MONETARY: Re-turn of the Crank

[Keith Wilde <kwilde@ca.inter.net>]

Thanks to all who responded to the question about bank profits as
transmitted from a friend of mine. (If it is lost in the mists of memory,
the exchange took place on the week-end of Nov. 2-4  and featured Dan, Bill
and Rodney.) I have consolidated your responses into a single file and sent
it to my friend. Perhaps we will get some reaction from him.

The original version of his question is reproduced below.  It incorporates
a quotation from what he calls "course references", suggesting that he had
been following a systemmatic presentation of some kind. At the end of it my
friend explains his misunderstanding and specifies three questions. As I
look over them and compare to the synopsis I made of your responses, it
occurs to me that he may still be uncertain of the answers. Following
through the statements by Bill gives a pretty clear impression that his
answer is negative. The positions of Dan and Rodney seem much less precise.
They agree that bank loans are made out of thin air, but the implications
for bank profit and wealth increment after the loan is paid off are much
less clear. Similarly for the inflation question--although it was not
specified clearly in my original presentation of the question. 

>From this point forward to my signature, the words are those of my friend
or his sources.


"I quote from one of the course references. It seems to me that I have read
similar material in other references: 

QUOTE When the banks issued their notes into circulation, it was done in
the form of a debt, when loans were taken out. Taking one loan in
isolation, its net effect after maturing was to reduce the money supply by
an amount equal to the amount of interest. The principal introduced into
circulation was created in the form of private bank notes, and the amount
repaid was the original principal plus interest. So by having the private
banks creating and issuing notes into circulation as a debt, only
temporarily would the total money supply circulating increase to facilitate
an increased level of trade and commerce, then on maturation, the amount
circulating would have actually decreased. Each loan would have the effect
of creating the requirement for future loans to be made." (Although the
reference from which this is taken is not important for this letter,
apparently it was taken from http://www.stachow.com/fiscal/index.html)ENDQUOTE

Now let me explain my limited knowledge/ignorance of the banks' money
creation. The private banks create the money for my loan 'out of thin air'.
They charge me interest for use of this money. However, when my loan is
paid back, I give back to the banks the principal value of the loan plus
interest. Thus the principal of the loan which had been created out of thin
air, has now been returned to the bank with real, hard-earned, debt-free
money plus interest. The logic would indicate that the banks' 'profit' is
not just the interest payments but also the return of the principal. In
addition, the money supply has been increased by the repaid principal and
this increase is debt-free
I pose three questions to you.
1. Is there any errors in the statements I have made in the para above? 
2. If I am correct in my logical deduction that banks make a profit of the
principal and interest on loans, then I pose a second question to you. How
do the banks conceal this vast profit from the public and from Revenue Canada?
3. What effect does the vast increase in principal repayments to the money
supply have on inflation?"





Keith Wilde
Ottawa
kwilde@ca.inter.net
613 990-8125 

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