My Response to Anne Belsey's Critique of Money as Debt II

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Anne Belsey wrote:

I have to confess that I did not like MAD2 sufficiently to want to promote it. It is good in parts. I disliked much of it, and I frankly disagree with some parts.
I disagree with the idea that with a fixed money supply to charging of interest will lead to the lender ending up with all the money is nonsense, This can only happen if they start off with all the money in the first place, and have no costs to pay. If they do not, if they take in other people's savings, paying them a rate of interest, then as the amount of circulating money declines, so more savings will be taken out and the less money will be available for lending and earning interest so a higher proportion of such a lender's income will be spent back into circulation, and indeed the argument ignores this s[p]ending entirely.

Paul Grignon's response:

Anne's first objection is a complaint that apples are not oranges. As you can see from the movie frame below, the lender is clearly lending only his own gold. It has nothing to do with depositors and savings. As the reader will see throughout this response, I quote Anne's criticisms directly in green text and then give my response, quoting the script of the movie in red . Frames taken directly from the movie illustrate the script.

 

moneylender

sustainable usury w gold

"the argument ignores this s[p]ending entirely"

I see private lender "spending" in the picture above, and in reference to bank spending on expenses, that is mentioned and illustrated extensively elsewhere in the movie where it is relevant, as the frame capture below clearly shows.

treadmill

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As for having to "start off with all the money in the first place" perhaps Anne is ONLY thinking of banks.

I have sat at the computer of one our local "rich guys" and scrolled through the hundreds, maybe thousands of mortgages he has bought. He doesn't need to spend any of the interest he makes from these mortgages as he has another income. He uses ALL of the interest that comes in to buy more mortgages. What is to stop him from accumulating mortgages indefinitely starting from just one mortgage and using the interest he accumulates to buy more? Nothing that I can see. Anyone can start with a little stock of money (excess to their own needs) lend it out at interest and accumulate a larger stock of money over time. This is done simply by adding the interest to their stock of money to lend. This works whether money is gold coins, government-issued money, bank credit or puka shells.

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Anne Belsey wrote: "In truth, with a fixed money supply, the whole process of borrowing and lending at interest will be self-governing"

Not according to the history I have read. The only historical examples of "fixed money supply" systems I am aware of are coin money systems. In (relatively) fixed coin money systems, hoarding has commonly been a problem. And the mathematical impossibilities caused by lending led religion to enforce periodic general debt-forgiveness. Often it was customary that all unpaid loans had to be forgiven after a period of time. Where religious authority failed to enforce these conditions on lenders, the lenders ended up with everything, money, land, debtors as slaves, etc.

Would this be different in a modern, fixed fiat money system with banking carried out with only existing money as Anne advocates? Maybe... but, given the analysis I have come up with in MAD 2, I have to say I don't think so. In any case, I think it is a subject suitable for debate, not sweeping pronouncements.

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Anne Belsey wrote: "Also, the film's attack on the notion of people, including ordinary every-day savers expecting their money 'to work for them', that is earn interest on their savings runs counter to the notion in MAD1 that where interest is earned from lending it SHOULD be spread out amongst savers"

MAD1 did not say "amongst savers". I quote the script:

MAD 1 "Only if the proceeds of lending at interest were evenly distributed among the population would this central problem be solved. Heavy taxation of bank profits might accomplish this goal. But then why would banks want to be in business? If we were ever able to free ourselves of the current situation, we could imagine banking run as a non-profit service to society, disbursing its interest earnings as a universal citizen dividend, or lending without charging interest at all."

In MAD 1 I said interest earnings from non-profit banking should be spread out to the populace as a whole, perhaps as a minimum income, perhaps as general government expenditure. Distributing interest to savers, who will just add that interest to their Principal in order to collect more interest worsens the problem. The interest must be distributed to spenders, NOT savers.

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Anne Belsey wrote: "Attack on secondary lenders... I also disagree with the notion that the reason why 100% of the interest charged on debt-based money is not spent back into the economy is due to the existence of secondary lenders. These secondary lenders are those that do not create new money when they lend, but lend out existing money that has been deposited with them. They include old-style mutual building societies and credit unions.

This idea is complete nonsense. they are merely part of the the whole circulating economy. They do not create money as debt, and nor do they destroy money when a debt is paid off. The real reason why 100% of interest is not spent back into the economy is the massive net profits, after fat salaries and dividends have been paid that are held back by the banks and used for further lending or speculating on the money markets where 95% of the world's money is now reckoned to circulate. Only by banks operating as non-profit-making institutions could 100% spending of interest occur.

I quote again from the script above: " ...we could imagine banking run as a non-profit service to society, disbursing its interest earnings as a universal citizen dividend, or lending without charging interest at all." So I assume that Anne and I AGREE on the necessity of 100% recycling of interest. However, that is not what the problem is with secondary lenders. In the movie I illustrated the problem assuming that both primary and secondary lenders were recycling, as spending, 100% of the interest they take in . See the next image below.

Anne Belsey wrote: "They do not create money as debt, and nor do they destroy money when a debt is paid off."

AGREED AGAIN. No argument there. My definition of a secondary lender is a lender who possesses existing (debt) money debt-free to them, and lends it themselves to parties other than banks. Secondary loan repayments are not extinguished like the Principal of a chartered bank "money creation" loan. When Principal is repaid to a secondary lender, the lender has it to lend again. A secondary lender can be a big institution lending deposits or your Uncle Bob from his own bank account.

To be even more clear, a secondary lender is NOT someone who borrows the money into existence from a bank and then lends it at a higher interest, which is still just "money creation" or "primary" lending with two interest takers.

Anne Belsey wrote: "Attack on secondary lenders..."

I think there is a serious systemic arithmetic problem concerning lending the same money twice simultaneously. If someone attempts to disprove my logic, I will not consider that an "attack" on me unless it is abusive. I would call it a necessary debate. I attempted to engage a list of monetary reformers in a debate on this topic while making the movie. No takers.

There is a common theory undoubtedly popular with lenders, that because the banks spend their interest earnings as operating expenses, interest to depositors and shareholder’s dividends, there is, in fact, enough money released back into the community to make all payments. However, like the idea of absolute shortage, this is an oversimplification.

Picture what happens if someone else, such as you or I or an institutional non-bank lender obtains this dollar and then lends it out at interest? Well… now that same dollar is simultaneously owed to two lenders and has two simultaneous interest charges attached to it. In addition, if this dollar is loaned, repaid and re-loaned by the secondary lender, it is not available to pay off the principal of the loan that created it, except as another loan.

So… can we borrow from Peter to pay Paul and borrow from Paul to pay Peter? This gets interesting. We can… however, each time money is borrowed there’s an interest charge added that also must be paid. If all added interest charges can be earned, all payments can be made. On this basis, many economists and defenders of the current system claim there can never be a shortage of money and all payments can be made.

But this seems to be a false assurance. For instance, if secondary lenders capture some of the money needed to retire the loan that created that money, the original loan can never be retired. The deficiency will have to be borrowed over and over forever, each time at interest. Each deficiency will be cumulative, adding to an ever-building total of debt that can never be paid off.

primary-secondary

later in the script...

The theory that there’s always enough money to pay the interest has a certain elegant simplicity. However, by the very nature of the assertion, to be true… it has to be 100% true. This is impossible. For one thing, secondary lenders, who are not banks do comprise a significant proportion of lenders. And they add their interest charges to money that already bears an interest burden. Beyond that, we have a cultural expectation. Everyone who has money expects it to generate more. Money that needs to be spent and made available to be earned by its original borrower is, instead, lent at interest or invested for gain.

Therefore, we can conclude that the two conditions that must be true for all borrowers to be able to make their payments of principal plus interest, and thus permanently discharge their debt… those conditions are not met by the current system. Nowhere in the current system is there any restriction on re-lending money that was created as a loan. Nor is there any obligation upon banks to make their profits from interest available to be earned by borrowers, enabling them to extinguish their debts. Quite the opposite, banks invest these profits to make further profits.

And it’s not just the banks that cause the problem, anyone who takes their ball of money and starts rolling it like a snowball to make it bigger, does so at the expense of borrowers who will not find that money available to pay their debts, except as more debt. And of course, those rolling the biggest snowballs pick up the most snow. As the saying goes the rich get richer and the poor get poorer. Money needed by borrowers in the lower realms of workaday productive economics moves upstairs to play in the casino world of abstract financial profit. And that’s a world where transactions are little more than gambling on numbers in an effort to achieve higher numbers. They have little or nothing to do with providing the necessities of life.

Today the largest volume of money by far is changing hands in what is best described as the gambling economy… the foreign exchange market, the derivatives market and the rest of the financial instruments being played by banks and investment funds for as much profit as possible. For example, the volume of trade on the world’s foreign exchange markets, in just one week, exceeds the total volume of world trade in real goods and services during an entire year. This money is in continuous play by speculators looking to make windfall profits on currency fluctuations. It exists… but only in the gambling economy.

casino-treadmill

So how “unpayable” is the ubiquitous interest burden in actual fact? That could only be determined with certainty, by tracking all the money in the world. With over 6 billion people earning, spending, borrowing and lending, the world’s money flows are at least as complex as the flows of the ocean, they are impossible to know.

But the direction is pretty clear and simple… and it’s the “same old story”. The rich are taking increasingly more money into the gambling economy, where ordinary borrowers have almost no chance to obtain it. And, the only way the system can stay solvent is to create more money. And as money is created as debt, the only way to create more money is to create more debt in every way possible, including ridiculously easy credit for unqualified borrowers, massive government expenditures on security and war… and bailouts of insolvent banks.

Anne Belsey wrote: "The real reason why 100% of interest is not spent back into the economy is the massive net profits ... used for further lending or speculating on the money markets where 95% of the world's money is now reckoned to circulate."

As you can see I also said exactly the same thing, at length with pictures, in the excerpt above. Why is Anne writing as if she is contradicting me when we are both saying the same thing?

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And regarding secondary lending, let me put forth my argument again, as simply as possible:

1. If a bank creates a Euro of bank credit and that Euro ends up as the endlessly rolled over "lending stock" of a secondary lender (which includes banks themselves) that Euro is now not available to be EARNED. It is only available to the economy as a second LOAN of the same Euro of bank credit.

2. Someone must borrow that Euro from the secondary lender, and circulate it in the economy in order for the original (money creation) borrower to be able to earn it to pay off the originating loan.

3. Once the original borrower has paid the Euro as Principal on the loan that created it, that Euro of bank credit no longer exists.

4. But the debt of a Euro is STILL OWED to the secondary lender plus interest.

5. So another Euro must be borrowed (CREATED) once again from a bank to pay off the secondary lender. But now that Euro is owed to the bank, and so on indefinitely, until someone defaults.

Thus secondary lending of money makes debt perpetual and permanently un-payable, as well as adding a simultaneous second interest charge on the SAME money. Possibly even a third interest charge if thrice-lent. And the type of money makes no difference to this problem. It is just as true whether money is gold coins, government-issued money, bank credit or puka shells.

While making the movie, I tried to engage a long list of monetary reformers in a debate on this topic. I got no useful ideas or challenges to my thinking from any of them.

Many monetary reformers are still espousing "the interest can't be paid because it wasn't created" concept. They fail to comprehend money as a "flow". They see it only as a "stock". MAD 1 was criticized for giving that impression. with the two swimming pools image.

2 pools

However, I did go on to explain that "Only if the proceeds of lending at interest were evenly distributed among the population would this central problem be solved." So clearly I DID understand the recycling of interest. My critics just choose to overlook what doesn't suit their purposes. My reason for not exploring the topic further in the first movie is that how it all plays out in the real world at the present time is way too complicated for those still struggling with the basic idea of money as debt.

The only useful input I got on this topic was from arguing with several staunch defenders of the idea that there is no problem with interest at all. They say that interest income is all 100% recycled right now and could never be otherwise. They claim this to be the prevailing macroeconomic othodoxy taught in the best schools and that I am a hopelessly befuddled fool for questioning this wisdom.

economist perfect recycling

The analysis offered in MAD 2 is my own and original refutation of every argument they presented to me.

I contend that this debate should most definitely NOT be ignored. It is fundamental to effective money reform.

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Anne Belsey wrote: Disappointment
However, my biggest disappointment with MAD2 was that it did point out just how simple money reform could be and how obvious it is. Whilst there are many ideas of how it could be introduced, they all boil down to the idea of there being a positive money issued by a public agency, with (in the case of the MRP) this amount being set to maintain a 0% inflation rate. To understand how this works, one just has to be familiar with the game of Monopoly.

Now this is a bit confusing and probably a typo as Anne writes "did point out" but then the rest reads as if she meant "didn't point out". If I DID point it out why would she be disappointed?

Regardless of what she meant, the simple fact is that I pointed it out at length in BOTH movies. If you doubt that, I have included script excerpts below in red. I not only "pointed out" this idea in BOTH movies, I SOLD it as the "what can you do now?" solution! In fact it is the main criticism I get from those who hate the idea of government created money!

I just didn't propose this idea EXCLUSIVELY.

That is because, for the reasons of my analysis above, I think this is just a step in the conceptually right direction, not the final solution that Anne apparently believes it to be. The basic problem, in my analysis, is that we base our economic system on lending money that must be paid back in money. That is because, even with "positive money" and with no interest being charged, secondary lending causes perpetual debt. And... there is no way to eliminate secondary lending. Therefore, one is left to conclude that "lending money" is the root of the problem.

I propose, however strange and different it may seem at first to be, that ultimately a sustainable monetary system and economy must be based upon self-issued credit payable in real goods and services.This is exactly analagous and compatible with the MRP and AMI proposals that government simply spend debt-free money into existence and tax it back in exchange for government services. It is the same principle behind LETS systems and Time Dollars, self-issued credit. So why do I think this is necessary?

MRP, AMI and others are promoting a government monopoly on money creation. Then that debt-free "positive money" becomes a commodity whose value is based on quantity in circulation relative to goods and services available just like money is today. It is lent and re-lent at interest by banks and non-banks. Government debt is dealt with nicely this way but NONE of the other systemic problems with lending explained above are solved by this "simple money reform" as Anne has described.

So I ask: WHY limit that idea to government monopoly? And why make the resultant money a "commodity" that varies in value in relation to its total quantity in circulation, and, in that sense, isn't any different from the money we use today?

I propose, instead, that any productive entity should be able to self-issue credit as vouchers fixed in value by what the credit issuer will give to get their voucher back. This voucher-money is not a commodity valued in relation to other commodities. It is a contract for delivery of a specific issuer's product within a specific period of time and, as such is dependent only on its own supply/demand ratio. Thus the total quantity of all kinds of vouchers in circulation doesn't have any effect whatosever on the value of any given voucher.

In the case of government self-issuing credit, there are two significant differences. One is that government credit is collected back in taxes collected by threat of force rather than prices paid voluntarily. The second is that, if only government were to issue credit it would be impossible to calibrate the value of the credit to real things as the relation of taxes paid to specific goods and services is not obvious nor easily made.

However, with producers of goods and services, the value of credit issued would be established by the prices of real goods and services offered in exchange for that credit. For instance, if a credit voucher is for a loaf of bread, that is what it is worth. Central bank interest rates, national balance of trade... all that incredible complexity of global interdependencies has no effect whatsoever on the value of that voucher.

Simply put, such self-issued credit is a "money creation loan" without the bank or the global banking system. Industry simply spends its own credit into existence as a promise of PRODUCT. Industry then collects its own credits back in sales of goods and services. No "moneylending" and no "money debts" are involved. And with today's technology, the money transfer/security functions of banking are no longer needed either. Deposit banking can join the dinosaurs in EXTINCTION.

I explain this in two 8-minute cartoon movies at digitalcoin.info.

the Essence of Money

Watch the movies then read Digital Coin in Brief (PDF). The full proposal is currently being re-written and will be posted soon.

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To Repeat

Anne Belsey wrote: Disappointment
However, my biggest disappointment with MAD2 was that it did [NOT]point out just how simple money reform could be and how obvious it is. Whilst there are many ideas of how it could be introduced, they all boil down to the idea of there being a positive money issued by a public agency, with (in the case of the MRP) this amount being set to maintain a 0% inflation rate. To understand how this works, one just has to be familiar with the game of Monopoly.

Here is what both Money as Debt movies have said in promotion of publicly created "positive money".

from MAD 1

To create an economy based on permanent, interest free money, money could simply be created and spent into the economy by the government, preferably on long-lasting infrastructure that facilitates the economy, such as roads, railroads, bridges, harbours, and public markets. This money would not be created as debt. It would be created as value, that value being in the form of whatever it was spent on. If this new money facilitated a proportional increase in trade requiring its use, it would cause no inflation whatsoever.

If government spending did cause inflation, there would be two courses of action available. Inflation is equivalent in effect to a flat tax on money. Whether the money goes down in value 20% or the government takes 20% of our money away from us, the effect on our buying power is the same. Viewed this way, inflation in place of taxation might be politically acceptable if well spent and kept within limits.

Or, government could choose to counter inflation by collecting tax monies that it then takes out of use, thus reducing the money supply and restoring its value.To control deflation, which is the phenomenon of falling wages and prices, the government would simply spend more money into existence. With no competing private debt money creation, governments would have more effective control of their nation’s money supply. The public would know whom to blame if things went wrong. Governments would rise and fall on their ability to preserve the value of money.

Government would operate primarily on taxes as it does now, but tax money would go much, much further as none of it would be required to pay interest to private bankers. There could be no national debt if the federal government simply created the money it needed. Our perpetual collective servitude to the banks through interest payments on government debt would be impossible.

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from MAD 2

...the creation of money should be the exclusive prerogative of Government, which represents all the people, should spend money into existence in the public interest, thus backing the currency with what it was spent on. Having taken back the power to simply spend money into existence, government would never need to go into debt or pay interest.

Of course, government spending without limit would result in a worthless currency. To prevent inflation, money would also have to be extinguished. This could be accomplished using a wide variety of taxes, resource royalties and user fees. Government spending and government taxes would, therefore, be interdependent and would equal each other in a perfect equilibrium.

However, the goal of taxation would be to achieve price stability, as the government would have no need of tax revenues in order to operate.

and later in the script...

In the meantime, efforts are already underway to reform the monetary system through legislation. Initiatives like the Monetary Reform Act and the American Monetary Institute’s Monetary Act have already been written, prescribing in detail how to return the power to create money exclusively to government, and thus limit banks to lending existing money, just the way most people imagine it works now.

AMI Act

While differing in detail, all such reform proposals, in whatever country they originate, always advance the same simple idea. The benefits of money creation belong to the public.

At present, money is created not for the benefit of society, but for the profit of private banks. Banks like to create enormous amounts of money from our debt, because the more we borrow into existence, the more interest the bank gets to collect, and the richer the bank becomes. In the process, the banks gain more control over everyone, individuals, industry and government alike.

Abundant money too often leads to speculative asset bubbles that make insiders rich. But, as we have witnessed, these bubbles inevitably burst, under the unbearable weight of ever-increasing interest demands. The losers are many, including governments. Already burdened with huge debt and shrinking revenues, governments are forced to add trillions to that debt in order to rescue the banks that are the cause of the problem… Otherwise we would have no money system!

It’s an absurd situation, and a tragic one, considering that government could instead, create the money itself, and spend it interest-free on infrastructure, education, or universal health care. And most of that debt-free money would enter the economy as wages, circulating through all levels of society for everyone’s benefit. This kind of abundant money would fund a re-invigorated productive economy, in which the savings of the people could fund honest loans of real, existing money.

 

infrastructure spending

 


Anne Belsey wrote: "Instead we got something called Digital Coin, which I do not understand and which, if it is meant to be some new currency (i.e. distinct from sterling, dollars, euros, etc.) will simply not catch on. (Question from Jo Public: Can I pay my mortgage with it? Answer: No. Jo Public: Not interested.)

Anne, like many monetary reformers, seems to be determined that government-created money is the only desirable goal.

I think it a fair question to ask... Will that kind of money reform "catch on" ?

Many people simply do not place such trust in government to "do the right thing" and think that giving government the exclusive right to create money would be the last thing they would support.

And where is this huge political power going to come from to challenge the banks? Many millions have watched Money as Debt, now available free online in 14 languages. That still makes only a tiny minority of all people. Anne's own reports are not particularly encouraging. There seems no chance at all of her getting elected. And even if she were, so what?

As an example of how those in control operate: More than 80% of Canadians have repeatedly expressed their very clear demand that genetically-modified food be labelled as such, but the Canadian government doesn't care what Canadians want. It serves Monsanto.

It seems to me that the bankers control the government and the system will never change voluntarily. It can only fall apart and in the chaos something else emerge. A totalitarian corporate world debt-money bank once again "based" on gold is my bet on what is being set up to enslave us even more restrictively. Which is why I have mentioned alternative currencies as "self-defense" in both movies as well.

It is apparent to many monetary reformers that as we work towards the creation of a more just system of exchange, that we MUST be open to more than just one idea. As in Nature, survival will depend on adaptability and diversity.

Therefore, in this spirit, I have also come up with a proposal for a radically different exchange system based on new technology... Digital Coin. I see my purpose as sharing my understandings of money such as they are. What else can I do and be honest?

I believe we need change much more fundamental than the "return the power to create money to the government" group have yet contemplated. However, what they are campaigning for would be a definite improvement, a step in the direction of "self-issued credit", and a very logical step in developing understanding of the Credit Coin system as it uses the same principle. So I support their campaigns. But even in the remote chance that such a campaign to recapture government's right to create money debt-free were to succeed, it will NOT, in my analysis, solve the fundamental problem with the money system, which is, and has been since time immemorial, moneylending itself.

Digital Coin is my best attempt at a theory about how money should work to be both just and sustainable. I do not accept any of today's political limitations in doing this thinking as my purpose is to plant the seeds of radically new ideas in order to adapt to a drastically altered situation I expect we will soon encounter.

Technology has completely changed our possibilities. There are two essential points to be understood:
1. both bank credit and government-created "money" are really OUR OWN CREDIT (PDF)
2. it is now technologically feasible to ELIMINATE DEPOSIT BANKING, BANK CREDIT and "money as we know it" entirely

Any government that can collect taxes and any reliable entity that can produce goods and or services in demand can issue credit directly to the public and that credit be reliable "money". This proposal is explained in two short animations at digitalcoin.info

contractual claim

To conclude I would like to add an (adapted) excerpt from the full Digital Coin Proposal which is still in revision. Since Anne mentioned mortgages, this excerpt deals with home buying. It illustrates just how different the situation would be with self-issued credit payable only in goods and services, where exact parity with the universal unit can only be achieved by perfect balance-of-trade. Is it pie-in-the-sky? Or is it such a desirable idea that it is worth promoting regardless of the seemingly insurmountable obstacles and in spite of detractors who admit they don't understand it?

To decide you would first have to understand it.

Paul Grignon

 


Beyond Money... Digital Coin Proposal (Draft Aug 2009) Excerpt

Mortgages



Today, most money is created by the issuing of mortgages. And, as we have witnessed recently, when the math of mortgages goes negative, the repercussions can sink the entire economy.

Mortgage math goes negative because mortgage borrowers are obliged to pay back Principal plus Interest when only the Principal has been created. One hundred percent of the money banks take in as interest must be spent so that its borrowers can earn it over and over again in order to be able to make all payments. This does NOT happen.

The result is a condition of systemic bankruptcy by design that necessitates a continuous exponential expansion of the money supply/aggregate debt. In the absence of this expansion, the system produces foreclosures, evictions, bank failures and, ultimately, monetary and economic collapse.

In the Credit Coin system there is no growth imperative of the money supply because final payment, interest and profit can only take the form of real goods and services, never any form of “money”. And… there is no possibility of monetary debt collapse because there is no monetary debt!

Builders, providers of one of life’s big necessities, would be standing next to farmers at the front of the line as to WHO should be a Credit Coin Issuer.

Builder-Issuers would issue Credit Coin to pay for materials and labor. They would not be carrying any debt, except their obligation to provide the products they promised, and could capitalize new construction anytime by issuing new Credit Coin. There would be no bankers to beg credit from, no payments to make and no “interest clock” to beat . That is because the Builder-Issuers’ only creditors are the Coin holders, and all that is owed them is product ready on time, never money.

The Issuer, in any business, has both the ability and the responsibility to create enough Credit Coin with which customers can buy all of his product. If the Issuer fails to do so, the system itself ensures this by changing the value of the Issuer’s Coin according to its buy/sell ratio. This would apply to Builders as well.

Using the Credit Coin system, the Builder would sell a partnership in the home, with the purchaser gradually buying out the Builder. Payment would be made directly to the Builder and the timeline of payment could be adjusted any time by mutual agreement. All of this is important to keep in mind because the Credit Coin system makes possible good things that are unimaginable in the current system.

For example, in a building boom, an Issuer’s outflow of Credit Coin could be increased debt-free. It would be spent to build more homes. This increase in the outflow would be balanced by the increased inflow of payments from new sales and therefore, the builder's Credit Coin would remain at parity with the universal unit.

In a housing slowdown, the builder’s outflow of Credit Coin would be reduced as fewer homes need be built.

If this is due to a major economic downturn, customers may experience difficulty maintaining payments. The builder may have to lay off much of his workforce. However, the Builder is NOT in debt for "money".

The Builder’s only legal obligation is to provide product in exchange for his own Credit Coin. And, because slowdowns usually result in excess inventory, the builder probably has sufficient product to fulfill demand. That is not where his problem lies.

The problem is the inflow! The builder needs to balance incoming Coin with outgoing Coin to keep its Coin at par. And outgoing Coin has been reduced.

Therefore, one way the builder could cope with a housing slowdown would be by reducing its customers’ payments to keep the pace of inflow equal to the pace of outflow. Another would be to maintain the same outflow by using the extra income to support the laid off workers. Yet another would be to invest in new business opportunities creating new employment. The builder could also spend lavishly on himself.

Whichever course is chosen, no Issuer–Builder would be forced to go bankrupt, and no home buyer need lose his or her home simply due to some inescapable math. Construction workers would still see their work reduced, but otherwise, this would be a very different scenario than today’s, where the entire house-of-cards debt money system and economy is put in peril of collapse every time residential housing growth slows down.

 

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