agree that they were extorted. If so, let's make some meaningful laws against such extortion.

Let's address your comments of Sep 13, following "WOW!!!". Apparently I made some damning admissions. Let's talk about them. Apparently, my suggestion that Jack repays Jill 2 tractors is damning, because he must use natural resources to build the second tractor, and even if he were to repay in services, he would simply be repaying the equivalent in labor, and therefore the economy would be expanded (which you assume is intrinsically bad for the environment (also not true, but never mind for now)). The conclusion from this is that charging interest necessarily expands the economy. No. Consider Jack. Jack expects to grow 1000000 pounds over the course of his working career. He has a wide spectrum of choices in behavior. He can borrow considerably less that that amount now (at interest) and use the borrowed amount immediately, or he can save everything and have one wild party on the last day of his life. Either way, interest or not, his production and the impact on the environment are the same. His personal utility and how he chooses to distribute it over his lifetime is the only thing in question. If you claim that the agreement of the tractor loan at 100% interest intrinsically requires growth in the economy because of the production of the tractor, then you fully misunderstand. You see, Jack must have intended to produce the tractor _anyway_, or he would not have entered into the agreement.

So interest is good for the environment! You see, rather than waiting until he completed and sold the tractor, getting 1 tractor's worth of goods/services in exchange, he decided to sell a hypothetical future tractor in exchange for fewer goods and services now! This means, less was produced due to his economic activity overall!

Again, to beat the tractor dead, your comments about labor and materials needed to build the tractor apply to ANY production of a tractor whatsoever. It doesn't matter whether the tractor is in exchange for coconuts or for the privilege of spending money one doesn't have at the moment. So, you seem to be fundamentally against the production of tractors, not against loans at interest.

Again again, you are incorrectly mixing up entirely unrelated issues. A sustainable economy has nothing to do with interest, and everything to do with educated consumers, ones that understand math.

[Paul Grignon]

It looks like I will have to correct my own errors in thinking.

I gave an analysis that $100 created by LOAN 1 is needed to make a payment, but that $100 is now only available as LOAN 2 from a secondary lender for $5 interest. Someone borrows it and it finds its way to the first borrower who makes a payment of $100, $20 of which is principal leaving only $80 of interest to be spent by the bank and available to earned again by the borrower who now owes the secondary lender $105.

I argued that this was a $25 shortage, which it is in a sense. However, we have proven repeatedly that if the primary lender of LOAN 1 is recycling 100% of the interest, which we are assuming here, the existence of the money to make the monthly payments of $100 are assured. The next payment would have been $100 anyway.

Thus the shortage is actually only the second interest charge of $5. The LOAN 1 borrower can now earn $105 from those LOAN 1 funds and pay back the secondary lender. And then borrow the $100 again to make a $100 payment on LOAN 1, again owing the secondary lender $5 interest.

The extra work necessary to earn the $5 is an expansion of the economy.

Now the secondary lender has $5 left over, and the borrower owes another $5 interest that could be left over.

If the secondary lender spends the whole $5 each time it is available to be earned with some extra work.

However, if it is kept and especially if used for further lending, the $5 /month left over each month will grow.

As all the money in this world was created by LOAN 1 this accumulation of loan capital can only result in a reduction of the money supply available to pay LOAN 1 except as a loan from the secondary lender with the extra interest.

So it is not inevitable that secondary lenders cause an actual shortage of money... just an extra burden of interest that must be worked off.

Comments?

[Paul Grignon]

Dear Mr.Napier,

In addition to my first comment below, if you argue that it was Candice's hoarding that caused the deficit not the interest on the loan, please note that you set it up yourself so that Candice the moneylender does the hoarding OF INTEREST. She can do this presumably because she has an EXCESS of money over her spending needs that she has derived from moneylending, and would in the real world, very probably lend or invest this growing surplus with even FURTHER EXPECTATION OF RETURN rather than hoard it.

If she doesn't hoard, lend or invest it and spends it or gives it away instead it does work out. We have been in agreement all along that if interest is 100% recycled, usury can be sustainable.

Once again it has been proven.

The problem is it doesn't happen in the real world because Candice wants her excess money to grow. She doesn't want to spend it or give it away. she wants to get rich and use lending money at interest to do so.

[Paul Grignon]

Dear Mr. Napier,

My apologies but for you to expect someone to wade through the first example including the uncertainty of typos is a bit much.

In the second much shorter rental example you set up a 10 year payment period for the room ( 30 borrowed 3 principal 1 interest paid back annually) but Beatrice will run out of money from the proceeds of the sale before that.

"Beatrice continues to buy 10 massages from Candice, paid for with 6 AIOUMs and 4 CIOUMs received from the sale of the room."

If she does that for 10 years she will need 40 CIOUMs from the sale of her 30 CIOUM room, will she not?

The interest on the loan totals 10. The shortfall in Beatrice's input to this purportedly balanced equation over 10 years is 10.

The equation is not balanced and I would say that the interest is the direct cause of the deficit. Do you see that differently?

[Jamie Napier]

Mr Grignon, I am sorry that you stopped reading my last contribution when you reached a (fairly obvious?) typo. If you had continued, you would have seen that my example purposefully has the banker hoarding the interest and not recycling any of it.

Yes I have created examples that prove my point (I hope). That was the point of them! You believe that interest payments, if not 100% recycled, inherently require growth. By providing examples of when this is not the case, I am disproving your point. I would therefore be grateful if you would consider my examples.

I am not sure why you suddenly do not like desert island examples! You created an Island to support your view. Your Island example has a banker creating 100% of the "money" in existence, lending it all out, hoarding the interest, and only accepting his "money" in return. Someone has to default. Being in isolation, it pays no heed to what already exists in the economy (eg a LETS or barter system or gold which the king had minted into coins and spent building a castle). Your 7 minute video is the same principal. Banking system creates debt (P). Debt is the only money in existence, therefore interest cannot be repaid unless 100% recycled or unless there is a new loan.

Yes, Island examples (and your video) are simply illustrations. Yes, there is too much debt in the modern world and most of the money created in the modern world is via debt. But, in trying to prove or disprove this question about whether interest payments INHERENTLY require growth, it is relevant to use simplified examples.

In which case, which of our Islands more accurate? For this, it is worth considering how the first interest bearing loans came to be introduced into the economy. Is it more realistic that a banker came along and created the only units of "money", lent out 100% of the "money" he created, only accepting the "money" he created as payment in return (of which there is not enough), wanting someone to default (your island)? Or is it more realistic that loans were introduced when there was already economic activity taking place, that there was already a medium of exchange (my island)?

Paul Johnson the historian writes "Most early religious systems in the ancient Near East, and the secular codes arising from them, did not forbid usury. These societies regarded inanimate matter as alive, like plants, animals and people, and capable of reproducing itself. Hence if you lent 'food money', or monetary tokens of any kind, it was legitimate to charge interest. Food money in the shape of olives, dates, seeds or animals was lent out as early as c. 5000 BC, if not earlier. ... Among the Mesopotamians, Hittites, Phoenicians and Egyptians, interest was legal and often fixed by the state."

Be that as it may, please read my examples. I believe they illustrate the existence of interest bearing loans that do not require interest to be 100% recycled nor additional growth.

[Paul Grignon]

Dear Mr. Napier

I am glad you think this debate has quality. I just wish it had the quality of dealing with the examples I have furnished. I am genuinely interested in getting critical feedback on my analysis.

Here is the 7 minutes of the movie that puts forth my argument

http://paulgrignon.netfirms.com/MoneyasDebt/The_Un-payability_of_Interest.html

As for your very convoluted example...you lost me at

"Instead, during year 2 Charlie lends Alan 6 massages to sort his back out. Alan signs a loan note and receives 6 Charlie IOUMs (CIOUMs). The deal is that Charlie will repay 3 IOUMs principal plus 1 IOUM interest in year 3 and the same in year 4."

I thought Alan was the borrower, why is Charlie repaying?

Without doing all the math I think you did the same thing as Mr. Hilder.. create a premise that guarantees the result, 100% recycling of interest by a closed loop in which all participants guarantee 100% redemption in product or labour.

Go back and calculate what happens if all these trades require resource materials that have to be bought with IOU's at interest. Make your premise that these IOU's can only come into existence by borrowing them from a heartless BANK at interest, people cannot just create them themselves (that is a LETS system) and they have to be paid back in IOU's not massages. Now add in that some of the participants decide they don't need a massage, opt out of this agreement to trade you have assumed, and either loan out their IOU's at interest in order to live off their fellows, or go off to the casino with their IOU's and keep that money in play for as long as they can succeed at living off their winnings.

That to me much more accurately describes the real world which is the subject of debate. Desert island examples are often very useful for illustrating simple principles in ISOLATION, but they always fail to describe the real world where NOTHING EXISTS IN ISOLATION.

There has never been any disagreement that 100% recycling of interest makes usury sustainable. It doesn't have to grow and no one need default just because of the arithmetic. You and Stephen can prove it over and over.

Prove to me that in the real world 100% of the money banks take in as interest is spent in such a way that those who need that money for their next interest payment can EARN it.

Prove to me that the mere existence of non-bank secondary lenders who lend existing money already created as a loan at interest don't make defaults inevitable, a result that can only be avoided by constant growth of the money supply.

Prove to me that banks themselves don't do both kinds of lending, money creation and lending of existing funds, thus being guilty of the fraud of impossible contracts.

Prove to me that the simple expectation that people who have money far in excess of their needs and expect it to grow through interest and accumulate can only do so by extracting it from those who collectively have to borrow ever more of it into existence at interest to survive.

Prove to me this is not accomplished on a collective level by creating massive and ever-growing corporate, government and consumer debts (debt=money) that cannot be paid off and MUST NOT be paid off as this debt is our money supply. No debt no money.

Thank you