LOANS--COMPLEX PRIVATE CURRENCIES

In the previous chapters, it was argued how the official public currency (dollars) in a system of production can be cheapened (inflated) via counterproductive use of either

unofficial public currencies (Treasury issues or Savings Bonds) or,
simple private scribbled-on paper products (listed in the Money Rates chart of the previous chapter).

Other products of human time exist within a system of production which will cheapen the product worth of the official common intermediate product. Among the products are loans. As opposed to the SIMPLE private currencies listed in the Money Rates chart, loans are more COMPLEX form of private currency. The buying power (product worth) of the official currency is affected by how private loans are produced and used, as well as the frequency of loans.

A loan is a form of currency. While not as liquid as a certificate of deposit, the holder of a loan can find someone to assume the loan for a fee. In other words, if one has lent someone some money, it is quite possible to sell the loan to a third-party who will collect the loan. This is the principle behind collection agencies which will "buy" a loan at less than its face value.

Would you rather live in a system of production where every individual and industry had to ALWAYS borrow money to buy anything, or, in an economy where people had their own savings? A system of production would be better off if all the individuals and industries had retained earnings from which to operate and expand their production. Because people do not have retained earnings, or do not retain control of their earnings (savings), a portion of the working population must be engaged into the performing of loan services. This portion could otherwise be employed in the production of goods or other services if the people were not so organized as to be dependent upon those people manipulating the symbols of production.

The Federal Reserve System and Loans

There are many ways of arguing that a loan affects the money supply and, consequently, affects the value of the money. If one accepts that the Treasury Notes affect the money supply, then one should understand that loans affect the money supply. Afterall, the national debt is composed of the loans which people have made the politicians in the name of the nation. Each Treasury Note or Savings Bond is a scribbled-on paper product indicating the extent of money lent. Similarly, in the private realm through banks, loans utilize scribbled-on paper products to indicate how much money someone borrowed from the bank. Thus, when compared to Treasury sopps, the private sopps known as loans should also have an effect on the money supply as do the public sopps.

The necronomists are aware of the relation of loans to the money supply. They have imbued the Federal Reserve System with control of the loans that banks make. By altering the "reserve requirements", the Fed affects how many loans a bank can make, and thereby expands or contracts the money supply. Loans are very much a part of the money supply, something that the necronomists acknowledge in part.

By adjusting the legal reserve requirement--i.e., the proportion of its deposits that a member bank must hold in its reserve account--the Federal Reserve System can increase or reduce the amount of new loans that the commercial banks can make. Because loans give rise to new deposits, the potential money supply is, in this way, expanded or reduced.

Potential Problem with Loans: Counterproductive

The problem with loans is the same problem with the previously mentioned non-official currencies. How the loans are used determines whether the official currency suffers instability. If the loans are counterproductive in nature, the reduction in production will cause sinflation (shortage inflation) in production destructively affected by the loans.

The loans can be counterproductive in many ways. Many of these examples were cited in a previous chapter. However, to refresh the readers' memory, they will be recapped. Loans are counterproductive if

lent for speculative returns rather than production profits,
lent for acquiring old production rather than capitalizing new production,
lent for capitalizing non-essential production rather than maintaining essential production,
lent only for short-term loans, not long-term loans, or,
lent by banks speculating directly in old products of former production, e.g., precious metals.

Not only are all these loans counterproductive and inflationary of the official public currency, but they are occurring more and more each day. If bank loans were assessed for a ratio of productive to counterproductive loans, one would find that the ratio is each day (1980-81) increasingly skewed toward counterproductive loans. The effect on production is simple and obvious. Bankers may complain about the Treasury Department crowding capital out of production. However, the bankers themselves have a clear lead in misdirecting private capital away from production through counterproductive loans.

Loans: Rising Frequency Waste Human Time

Without considering the qualitative nature of loans, loans can be counterproductive if the frequency of loans increases. Within any system of production, people spend so many hours a day engaged in producing goods and services. The contracting of loans represents one of the human services which are a part of the system of production. Clearly, a system of production is hurting if the total amount of time spent contracting loans doubles while other production dwindles. A previous quotation noted how lending institutions were shifting from long-term loans to short-terms loans. For the system as a whole, this trend is counterproductive: less of the total time will be available for the actual process of producing more useful goods and services. Which would be better for America?

Ten percent of the population (busytime) employed in transacting loans, or
zero percent of the population (busytime) employed in transacting loans?

This question is very similar to the question concerning the production cost of currency: Which is a better currency, one that requires 10% of the populations' time OR less than 1% of the total production time? Both questions are really questions of production costs for a given good or service. In both cases, the collection of people that has to spend the least amount of time for a given product (goods or service) is better off than the people that have to spend a lot more time. In both cases, it is a question of human productivity, of using, saving, or wasting human time. The more frequently people engage in producing or transacting the symbols of production, e.g., currency or loans, the fewer hours will be spent in the actual production.

There is no reason, except a lack of political leadership, why Americans could not be organized to save and to pool their own capital (Savers' Mutual Funds). With Savers' Mutual Funds, all the human resources that presently go into professionally training people to manipulate symbols of production could be eliminated. Simultaneously, the re-enfranchisement of the basic producer to control his savings would result in productive rather than destruction loaning of the capital: democratic tuning (see index for references).

When people are professionally trained to merely manipulate symbols of production on a full-time basis, such people are inevitably isolated from the actual process of production. The unavoidable isolation leads to loans that are counterproductive in nature. Professional bankers, brokers, and financiers derive their income by the short-term QUANTITY of transactions regardless of the long-term QUALITATIVE effects on production. As argued in later chapters, people cannot expect their savings to be productively invested when the financiers can actually make more money on economic instability. Economic turmoil generates large commission fees from the numerous transactions of the various symbols of capital, production, and time--the official and unofficial, public and private currencies. A system of production cannot long survive when the controllers of the various forms of currency derive income from the currency transactions rather than from actual production, from inflationary returns rather than production profits.

The "Prime" and Loans

Have you ever wondered why the prime interest rate defies the law of supply and demand? When the money supply increases, bankers raise the prime interest rate; when the money supply dwindles, bankers lower the interest rate. Does this action not defy the law of supply and demand? Bankers rationalize the higher prime rates in terms of and increased money supply which they say results in higher costs for the bankers in obtaining money from savers. Really now. Supposedly, when supply increases, costs should go down. Such does not occur with the money supply and the prime interest rate ... unless one recognizes that loans are a form of money.

On the basis of the official currency alone, the relationship between the money supply and the prime interest rate contradicts the law of supply and demand. However, if one recognizes loans as a major component of the money supply, then the laws of supply and demand fit very nicely. Thus, a rise in the prime is not due to a rise in the official money supply, but in the demand for loans. Thus, confronted with increased demand for their loans, bankers raise their interest rates, "charging whatever the traffic will bear." When faced with dwindling demand for loans--incorrectly called a drop in the money supply--bankers scramble for the fewer customers by lowering their prime interest rate.

The whole idea of the prime increasing when the money supply grows--due to higher borrowing costs by the bankers--is a falsehood. The widespread explanation of the prime in these terms not only defies the laws of supply and demand, but indicate a degree of corruption or incompetence on the part of the bankers, necronomists, politicians and reporters. [So what's new.] Correctedly related to loan demand, the relationship between the prime and the "money supply" substantiates the role of loans as a form of money, as a private form of currency. When the fluctuation of prime is properly stated in terms of the relevant form of money, the laws of supply and demand are conserved, a conservation which conservative bankers immorally ignore.

Can the Fed Control the Money Supply and Inflation?

If the Federal Reserve System did not print any more dollars and raised the reserve requirement, in other words, put Milton Friedman in charge, would that be enough to curb the growth of the money supply and stop inflation? No. If one recognizes the nature of loans as a complex private currency in which the official currency (dollars) can be readily converted, and in which production can be destructively affected, then one must conclude that the Fed cannot control the money supply or inflation. Inflation can be controlled by productive use of all forms of currency, something that the Fed, the politicians, the financiers, and necronomists don't understand. They recognize the counterproductive use of money, see the quotations in the chapter "The Loan Action of the Fed".

Swappy Loans Cause Soppy Production

The previous analysis of banks mislending the pooled capital of the small savers can be re-analyzed in terms of swapping loans. The small saver is a lender himself when he has a checking or savings account with a bank, he lends the bank his capital. In return, the bank lends the small saver either a passbook, a checkbook, or a maybe a certificate of deposit. Banks, of course, is very explicit on how the recipient of a passbook or checkbook are not supposed to do anything counterproductive, e.g., write bad checks, or overdraw money from different branches on the same day. Unfortunately, the small saver does not recognize, let alone explicate the counterproductive actions which a banker can do with the resources lent by the small saver.

The manner in which the banks counterproductively use the lent resources of the small saver involves swapping resources or loans. In one sense, a banker is a loan clearinghouse in which loans are swapped by people who never meet, by people who have given fiduciary powers to the banker as the middleman. A banker collects or pools the small loans which the savers have lent the bank; the banker swaps these small loans for a scribbled-on paper product containing a promise of repayment.

As always, it is not the process itself that is detrimental to the small saver and the official currency. Rather, it is what production is stimulated today that determines the product worth of all products in the future. To whom the bank lends money or makes swaps determines the product worth or level of production in the future.

Foreign Exchange Transaction Known as Swaps

There has recently been a surge in a new kind of financial transactions in the area of international trade. Rather than transactions occurring in official public currencies, the transactions involve swapping loans, that is swapping complex private currencies. Examples of the new "swaps" are contained in an article entitled "Companies Can Avoid Currency Losses Through Swaps With Foreign Businesses",

The precise arrangements are widely varying and complex, but the principle is simple--instead of buying and selling currencies through the impersonal mechanisms of the market, find a foreign business with "just the opposite needs" and work out a direct "swap" or set of loans to each other ... big banks are carving out a role for themselves as agent, with a single bank usually finding and representing both parties for a commission.

While the terminology for these transactions may strike the banking community as indicative of a new banking procedure, such is not the case in essence. Banks have always been, in principle, a clearing house for swapping loans; only now the loans are in private forms of currency.

The whole idea of swaps between companies is a good idea, if the process saves time not only today but tomorrow. If the swaps serve to stimulate non-essential production at the expense of essential production, then the swaps are as counterproductive as if a government printed money and gave it to the gamblers within the system of production. Counterproductive swaps affect the system as a whole and will cause sinflation.

One thing to notice is how the banks are at the center of the swaps. Given the nature of the existing financial system, banks prefer economic situations in which there is a need for numerous short-term loans (or swaps) rather than a comparatively few long-term loans? Afterall, they can charge higher interest for short-term loans, and they can have a greater number of service charges to offset the higher overhead. In other words, the bankers of the world have more to gain from economic instability than they do from quiescent economic activity. Would the bankers of the world foster individuals and industries retaining and controlling their earnings so that they don't have to borrow from anyone?. Can it be expected that the present bankers and financiers will really ever foster financial independence for their clients? No. They would put themselves out of business. Consequently, for their own survival they must constantly be exacting the original meaning of the word finance upon all who have business transactions with the banks: to forfeit, to ransom. The present dealings of individuals with the necronomic banking system is an update of how one can work another day and be deeper in debt, of owing one's soul to the company store. Variable interest rates in which excess interest will be tacked onto the principle is the clearest objective proof by which the necronomists, politicians, and financiers are enticing people to forfeit and ransom the future. Inflation was the original, less objective way in which corruption and incompetence finance a ransomed future, a future enslaved to more work, but less and less each day.

Increased International Lending by Banks

The trend to more frequent loans has been noticed elsewhere. The following quotation supports the trend of greater loans, increasing numbers of which involve swaps.

Lending by banks in the major industrial nations to other countries probably showed continued strong growth in this year's second half, after expanding 6.2% in the first half from the prior six months, the Bank for International Settlements said.

Other statistics, cited in the next chapter, note not only a rise in domestic lending, but an increase in "stress" loans to busynesses suffering economic ills.

Does it not seem strange that despite economic recession here and abroad (1980-81) that banking continues to boom? When one understands how banks make counterproductive loans or "swaps", one understands how banks silently depress production and cause busynesses to need more loans. Chrysler is not the only company that has become cash-starved and had to apply for "stress loans."

Meanwhile, there are a lot of cash, swaps, and other products going everywhere except where it perhaps should go, and in ways that bode dismal, soppy production in the future, for awhile. For example,

Citibank is trying out a technique for financing foreign governments at slightly lower rates and without necessarily tying up its own lending capacity.

Blending methods used in the U.S. market for commercial paper, or unsecured corporate IOUs, with Eurocurrency-loan practices, Citibank and its associates are providing New Zealand with a $500 million facility for short-term paper.

Eurocurrencies are currencies deposited outside their countries of origin, and they aren't subject to reserve requirements or other factors that artificially raise the cost to banks. The Eurocurrency pool is estimated to be in excess of $1.3 trillion.

This quotation reveals a number of things about the banking community. Firstly, they have no sense of hometown pride, advertising budgets to the contrary. Many American industries are collapsing. Do the banks think of their community first? No, the above quotation is but one example of banks having no sense of geographical boundaries; they are looking only for more symbols of production (currency) anywhere rather than real production gains at home.

Secondly, the quotation also shows the negative ingenuity of the necronomists. These people with their negative information work for, with, or as bankers. They manipulate the symbols of production so that they can get something for nothing. Note how Citibank, run by a different branch of the Rockefeller Clan, has come up with a way to make a half-billion dollar loan without using its own capital. Any time someone or something gets something for nothing, someone else lost something and received nothing.

The Citibank quotation also points to the new necronomic force, an inflationary force cheapening all the official common intermediate products. The name of this economic blackhole is the Eurobond Market, or Euromart. The Euromart, as the next section shows, provides the means for bankers to make loans with fewer restrictions and fewer reserves. Consequently, the counterproductive potential of loans is increasing in the hands of the bankers of the world, who are out-of-touch with the product worth. Bankers can destroy and are destroying the world's system of production. The bankers, like all the money-changers throughout history, are destroying civilized life by diluting production. Soppy busytime activity is on the rise.

Warning: Anyone found stealing lifehours will be forever banned from participation in and rewards of Better Democracy and Capitalism.
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