From: ab756@freenet.toronto.on.ca (Graham Bullers)
Date: Wed, 17 Apr 1996 17:25:17 +0800
To: Cypherpunks@toad.com
Subject: MORE ON MONEY
Message-ID: <m0u9JDK-0000hpC@queen.torfree.net>
MIME-Version: 1.0
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    TURMEL:      Mathematics of how Interest works


           GREENDOLLAR AND TIMEDOLLAR LETSYSTEM ENGINEERING
 
     The problem of debt is created within the banking system and 
therefore a thorough understanding of the banking system is helpful. 
The money system is the only mechanical system not under the 
jurisdiction of engineers. Control has been usurped by economists. All 
others systems improve, the only one controlled by economists is 
failing. It's time scientists regain control of this errant system 
from which come all the financial woes of the world.
     As an electrical engineer specialized in banking systems, I will 
endeavor to explain the inner workings of this mysterious system at 
every possible level and its effects on users and debt. Though this 
might sound daunting, I think I can present an easy way of handling 
subjects such as 
     - plumbing analogy with pipes for flows of money
     - simple algebra
     - exponential functions
     - differential equations
     - Laplace transformations
     - control system circuitry
 
FALLACIES
     The two Big Lies of Economics and Banking are that:
     1) Banks lend their depositors' savings.
     2) Interest rates fight inflation;
     Banks do not lend out their depositors' funds, they lend out 
brand new money. Interest does not fight inflation, it causes it. 
 
HOW BANKS CREATE MONEY
     The inner workings of the engineering design of the Canadian 
"fractional reserve" banking system are mysterious to many but no 
matter how complex the actual process of creating money is, it can 
accurately be simplified to "HAVING THE MONEY PLATES," whether they be 
plates for changing metal to coins, plates for changing paper to 
notes, or plates inside a bank's computer changing electrical blips to 
bank deposits on which checks may be written. 
     Since changes in the money supply are regularly reported, money 
must enter the supply from a source and leave through sink. Our 
liquidity system has both a tap and a drain. Since the government 
borrows money itself, it does not have control of the tap. Who 
controls the tap and the drain of the money supply?
     The easiest way to model our system of financial liquidity is 
with plumbing. All banking systems have the same exterior connections 
to the economy. 
     Draw two squares side by side each. Title the first a "Piggy 
Bank" and the second "Chartered Bank." 
     For both, draw three arrows going in at the 
top labelled "Deposits," "Interest paid," "Loans paid." 
     Draw three arrows coming out from the bottom labelled 
"Withdrawals," "Expenses," Loans made."
     In the Piggy Bank, draw a rectangle wide enough to accept all 
three input flows and all three output flows. Label it "Reservoir."
 
                           PIGGY BANK 
 
              Deposits    Interest(paid)  Loans Paid
                  |             |             |     
                  |             |             |     
     |------------|-------------|-------------|--------------|
     |            |             |             |              |
     |            |             |             |              |
     |       |----|-------------|-------------|----|         |
     |       |                                     |         |
     |       |                                     |         |
     |       |              RESERVOIR              |         |
     |       |                                     |         |
     |       |                                     |         |
     |       |----|-------------|-------------|----|         |
     |            |             |             |              |
     |            |             |             |              |
     |------------|-------------|-------------|--------------|
                  |             |             |     
                  |             |             |     
            Withdrawals     Expenses      Loans Made
 
 
     The interior plumbing of a piggy bank reservoir system shows that 
a deposit is first made into the reservoir and a loan is then taken 
out of the reservoir which causes no increase in money supply. 
Conversely, when a loan is paid, it goes into the reservoir and there 
is no decrease in the money supply. A reservoir piggy bank system does 
not affect the money supply because there is no tap and no drain.
     Though the Bank of Canada operates a tap and adds a small amount 
of "high-powered" money to the money supply, Graham Towers, a former 
Governor of the Bank of Canada, pointed out that "The banks do not 
lend out the money of their depositors. Each and every time a bank 
makes a loan, new bank credit is created, new deposits, brand new 
money." So a chartered bank has a tap and is not the pure reservoir 
system like a piggy bank model!
     In the Chartered Bank, draw a rectangle wide enough to accept 
only the first two input flows and first two output flows. Label it 
"Reservoir." 
     Draw a circle above the "Loans Out" flow, put a positive sign 
within, and draw the line to the circle. Label it the "Tap." 
     Draw a circle below the "Loans in" flow, put a negative sign 
within, and draw the line to the circle. Label it the Drain.  
 
                     FRACTIONAL RESERVE BANK
 
              Deposits     Interest(in)   Loan Payments
                  |             |              |     
                  |             |              |     
     |------------|-------------|--------------|-------------|
     |            |             |              |             |
     |            |             |          |---|---|         |
     |       |----|-------------|----|     | DRAIN |         |
     |       |                       |     |-------|         |
     |       |                       |                       |
     |       |       RESERVOIR       |                       |
     |       |                       |                       |
     |       |                       |     |-------|         |
     |       |----|-------------|----|     |  TAP  |         |
     |            |             |          |---|---|         |
     |            |             |              |             |
     |------------|-------------|--------------|-------------|
                  |             |              |     
                  |             |              |     
            Withdrawals   Bank Expenses    Loans Out
 
     The interior plumbing of a chartered bank shows that the loans do 
not come out of the savings reservoir but come out of the tap of new 
money. When a chartered bank makes a loan, the amount of money in 
circulation goes up. When a loan is repaid, it goes down. In the 
textbook Economics by Lipsey, Sparks, Steiner, it states "The banking 
system as a whole can create deposit money." Therefore, the banks all 
have their very own tap, their very own set of electronic money 
plates. 
     This power to refuse to turn on the tap for one businessman and 
foreclose while turning it on for another so that other can buy out 
the first businessman at auction is not fully appreciated.
     The injection of new money from their taps has been well hidden 
from the public view because the Bank Act insists that before any new 
money may be loaned into circulation, old money must be deposited into 
their reservoirs. It's just as if a casino were to insist on old chips 
being put into the safety deposit section before it would issue new 
chips. By merely matching new loans to deposits, this brilliant cover 
for the turning on of the tap misleads observers into falsely 
concluding that a chartered bank operates like a piggy bank. With a 
lawful reason to seek deposits before they can lend, there is no 
outward difference between chartered bank and a piggy bank. Yet, banks 
do not seek deposits to lend to other people. They seek them to 
lawfully turn on the tap. 
     The famous "reserve ratio" of a "fractional reserve system" 
simply means that a fraction of all deposits is sent to the Bank of 
Canada's reservoir and the bank is then allowed to turn on the tap to 
match the deposits remaining in their reservoir. Banks create most of 
the money in circulation. To go step by step through the plumbing with 
a 10% reserve ratio, let the Bank of Canada turn on its tap and put 
$100 of "high-powered" new money into circulation:
Depositing $100 into bank reservoirs turns on the tap for $90 more. 
These $90 end up deposited turning on the tap for $81 more. 
Depositing $81 into bank reservoirs turns on the tap for $72 more. 
Etc. until $10 into bank reservoirs turns on tap for $9 more.
Etc. until $1 into bank reservoirs turns on tap for $.90 more.
Etc. until the total deposits reaches a maximum of $1,000 with $900 
newly created dollars added to the system by the chartered banks for 
every $100 issued by the Bank of Canada. This limit is the inverse of 
the reserve ration. A reserve ratio of 5% would generate total new 
money of 1/.05 = 20 times the initial high-powered Bank of Canada 
money.
     The demonstrates that the problem with the money system is that 
the amount of mass put into circulation is not a function of the 
production possible but of past savings of money. 
     The major difference between a casino bank and a chartered bank 
is that the liquidity from a casino bank never suffers inflation while 
the liquidity from a chartered bank always suffers inflation. Since 
the hardware of a casino bank, chips of different colors and 
denominations, is functionally identical to the hardware of a 
chartered bank, computer credit pulses and coins or paper of different 
colors and denominations, inflation is not a hardware problem. It is a 
software problem. There is something wrong with the program which 
regulates how money is put into and taken out of circulation. There is 
nothing wrong with the hardware of our tap and drain system. It is the 
operators of the taps who are improperly restricting the flows.
     To fully appreciate our present predicament, consider a train-
master in a wartime situation who, when he was ordered to ensure that 
an invading army did not capture the system in operating condition, 
burned all of the railroad tickets. Our failure to use our manpower, 
materials and tools because there are insufficient monetary tickets 
puts us in the same category as the invading army who failed to use 
the captured railway because they couldn't find any railway tickets. 
To get out of this silly predicament, public control of the money tap 
must be regained. 
 
HOW "MORT-GAGE" INTEREST CREATES A DEATH-GAMBLE
     The word "mort-gage" is derived from the French word "mort" 
meaning "death" and "gage" meaning "gamble". Bankers create the money 
supply when they make loans. Producers are forced to gamble by 
borrowing newly created Principal(P) to pay for production costs and 
then inflating their prices to earn back the Principal and 
Interest(P+I) in sales. Because total goods priced at (P+I) can never 
be sold when consumers only have P dollars available, a minimum amount 
of goods must remain unsold and a minimum number of producers must 
fail and suffer foreclosure. The economist Keynes likened the mort- 
gage death-gamble to the game of musical chairs. Just as there are 
insufficient chairs for all to survive the musical chairs death-
gamble, so too, there is insufficient money for all to repay (P+I) and 
survive the mort-gage death-gamble.
 
P < principle, I < Interest, i < Interest Rate, t < Time
                               PERCENT    ALGEBRA   EXP. FUNC
Production costs (principal)     100         P          1
 
Production prices (Debt)        100+i       P+I       exp(it)
 
Purchasable Value                100         P           1
or ratio of money to prices     -----      -----      -------
or survivors                    100+i       P+I       exp(it)
 
Unpurchasable value               i          I             1
or forced unemployment     U=  -----      -----    1 - --------
or non-survivors                100+i       P+I         exp(it)
 
For U=0, let                     i=0        I=0      i=0 or t=0
 
     The odds of survival are always set by the interest rate(i). 
P/(P+I) survive, I/(P+I) do not. 
 
INFLATION
     The equation for the minimum inflation (J) we must suffer is the 
same as the equation for unemployment (U) because the fraction of the 
people foreclosed on is the fraction of collateral confiscated.      
     Draw a large H and label the first left line as "$" and the right 
line "Collateral." 
     Draw a small arrow up from the left axis. Label it "Shift A." 
     Draw another arrow down from the right axis labelled "Shift B." 
     Draw a line from the tip of the "Shift A" arrow to the base of 
the "Shift B" arrow and vice versa.
 
                 Dollars     Assets
                    |           |
           ________ |           |
                    |\          |
                    |  \        |
            Shift A |    \      |
                    |      \    |                 
                    |        \  |
           ________ |__________\|________
                    |\          |
                    |  \        |
                    |    \      | Shift B
                    |      \    |
                    |        \  |
                    |          \| ________
                    |           |
                    |           | 
                    |           |
 
     Though we are led to believe that inflation is caused by an 
increase in the money chasing the goods (Shift A), actually, due to 
foreclosures, it is caused by a decrease in the collateral backing up 
the money (Shift B). Though both inflations shifts feel the same, the 
graph shows inflation is the direct function of interest, not the 
inverse exposing the Big Lie that interest fights inflation. 
     Most people who have not studied economics, if asked whether 
interest fights or causes inflation, are quick to agree that a merchant 
must pass on increased interest costs in his prices and therefore it 
is evident that increased interest costs will result in increased 
prices. After a thorough brainwashing, economists have been convinced 
that increased interest costs will result in decreased prices as they 
constantly explain that "interest fights inflation."
 
DIFFERENTIAL EQUATIONS
     The differential equation dB/dt = iB states that the 
increase or decrease of a bank balance (dB/dt), whether credit or 
debt, is equal to the interest rate (i) times the old balance 
(B). 
     The solution to the differential equation is exp(it) where t 
= time. We can now examine the problem, not over one cycle with 
algebra, but over time with exponential functions. Exp(it) is a 
non-linear function, crooked. 
     Draw an X axis labelled "Time" with units of 0, 1T, 2T, 3T..
     Draw a Y axis labelled "$" with units of 0 to 16.
     At Y=1, draw a line to the right.
     At Y= -1, draw another to the right. 
     At X=1T, make a point at Y=2 and Y=(-2).
     At X=2T, make a point at Y=4 and Y=(-4).
     At X=3T, make a point at Y=8 and Y=(-8).
     At X=4T, make a point at Y=16 and Y=(-16).
     Join the points. Label the curve going up +B*exp(it) and the 
curve going down as -B*exp(it).
 
GRAPH#2      1600|                            B*exp(it)  $1600
                 |                                      $
             1400|                                     $ 
                 |                                    $
             1200|                                   $
                 |                                  $
             1000|                                 $  
                 |                               $  
              800|                             $800
                 |                           $
              600|                         $
                 |                      $
              400|                   $400
                 |               $
              200|         $200                      +B
                 $-------------------------------------> time Yrs
                 0---------1---------2---------3---------4-------
                -$------------------------------------->  
             -200|        -$200                      -B
                 |               $
             -400|                  -$400
                 |                      $
             -600|                         $                           
                 |                           $
             -800|                            -$800
                 |                               $
            -1000|                                 $
                 |                                  $
            -1200|                                   $
                 |                                    $
            -1400|                                     $
                 |                          -B*exp(it)  $
            -1600|                                      -$1600
 
     Consider that if two men are in a car accident and one owes 
the other money, if there there is no interest, the debt stays 
friendly, social and Christian like the two straignt lines for 
one owing -100 and the other being owed $100. The two straight 
lines from at +100 and -100 represent the growth of the debt and 
credit. Zero. 
     If there is interest, the balances start to grow with time 
and double in time T, then again in time and again and again. 
Follow the $ curves to see how interest makes balances grow 
exponentially. 
     For the record, the differential equation for inflation (J) 
can be described as:
                      dJ^2/dt^2 + (i)dJ/dt   = 0 
or                         j''  + (i)j'      = 0 
 
LAPLACE TRANSFORMATIONS
      The Laplace transform of the balance B is 1/(s-i) where "s" 
is the Laplace constant. The moment the debt passes through the 
usury filter in banking system accounts, (1/(s-i)), it starts to 
grow.
     For the record, the Laplace transformation of the inflation 
(J)  whose solution is (1-exp(-it)) is:
                           1 / s(s+i)
 
CONTROL SYSTEMS
     With the Laplace transform, it is also possible to draw the 
electrical blueprint of a bank account in the usury banking 
system:
 
                                       |---------|
                                       |    1    |
   CONTROL SYSTEM FOR           ------->  -----  |--------->
                                       |   s-i   |
                                       |---------|
 
 
                       |----------------|
                       | Interest = 10% | 
                  |<---|   Rate         |<---------|
                  |    |----------------|          |
                  |                                | Old    
                  |                   |<-----------| Balance
                  |                   |            |
                + |                 + |            |
           |------------|       |------------|     |
  Input  + |  Addition  |     + |  Addition  | New | 
---------->|    Node    |------>|    Node    |--------------->
           |------------|       |------------| Balance
 
     Draw two circles about two inches apart with a plus sign 
within both. These are addition nodes.
     Draw arrows from left to right right through both. Where all 
arrowheads touch a circle, draw a little plus sign. Label the 
left arrow "Input," the middle arrow "Total Input," and the right 
arrow "New Balance." 
     Draw a small rectangle labelled "Interest Rate" above and 
between the two circles. 
     Draw a line up to the right of the circles, an arrow to the 
rectangle, a line out stopping over the first circle and an arrow 
down to the first circle. Label the arrow "Interest." 
     Draw another arrow to the left and down to the second circle 
but not through the rectangle. Label this arrow "Old Balance."
     This is the control system of the usury banking system. 
     This blueprint of a usury bank account shows that added to 
any input is the feedback of the interest rate times the previous 
balance which can be positive or negative. This net amount is 
added to the previous balance to produce the new balance. This 
positive feedback makes the system unstable and the root of bad 
vibrations. 
     Your $100 volt pulse is the input to the first addition 
node. Added to it is the interest voltage from the last balance 
which, to start, was 10% of zero. The new net $100 pulse enters 
the second addition node where it also is added to the old 
balance, still zero, to push the new balance up to $100 volts. 
     Next year, with no new pulse at the input, added to this 
zero voltage is 10% interest, a pulse of 10 volts. The 10 volt 
pulse goes into the second addition node where it is added to the 
old balance, 100, to push the new balance to 110. 
     Cycle after cycle with no new inputs, you have the 
exponential growth exp(it) which grows as the above series. It 
acts just like bringing a microphone up to a speaker. The sound 
from the speaker is picked up by the microphone and fed back to 
make the sound out of the speaker louder which is picked up and 
fed back to make it louder until you blow your speaker. Having an 
unstable positive feedback loop built into a system makes that 
system unstable. 
     Negative feedback loops where the feedback from the previous 
balance is subtracted are very useful in stabilizing systems away 
from error but positive feedback always makes the error grow.
     A physical example of negative feedback, positive feedback 
and no feedback follows:
     If you have a bowl and you put a ball in it and then give 
the ball a little shove, it will travel up one side, gravity will 
bring it down and it will rock back and forth until it settles 
back to the middle. That's how engineers use negative feedback to 
bring back things which have been pushed out of normal operation 
back to normal. 
     If you turn the bowl upside down and put the ball at the 
top, one small push and the gravity will make the ball fall 
faster and faster. That's unstable.
     If you put the ball on a platform and give it a push, 
without friction, it will just continue in rolling steady state. 
     Both zero and negative feedback are acceptable while 
positive feedback is always unacceptably unstable. 
     Engineers say that systems are stable if the pole of the 
system is in the left-hand plane or on the origin but unstable if 
the pole is in the right-hand plane. 
     Knowing that the Laplace Transform of the system is 1/(s-i), 
the denominator is zero when s=+i and therefore, the pole is on 
the right-hand side of the origin, hence unstable. 
     Eliminating the bad vibrations is as simple as making the 
interest feedback loop in the bank's computer programs zero and 
using only the simple interior circuit known as an "integrator." 
Currency systems presently using these simple "integrator" 
accounts are now known internationally as Greendollar systems of 
the Local Employment Trading System (LETS). 
 
     We know that the LETSystem is an interest-free system and so 
we cut the positive feedback loop to get 1/(s-0).
 
                                       |---------|
                                       |    1    |
   CONTROL SYSTEM FOR           ------->  -----  |--------->
                                       |    s    |
                                       |---------|
 
                                              /\
                                                \
                       |----------------|        \
                       | Interest = 10% |         \
                  |<---|   Rate         |          |
                  |    |----------------|          |
                  |                                | Old    
                  |                   |<-----------| Balance
                  |                   |  Balance   |
                + |                 + |            |
           |------------|       |------------|     |
  Input  + |  Addition  |     + |  Addition  |     | New      
---------->|    Node    |------>|    Node    |---------------:
           |------------|       |------------|       Balance
 
 
     This leaves us with only the interior circuit: 1/s
 
                                       |---------|
                                       |    1    |
   CONTROL SYSTEM FOR           ------->  -----  |--------->
                                       |    s    |
                                       |---------|
                                                    
                 |<-----------| Old    
                 |            | Balance
                 |            |
           |------------|     |
  Input  + |  Addition  | New |    
---------->|  Node      |--------------->
           |------------| Balance
 
     This is the mathematical circuitry behind all interest-free 
systems and how Greendollars work. 
     Instead of an output which is exponential, crooked, we have 
an output which is linear, straight.      
     Your $100 volt pulse is the input to the addition 
node. Added to it is old balance, starting at zero, to push the 
new balance up to $100 volts. 
     Next year, with no new pulse at the input, and with interest 
voltage to add, the balance stays at $100 volts. If another 
deposit comes in, it's added to the old balance to create a new 
balance. A negative coming in will reduce the old balance. But 
the system is always in balance. Positives equal negatives. 
 
     This analysis shows that unemployment and inflation must go to 
zero if the banks' computers, which are now permitted to charge both 
interest and service charges, are restricted to only the service 
charge.
     Note that the exponential derivation shows that there are two 
solutions to the mort-gage (death-gamble). The software solution is 
interest rate(i) = 0 by restricting the banks computers to a pure 
service charge and abolishing the interest charge. The hardware 
solution is time(t) = 0 by installing an instantaneous electronic 
cashless marketplace. 
 
GAME MODEL: SERVICE CHARGE VS. INTEREST
     In his book `The Theory of Games and Economic Behavior', 
John Von Neumann, one of this century's top mathematicians, 
stated that "important questions in economics arise in a more 
elementary fashion in the theory of games." In the business war 
for markets, the economy decides who sells their goods and who 
fails to. Models used by economists are flawed by guesses and 
approximations about what the economy will choose. The only way 
to perfectly model the economy is to use fair chance to pick the 
winners and losers.
 
TO PLAY MORT-GAGE:
     The necessary game equipment for "mort-gage" is 1) a box to 
represent the market economy); 2) 3 types of tokens to represent 
food, shelter, and energy (the tokens can be mints, napkins, 
cutlery);  3) a fair chance mechanism like a coin, cards, dice, 
straws, etc.; 4) matches or tokens to represent currency.
     In the Interest Game, all owe the bank 11 for every 10 
tokens they borrow and have to inflate their prices to repay both 
the principal and the interest.
     Step 1) Have all the players wishing to get into business 
pledge their watches to borrow 10 matches from the bank at an 
interest rate. 
     Step 2) Have all players spend 10 matches into the market 
box in exchange for a token representing the product of the 
economy's labor.
     Step 3) Have pairs of players, those with similar tokens 
first, use chance to decide which will win a market share out of 
the box large enough to pay the principal and the interest 
necessary to survive the bank's demand.
     Step 4) When the market runs out of currency, let the bank 
seize the tokens and watches of the losers. 
     Step 5) Record the percent of those knocked into 
unemployment and the collateral seized.
 
     In the Service Charge Game, all owe 11 for every 11 they 
borrow with the 11th paid immediately to the bank employees as a 
service charge.
     Step 1) Have all the players wishing to get into business 
pledge their watches to borrow 11 matches from the bank. 
     Step 2) Have all players spend 11 matches into the market 
box in exchange for a product token, 10 for the services of those 
who produce the goods like on Interest Island, but also 1 for the 
services of the bank employees who facilitated the transactions.
     Follow Step 3), 4) and 5) and note that in the Service 
Charge Game, unlike in the Interest Game, everybody can sell all 
their goods because the 11th unit of money entered the market 
through the bank employees. The very subtle difference between 
systems is that in the Interest Game, the bank demands payment of 
money it did not create while in the Service Charge Game, the 
bank demands payment of money it did create. With exactly enough 
markets to match the prices of goods produced, there can be no 
foreclosures.
     I hope this analysis has helped clear up many of the formerly 
misrepresented and misunderstood aspects of the usury banking system 
as well as explain why usury has been condemned throughout history as 
the greatest crime against humanity. It's the only thing standing 
between mankind and abundant salvation.
     I welcome any questions on any aspects of how the banking systems 
engineering. 
 
--
John C. "The Engineer" Turmel, Leader, Abolitionist Party of Canada,
2918 Baseline Rd., Nepean, ON, K2H 7B7, Canada,Tel/Fax: 613-820-8656
     All TURMEL topics cross-posted to newsgroup: can.politics


--
=-GRAHAM-JOHN BULLERS=-=AB756@FREENET.TORONTO.ON.CA=-=ALT.2600.MODERATED-=
Lord grant me the serenity to accept the things I cannot change.The courage
to change the things I can.And the wisdom to hide the bodies of the people
=-=-=-=-=-=-=-=-=I had to kill because they pissed me off=-=-=-=-=-=-=-=-=-=