----- Original Message -----
From: Thomas Lee Abshier, ND
To: John F.
Sent: Wednesday, December 14, 2011 1:46 AM
Subject: Money, FRB, loans on loans, hypothecation, dollars vs. notes, printing money

John: Thanks again, for the session Sunday. I'm guessing you go away, like I do with mind buzzing with consolidation of insights.

Thomas: I always enjoy our time together. Good to find a person who is dedicated to discerning the Truth.

John: We had been planning to discuss upper-level stuff, like what to do about it, how to administer your ideal global calculation of allvalue and allmoney, but we turned our hand to trying again to sort out (as I see it) whether dollar has measure and substance like everything else. It certainly has people value-ing it like everything else.

Thomas: (Yes, the dollar has QMS because is represents goods and services which ultimately have QMS. The problem with All-Value is that the elements comprising it are often poorly suited to being used as money, as their substance may be metaphysical (a smile, beauty, harmonic, ...) or poorly divisible (good will), or measurable (justice). Nevertheless, all these quantities have an element of tradability, and they all have value to the soul. So yes, the dollar represents value. The dollar note itself apparently is worth about 6.4 cents if you want to produce one or buy one as a commodity, rather than as a symbol of value. The dollar's primary use is as a symbol of value, thus, in my discussion I use the dollar as a symbol of value. I do not concern myself with what a dollar "is" other than to note that there is All-Value, and the number of dollars that are chasing the All-Value, causes each dollar to represent a larger or smaller portion of the All-Value.)

John: Besides all that, I am putting you on notice that I am keeping files on some persistent puzzles I have to solve/explain to understand/embrace your vision.

Thomas: (That sounds very prudent, wise, and industrious. I admire you for keeping track of the points that need elaboration, elucidation.)

John: 1. You do not yet believe the explanation of the effects of fractional reserve loaning which I have faithfully tendered to you from the publications of the Federal Reserve and a whole generation of Austrian Economists.

Thomas: I have learned throughout life to listen to authorities to try to understand what they have to say.  And, at some point I must make a decision as to whether to believe them or not. I went into this conversation and study of Fractional Reserve Banking and the Central Banking with almost the same conceptions that you have.  But, through the study of the authorities, examining their ideas, testing them against logic, law, and evidence, that I have come to disbelieve the stories about FRB, fiat money, the Fed, the gold standard, etc.

I have seen this pattern repeated multiple times in my life. I was told what time, mass, energy, force, and charge were by my physics professors. I studied their authoritative ideas for many years.  Their story was not based on fundamental principles, and I had to look deeper to find an understanding of the physical world that was both self consistent and consistent with the Bible, psychology, philosophy, government, and my sense of Truth. Of course, that doesn't make my theory true, but the authorities saying it did not make it true either.

I was told how our government was supposed to work according to the founders, but that was not true either.  I don't take the word of someone as true just because they are an authority. I simply try to follow what someone says and see if it makes sense.  And, if it doesn't fit the facts, my observations, and fit into the whole of life integrated together, I say, "I don't think so." I trust my logic more than the authority of any authority. I trust the Bible is True, but I do not trust that any man's interpretation of it is True, regardless of his prestige, fame, study, or authority. But, I will consider any point of view, since I have found that there are seeds of Truth in almost everything, even a lie, as it is imply a mirror of the Truth.)

John: "The issue of money disappearing after it was repaid is not a serious issue unless people quit loaning or spending money. The bank does not create new money when it makes a loan as far as I can tell, so it wouldn't disappear after it was paid back.

Thomas: (Note: I have written extensively since writing this line. Money does disappear when it goes back to the Fed. It disappears from circulation temporarily when it is redeposited in the bank. The place where money truly disappears is when the bank pays it back to the Primary Dealer, and the Primary Dealer pays it back to the Fed.)

John: And so far, it doesn't look like they create money on any overt level like the "money as debt" video portrays.

Thomas: (I stand by this statement. New money is not created by FRB. The velocity of the money is increased. There may be other mechanisms by which new money is created other than by FRB, but FRB is not the mechanism if in fact the bank may loan out only 90% of that which is deposited. I had a conversation with a friend yesterday who claimed that banks loan money on assets. I asked him for documentation of that concept, and he sent me a few links, which I have not read. If his idea is true, then the banking system is much more fragile than a 90% FRB system would create.. If money is loaned out based on the value of the loans, or collateral, then the bank truly is engaged in printing money, since they are going to have to borrow money from the primary dealers, who borrows it from the Fed, which simply "prints" it out of nothing. But again, if only 90% of the money on deposit is loanable, then I stand by my assessment that FRB does not create money, it merely increases the velocity of the money.)

Thomas: “When the loan is repaid, it goes back into the bank, which is then available for the bank to re-loan as long as the depositor leaves it in the bank. There is no disappearing $ associated with the loaning and repayment of the loan. Granted, it is not in circulation unless it is re-loaned, but the money does not disappear."

Thomas: (Money that is in savings is not in circulation, and is in effect not in existence as far as influencing prices, as it is not chasing after goods and services. A loan that is repaid is now in the possession of the bank and is now an excess reserve, it is effectively in a savings account. That money did not disappear. It was money that was deposited by someone who had an account at the bank, and there is simply more of the money in the bank than had been out in circulation before the loan was repaid. I believe what you are doing is mixing frames. There is the frame of the bank which loans out money that has been deposited, and then the money is repaid. That money is not destroyed by the loan being paid back. But, (Frame 2) the money paid back to the bank, and then bank to primary Dealer, and then primary dealer to Fed, is in fact destroyed. So, you are partially right in saying that money is destroyed when it is paid back, but only if you are referring to the money that goes all the way back to the Fed. Your are partially right in saying the money supply has decreased when the loan is repaid because those dollars are no longer chasing goods and services until they are re-loaned, so in effect that saved/repaid money is not actively contributing to the inflationary effect of the money supply.

Thomas: "No, I don't agree. A bank cannot rob the world (i.e. by Fractional Reserve Banking). But he can through printing money." (increasing $$ robs thru inflation)

Thomas: I stand by this statement. Fractional Reserve Banking does not rob people. If the FRB only loans out 90% of the deposits, then the money supply will increase by a factor of 10 the amount of the deposit. This is not robbery since goods and services are being produced as a promise for having borrowed that money. But, having said that, there is a cost to FRB, and fiat money, such a system is more fragile than a 100% time reserve system. Granted, in FRB, the money loaned is not available for immediate withdrawal (It's a wonderful life). But, this is not robbery. Rather, this is a contract that responsible men can choose to enter into. The depositing money and getting interest for it involves risk. And, the higher the risk the bank engages in making loans, the higher the interest that can be demanded. More risk, more reward. There is no interest paid on 100% guaranteed return. In fact, one would probably have to pay (rather than getting interest) to get 100% security for one's money.
If loans are made on the assets that the loans represent, then that is an even more leveraged loan, that is, there is even more likelihood of a default and a collapse of the entire tree of loans. If someone in the loan chain defaults and the creditor wants to take the collateral for the loan, this could result in an innocent party having their collateral taken. At this point we have created an immoral system which is not only less secure than FRB, it is immoral. This level is not something that I support at all.

John: They say fractional reserve loaning does create additional money stock.

Thomas: (No, FRB  increases the velocity of money, which has the effect of increasing the money supply.)

John: Any article from the first page of hits from a 30-second Google Search on "fractional reserve" will attest to the fact. Encyclopedia articles explain it. Analysis of the known money stocks from 1971 leaves over 10 trillion dollars which is not accounted for by the other known methods of increasing money stock.

Thomas: (If the money supply has increased because more people are spending, and loaning this is

John: You have seen multiple videos that explain this process. Yet you say, "I don't think so". Even the Texas University Professor of Economics that denied FRB Loaning results in inflating the money supply (in the correspondence with my pastor and I) also affirmed that it created new dollars in a more advantageous fashion than when the US Treasury / Bureau of Engraving and Printing (supposedly) creates additional dollars (which they do not) -- and -- that when those loans were paid back, the dollars ceased to exist again.

Could you please forward to me any source documents, documentaries, links, or video that demonstrate an understanding of the known details of fractional-reserve loaning by member banks, (discount rate, Federal Funds rate, reserve requirement percentage) -- that disproves/explains how these processes do not reckon any additional quantities as they are reckoned in the dollar-denominated balances of world-wide bank accounts.

Thomas: (I believe I have already included such sites in my previous FRB documents. I was studying these sites and it was from them that I was able to figure out what FRB was, and how it validated the points. I will have to read over my other essays to find them again. The point made in those videos/pdf's was that the ratio of increased money supply was the ratio of $deposited/Reserve requirement fraction is the multiplier effect on the money supply. So, $100 deposited /.1 (reserve requirement) = $1000 in money supply, a 10 times increase theoretically in the money supply due to a FRB system. I believe velocity is used in many money supply equations. There is no place in the FRB scenario where any bank created new money and then loaned that newly created money. If you look at it from an appearance level, the average person would say, "FRB has increased the money, they must have, the # of $ went up." But, this is not what happened when you look at the actual mechanics of FRB. In FRB, the scenario is strictly one of deposit, loan 90%, spend, redeposit, loan 90% of that amount, etc. and the sum of the increments loaned added up to 10x the original deposit. But, this was not new money, this was money that was in circulation because of the increased velocity.)

Don't feel embarrassed about not wanting to take any time in looking for such resources -- my old church elders and friends have never worried about wasting time looking for that information I have been begging to see since Oct 2008 - either. Who needs proof or explanation or authority? All you need to say is, "I don't think so" or "that is not right" -- and that clinches the argument.

(Find me a document that describes how Fractional Banking Works, and I will show you how that document validates exactly what I just said.)

Then I will have an understanding of why you are saying "I don't think so". It will also help you avoid embarrassment in future conversations with people who are more knowledgeable than I am.

(Margo was listening to Glen Beck's show yesterday, and a man, Columbia Professor of Economics, was describing how banks bought the assets of other banks, and those assets (loans and associated collateral) was sold to another bank, etc. The effect was to create a chain where if one of these banks failed, and the creditors of that bank wanted to be made whole, they would have title to all of the collateral and assets that bank owned.
On the level of the bank loaning money because of its assets, so far I have not seen the facts that validate that money is loaned on assets. If that is the case, that is immoral, since it puts the assets of an innocent party at risk. This is a totally different consideration. I am referring to a totally different class of loan, ones where there is a contract to repay real value for symbolic value borrowed.

There is an ethical issue that comes in to play with securing a loan with property that I do not have clear title too. If someone defaults on their loan, and that loan was secured by someone else's assets, then an innocent person has their asset possessed. I think that is called "Hypothecation." It is a real phenomenon, and I think it really does happen, and that is immoral. The money isn't fraudulent, but the contract that promises to repay with someone else's property is. Securing a loan with property that is not your own is in essence a type of theft.

2. Worldwide stock of dollars are not increased when the US Bureau of Engraving and Printing prints Federal Reserve Notes in denominations of 1, 2, 5, 10, 20, 50, & 100. Instead they are purchased by the Federal Reserve system near the cost of printing and issued to Member banks through the 12 Regional Centers. The Regional FRB debits the account US Bank has with IT when US Bank receives these notes to provide for Customer's demand, and to help serve as Reserves to meet the regulatory requirements. Dollars which are created/reckoned/added to the Worldwide stock in other ways, are traded for these representatives/symbols of dollars.

(This is the point we debated all last Sunday. See discussion below on this point.)

Even though people value the pieces of paper and think them synonymous with dollars, there remains an important distinction.

(Tell me what this distinction is. What is a dollar, and what is the note?)

Worldwide supply of notes may approximate 2 trillion, whereas there are 20 trillion dollars.

(I think this is where the confusion lies. Are there 20 trillion dollars in bank accounts, are there 20 trillion in loans that must be paid back? Are there 20 trillion in insured losses that must be paid if there is default/injury/death? What is this 20 Trillion dollars, specifically what is it?

The 2 trillion in notes is probably the number of physical dollars in electronic ledger and physical notes. This distinction between 2 Trillion in notes, and 20 Trillion in dollars is much too indistinct in definition to make a strong statement about what that even means. You'll have to define the terms better before I could comment, and I need to understand the M1/2/3 system a whole lot better before I could then reply in an informed way.)

When, at the end of their life-cycle, they are returned to FED Central in exchange for re-crediting the Member Bank's account the dollars they represented -- and are incinerated -- no dollars disappear from the worldwide money stock. Only the dollars that were reckoned to a FED Central Account, are now reckoned back to the Member bank.

(No argument with this. The member banks are merely trading electron account/ledger balances for physical dollars.)

So says the Bureau that prints the notes, publications of the Federal Reserve, and a whole generation of Austrian Economists. Could you please forward to me any source documents, documentaries, links, or video that demonstrate an understanding of the known details of the relationship between the dollar and a Federal Reserve Note -- that demonstrates how the worldwide sum of all bank account deposits increases when the Bureau prints them under the authority of the US Treasury/Govt, or that shows how they are subtracted from WW dollar supply when FED Central incinerates them. If you can provide such persuasive information, I will quit needling you about using the verb "printing" in relation to dollar increases or decreases.

(Again, I do not dispute the mechanics of physically printing dollars and putting them into circulation. I use the word "printing' as I have said many times, to pejoratively describe the process of injecting new dollars into the circulation without having associated them with contract to provide value. Every dollar that goes out into the public from the bank as a loan is a contract to produce value at some time to repay that loan. This is not "printing" money, even if it was done in a bank practicing FRB. The whole cycle of $ being printed and issued to member banks and incinerated at the end of their life is irrelevant to the issue of "printing" money in the pejorative sense, where money is created out of nothing, given to the primary dealers as a loan, T bills bought from the Treasury, and the dollars received then given to the federal agencies. The monetization of government expenditures is where the problem is. The "printing" of notes is not the issue, the problem is government spending money into the economy without real accountability and commitment to produce goods and services in return. The word "printing" is used in two different senses, and you should be able to distinguish between the two as both are in common usage. I am not going to stop using the word "printing" in the pejorative sense, I will merely make it clear that I intend the word meant in that context rather than the benign sense you have documented above.

A bank cannot rob the world (i.e. by Fractional Reserve Banking). But he can through printing money.

(I refer to the above paragraph to give definition to the word "printing" money. It implies that the simple act of printing is the only creative act that precedes spending it into the economy to consume goods and services from the pool of All-Value.)

Same goes for the concept that the US Govt or Treasury is directly responsible for dollar increases or decreases except through the indirect aspect of enacting the Federal Reserve Act of 1913 and its subsequent amendments -- which grants the authority and mechanism to increase/decrease US dollars in the 3-fold manner I have faithfully represented to you about every other week since we began this conversation.

(Please restate those 3 mechanisms of increasing US dollars. Sorry if this is redundant.)

If you have a hard time finding documentation that gives an authoritative explanation of this process, I recommend you visit the Bureau of Engraving and Printing in Ft. Worth Texas (or in Washington, D.C. - as I have) and read their literature on display or ask those officials the necessary questions.

http://en.wikipedia.org/wiki/Bureau_of_Engraving_and_Printing

(I read this document in its entirety, and found nothing new or disagreeable or contradictory to my statements. Was there a particular phrase that you felt I was misunderstanding or missing, or had not acknowledged?)