Fickle Pickle,

The way you describe the origin of money in the second millenium is the same conclusion I have drawn upon reflecting on the film "Money as Debt".

It was an accident that the scraps of paper that goldsmiths gave out, which promised to exchange them for the gold that had been deposited, were used to exchange goods and services.

As they realised that not everyone was likely to demand the return of the deposited gold at the same time, the goldsmiths, who became bankers, lent out more such notes than actual gold they had in the vault and charged interest for doing so at the same time.

This led to the fractional reserve system and all the financial mayhem we have suffered in the centuries since.

If governments had simply assumed the right to print those scraps of paper from the outset and not have required their be any gold for which those scraps of paper be sold, we could have all avoided a huge amount of calamity in these past centuries.

We know this because when governments did that as in the American colonies, those societies prospered in comparison to those which continued to operate with the millstone of the private banking system around their collective necks. The stark comparison between the prosperity of the American colonies with the poverty of Britain is confirmation of this.

The fact that many in the American colonies also descended into poverty after the British Government forced them to borrow from private banks once again (which Pericles excuses above) is further confirmation of this.

There are also a number of examples from more recent times which I also intend to cite.

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Your proposal about the NBN is interesting, but requires more thought than I can give at this time of day.

I can see that you are making a genuine attempt to understand all this stuff, daggett, but you need to keep working on some of your assumptions.

>>if all money in circulation (or in Australia, 97%) originates as a loan somewhere<<

There's your first assumption. On what is it based - i.e. how did you arrive at the figure of 97%?

Take your own case as an example. Let's say you have $3,000 in cash. Does that mean that you necessarily have debts of $97,000? And that picture is repeated across Australia?

If not, what does it mean?

>>the loan can only be paid off by someone somewhere taking out a loan that would be sufficient to pay for both the principle and interest.<<

Not at all.

As I have pointed out before, there is absolutely no logic behind this. There is no need for "someone somewhere" taking out a loan to pay off your loan - it doesn't make sense. It doesn't happen. It is a misunderstanding - probably originating from your first error, which is to assume that 97% of Australia's wealth has been borrowed from somewhere else.

>>That loan can only be paid off by someone else taking out another loan.<<

Nonsense. If I run a business where people pay me from their after-tax income, and I use the profits from that business to repay the Bank, where's the need to take out a loan to repay me?

And that, daggett, is what happens in the real world, multiplied a gazillion times as people do their grocery shopping on the weekend, using the money they have earned.

>>The loans can only be paid off if the economy expands indefinitely.<<

Doesn't work like that. You've been misled somewhere along the line - probably back there when you assumed that 97% of all money in existence is in the form of debt.

I suggest that's where you look first, to find out where you went wrong.

Pericles, I think the funniest line you have come up with so far was:
"That was a bit patronising, Daggett".
Perhaps on should see to the mote, in one's own eye?
Until you manage to grasp the mechanics of fractional reserve banking (as explained rather well on one of your own links) and how $100. in foldable (M0) banknotes can become $1250. dollars in bank deposits (M1, at an 8% reserve), this discussion will never advance.
You mentioned once you had a loan and had no trouble paying it off. What if that loan had been onsold, and payment was demanded immediately?
You were only able to pay off the loan because you were given *time* to do so. In other words, you borrowed on your own future earnings.
About half the cost of almost every item you buy is interest on loans. The farmer borrows to buy a tractor. The transporter borrows to buy a truck. The truck manufacturer borrows to build the truck. His bank borrows, so they can lend again.
You must realise the fiat component (printed money and coin) is only a fraction of all the money in circulation.
All the other money goes through banks, and they don't give away nuthin.

Back atcha, Grim.

>>Pericles, I think the funniest line you have come up with so far was: "That was a bit patronising, Daggett"<<

So far, so good

>>...Until you manage to grasp the mechanics of fractional reserve banking<<

Uh oh. That was pretty patronising, wasn't it?

>>...how $100. in foldable (M0) banknotes can become $1250. dollars in bank deposits<<

It doesn't "become" anything. It just "is".

Let me quote Wikipedia for a moment, since it uses the simplest language.

"Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand"

The key phrase here is "lend out the remainder"

There is not the merest hint of the manufacture of money that didn't previously exist, somewhere in the system.

If they only have your $100 in the vaults, they would not be able to lend you $1,250.

They would certainly be permitted to do so, under the reserve requirements. But unless they find some capital from somewhere, or borrow on better terms than they lend, they physically cannot. What would they use to fill the ATM?

>>What if that loan had been onsold, and payment was demanded immediately?<<

Doesn't need to be onsold for that to happen, Grim, if the conditions on the loan were repayment-on-demand, my Bank can do that anyway, so nothing changes.

If I am unable to pay, I would be bankrupted, and the loan would have to be written off as a bad debt.

The value to the new owner of my debt would be exactly the same as to the originator. Provisions for defaulters like me are a standard feature of any Bank balance sheet.

As long as you believe in P&L and Balance Sheets, that's where you can track the whole process of deposits, loans, and the Bank's adherence to reserve requirements.

Here's how NAB describe the process

http://www.nabgroup.com/0,,53013,00.html

It's actually quite interesting, so long as you understand double-entry bookkeeping.

Sorry, was that patronising?

I accept the criticism Pericles; I was being patronising, and quite deliberately so.
Still, I find it incomprehensible that a gentleman of your obvious intellect didn't bother to scroll down to the bottom of your own wikipedia link. If you had done so, you would have seen a table which demonstrates precisely how a bank with 100 central bank dollars can lend out $357 dollars, while keeping a (quite hefty) 20% reserve.
Seriously chum, I don't blame you for refusing to believe the simple multiplier effect of fractional banking. It is pretty unbelievable.
As Galbraith said: "The process by which banks create money is so simple that the mind is repelled."

Grim,

You cannot convince Pericles as he (and others) have a different definition of money from the idea that you and I and most of the population.

Pericles thinks there is fiat money - that is money that has no asset backing and is created by governments through "printing money" and there is credit money that is money that is issued to people as loans and is backed by an asset.

What he thinks happens is that part of the real money is lent to someone. They deposit that and then the real money is lent again and again and again. We all agree that this is the way it works. What Pericles does not accept is that at the end of the process there is more money. He says no there is still the same amount of fiat money and there is a lot of credit money that is not the same because his double entry bookkeeping says that the credit money is backed by an asset and hence no money was created.

Now you and I know that this is smoke and mirrors and that if we take snap shot of all the bank accounts we would find that there is a lot more money in accounts. Pericles would say - but the extra money is going to go away when the money is repaid because double entry bookkeeping tells him so.

Pericles is right and if the system worked this way then it would be OK. Unfortunately there is a problem. The problem is that some (most) of the new credit money is not actually backed by a real asset. It is backed by other credit money. An essential part of the equation to make credit money OK is that it only be backed by real assets.

This is the problem I am trying to address.

I have various ways and zero interest loans on a zero interest deposit fits into Pericles model so I was surprised when he still did not see it.