Basically because of flu

I wrote a response to this comment and it was not posted. Can someone tell me why?

No Paul,

The purpose was to show, through technically indisputable methods, that an interest based system is inherently unstable. As having proven such, it is trivial to realise that it remains so whether or not there is second hand lending.

The prime dispute I have with your claim is your choice of the term “root”. That second hand lending will potentially multiply debt is a trivial conclusion, but that it is a root cause is questionable because if any other aspect of the design is the cause of that second hand lending, then it ceases to be a “root” cause.

Where your analysis breaks down is when you resort to claiming that P+I does not create a deficit by virtue of the potential of circulation of money. However and as I show over the term P+I does create a deficit and so called “velocity of money” can only approach satisfying P+I but because interest by definition accrues at that end of the term (every instalment including the last has an interest component), then the math of interest unequivocally tells us that at the very least there will be a deficit of the interest in the last installment.

But such is not representative of reality, because it assumes that so called velocity of money has a direction, namely to satisfy loan payments in perfect synchronicity. I have long debunked that notion for the reasons you yourself admit too. So, if the statistical hypothesis of circulation of money to cancel all debt cannot be upheld, then we must assume that circulation of money does not and cannot compensate 100% of the indisputable term deficit of I. In which case your argument that interest does not generate a deficit fails.

Now the question is if interest is a root cause of scarcity, the way to test that hypothesis is to ask if there exists a practical means by which the deficit caused by interest can be consistently compensated for. We have just shown that it cannot, because:

a) So called velocity of money has no direction.

b) If direction were to be bestowed on the speed of money it could only approach satisfying 100% of P+I but never quite get there.

So interest does cause a deficit over the term and over a minimum of one installment and given that so called velocity of money is a fallacy, statistically over many more than one installment.

But where we agree, is that the real problem is people’s perception of money as a scarce thing of value. So the next question is whether twice lent is at the root of this perception, we have just shown that interest certainly helps fulfill this prophecy by at the very least increasing demand for money. Or is it something else? Is it the cultural baggage of associating a primitive measure of value with precious metals? Does it matter?

What we say at BIBO Currency is that it does not matter. In my book BIBOCURRENCY the Science of Stability as Applied to Money Systems, I make it clear that the definition of money as both a unit of measure and a scarce commodity of variable value is simply nonsense. Whatever the reason we believe it to be so, it simply will not stand up to logic and science. Anyone who has studied first year science will remember the calculation of error in measurements, an impossible task to achieve if you have not defined your standard unit within fixed bounds.

This then leads us to having to decide if we throw out both measure and scarce commodity or if we keep one of the two. If we opt for scarce commodity then we have no measure, but if we opt for measure, how then do we maintain its stability?

It is in answering this question where our apparently trivial formal analysis becomes instrumentally necessary as it leads us to the “Stable Currency Unit Theorem” see (www.bibocurrency.com.), as stability analysis and control engineering clearly shows that the only sine qua non requirements for unit stability are that:

a) All recorded units are products of transactions
b) All transacations are Passive BIBO Stable (i.e. positive and negative account entries < or = to transaction input "price".

Therefore we can have unlimited access to units if and only if all units are measures of the value of wealth (price) and the debt and current account balances (system output) never exceeds price.

This is very simple but subtle and it is by no means a trivial result.

http://bibocurrency.org/spanish/Formal%20Stability%20Analysis%20and%20experiment%20(final)%20rev%203.4.pdf.
Marc’s paper spend 22 pages of analysis, calculus and real evidence to produce this conclusion:
(emphasis added)

“Therefore, to the extent to which the loan models herein have been analyzed, instability is identified for any of the cases where either part of the principal loan or the interest on that amount CANNOT BE PAID whatever the reason, in which case the debt will continue to grow towards infinity.”

Formal Stability Analysis of Common Lending Practices and Consequences of Chronic Currency Devaluation Sergio Dominguez and Marc Gauvin 21/05/200

I have always agreed with this honest conclusion. It’s a truism that didn’t really need to be proved in my opinion. We learned about interest growing towards infinity when we took exponential functions in grade school. I think the authors were looking for more and failed to find it. That is because, like so many others they are fixated on interest rather than multiple debts of the same principal.

I claim, in my paper that there is a root cause of instability, multiple debts of the same principal that arises independent of interest and when all debts are PAID. (until a downturn in new bank credit creation causes mathematically induced defaults.)

P money 1

Pretty simple.

Was the 3.1 billion the Irish gov’t paid all principal? Interest doesn’t cease to exist. It can move offshore however.

Anyway, let me try to keep this as simple as possible.

We’re all familiar with the idea of having to borrow from Peter to pay Paul and vice versa.

This is the only scenario in which we can perpetuate two debts 2M of the same money, M.

As long as Peter and Paul will allow the borrower to re-borrow the full amount of M on time to satisfy the other debt of M, the borrower need not default. We can imagine the borrower pays interest to both lenders in the form of services rendered, not money.

Imagine Peter is the banking system that CREATES MONEY ON DEMAND. Paul is the depositors with money in the bank and professional lenders of existing money. Society at large is the borrower caught between them. Any time DEMAND FOR NEW BANK CREDIT slows down, for any reason, M shrinks to m, and ALL of the loans dependent on M will be in inevitable mathematically-induced default because m < M.

This is my animated visual explanation:
http://paulgrignon.netfirms.com/MoneyasDebt/twicelentanimated.html

The reader should note that I have responded to Marc with the same arguments for over 3 years at this point. Marc wrote:

QUOTE: At best and to the degree that an inconclusive circulation of money permits, it can only be said that recirculation of P MAY cancel an amount that approaches total (P+I) for the term, but since interest always accrues at the end of the period, it never reaches 100% of P+I. ENDQUOTE

Marc’s claim here is that instability results from there being an interest component in the final payment. On a $1000 loan, the interest on the final payment might be $1. This dollar, once spent by the lender, remains in circulation as a SURPLUS for a following loan. Thus this “shortage” is created by Marc taking one loan out of what is, in reality a continuum. In the continuum, a “delay” of $1 exists and has to be dealt with, but a “shortage” does not exist. The minor math problem could be remedied by making the last payment 100% principal.

As for the “inconclusive circulation of money”, Marc does not believe in the idea that interest is spent and available to be earned by borrowers. He concludes from this that interest is the root problem. But the same uncertainty applies to ALL PRINCIPAL, not just that part paid as interest. This is the whole point of my “twice-lent money” theorem. It’s not the interest. It’s the principal that is inconclusively circulated.

ONE dollar can extinguish an INDEFINITE number of dollars in interest debt because it is NOT extinguished when paid to the lender.

ONE dollar can only extinguish ONE dollar of Principal Debt.

Equal uncertainty applies to both.

So why the obsession with interest?

Marc has never accepted the idea of “twice-lent money” despite my explaining how it is the design of the banking system itself.

Mine got truncated. nothing serious. It still makes sense.

What do you mean?

Why are the comment getting cut off?

Ralph wrote
“people can borrow and lend, but the money itself does not, as Grignon suggests, “enter circulation” initially as a form of debt.

Who said “initially”? Once it is lent ONCE it is “money-as-debt”. It doesn’t matter one whit whether the debt is of a gold coin, a legal tender note, or bank credit, it is payable ONLY in the money-as-a-thing-in-itself. After it gets lent TWICE there are now two debts of the same principal. P < 2P. Gold had to concentrate into few hands to make that happen. Banking as practiced today creates money ONLY as debt and it is twice-lent as soon as the "borrowed" funds get lent back to the banking system as someone else's deposit.

Money as a thing-in-itself, the value of which is determined by its scarcity, is the opposite concept of money as a promise of something specific from someone specific, the value of which is defined by its promised redemption in some real good or service.

These are the two fundamental concepts of money, as I see it.

One depends on the relative volume of the exchange media to determine the value of the medium. The other is independent of the quantity of the exchange media.

The former creates the insoluble arithmetic problem described in my paper. The latter does not.

Yes gold coins are not debt in themselves. But when income disparity concentrates their ownership into few hands, most gold coins will enter circulation as debt. You think this has never happened in history?

Thus, I claim that the root problem is money-as-a-thing-in-itself which is incompatible with an advanced credit-based economy. A credit economy should run on credit for real things at a 1:1 ratio, not as debts-of-money which can easily become more debt than there is money by means of the multiple lending of the SAME principal. P 1.