An update on BIBO, financial stability standards, and the debt-virus hypothesis
Dear Sepp, because the discussion is largely technical, this is all I can do, but perhaps you can add an extra comment? also, if you are in contact with Marc, please give him a chance to say something about the evolution of the bibo project since december 2009, Michel <http://blog.p2pfoundation.net/understanding-the-logic-of-intervallic-periods-i-e-periods-with-riots-not-revolutions/2011/02/08> <http://blog.p2pfoundation.net/?p=13869> [image: photo of Michel Bauwens] Michel Bauwens 16th February 2011 In December 2009, Sepp Hasslberger introduced to us<ttp://blog.p2pfoundation.net/bibo-a-standard-for-stable-currencies/2009/12/03>Bibo, a proposed standard for stable currencies, that would replace the current inherently unstable banking money system. This article has become our most comment rich article, in particular through a recurring debate between one of the Bibo co-authors Marc, and Ardeshir Mehta. Ardeshir has written an article that challenges one of the main points of monetary reformers, i.e. that the current system leads to the infinite creation of debt through compound interest. You can find it here<http://homepage.mac.com/ardeshir/DebunkingTheDebt-VirusHypothesis.html> . The context: *“Currently, most if not all money is loaned into existence by banks, and is thus based on interest-bearing debt. There is no question that neither interest nor debt-based money are good for society, and I have written denouncing both debt and interest elsewhere. However, there is a fairly common thesis, based on the fact that money is loaned into existence as interest-bearing debt, that if new loans are not continually being issued in ever-increasing amounts, enough money will not be created to pay the interest on existing loans; and as a result, at least some those loans will be defaulted upon, resulting in inevitable foreclosures. “* -- P2P Foundation: http://p2pfoundation.net - http://blog.p2pfoundation.net Connect: http://p2pfoundation.ning.com; Discuss: http://lists.ourproject.org/cgi-bin/mailman/listinfo/p2p-foundation Updates: http://del.icio.us/mbauwens; http://friendfeed.com/mbauwens; http://twitter.com/mbauwens; http://www.facebook.com/mbauwens Commons Strategies Group, http://www.commonsstrategies.org/
Dear Michel, it is a largely technical discussion and I hope it can resolve, although I have doubts that the two people doing the discussing can listen to each other, or comprehend and find common ground. Probably the operative word in this (the subject of contention) is a difference between "infinite" and "unbounded". While there is no infinite creation of debt, it certainly is unbounded, meaning the system does not provide a limit to the debt being created. As a matter of fact, charging interest on money created by the banks substantially out of nothing, initiates a flow of resources towards the banks that becomes ever greater, the more the economy grows. Since most of our money we currently use is created by commercial banks through loans, most of our money (except a small part that is actual cash) is expected to pay interest. As individual loans are repaid, other loans must take their place, so overall, our economy is perpetually in debt, and perpetually pays a tribute to the banks creating the money, through the mechanism of interest. It is this mechanism that brings about instability of the economy. There can be no growth without a corresponding growth of the tribute, which incidentally is never being created. Only the principal is being created, but the repayment is ALWAYS more than the principal. So under the current system, the more we work the faster everything we produce and everything we own, will end up being owned by the banks. There is nothing to be done about it, under the current system. Therefore we can say that the system is unstable. Ardeshir argues that every individual loan gets paid back within a certain number of years, and therefore the debt cannot grow towards infinity. He fails to see that every paid back loan must be replaced by two new loans, leading to exponential payments to the banks by the economy as a whole. In Ardeshir's own paper, he has several tables of repayment of loans. Looking at those tables (let's use the first table in his article), it is quite clear that the money created by the loan (the balance in year 1) is 13,800. After 30 years, the total of payments made is 28,260, more than double of the money first created. So an initial sum of money is created, and after a period of years, twice that money is paid back to the bank, extinguishing the original loan. The taker of the loan had to 1) pay back the money he originally obtained, and 2) pay back another time that much, which he had to obtain from somewhere else. In the overall view of the economy, two things are necessary to do so. 1) Someone else has to take a loan of 13,800 just to keep the economy going steady state (the money originally borrowed vanished out of the economy by repayment and has thus to be replenished). 2) Someone else again has to take a loan of 14,460 so that the first person taking the original loan could find somewhere in the economy the money to pay the interest. By accumulation of interest, the whole of the economy thus ends up working for the banks, in addition to being forced to continually expand (with consequences for us humans in the rat race, and for the environment being destroyed in the process). So there is really little argument that the system is inherently unstable. Marc expresses that instability with a mathematical formula. Ardeshir says the instability does not exist (actually his argument is a technical one saying the instability isn't infinite). Anyone who can conceptualize the economy as a whole, as opposed to just one single loan, can see that something doesn't add up and that reform is urgent. Kind regards Sepp "The individual is supreme and finds the way through intuition" http://www.newmediaexplorer.org/sepp/ http://www.laleva.org http://blog.hasslberger.com/ http://www.facebook.com/hasslberger http://twitter.com/healthsupreme . On Feb 8, 2011, at 5:14 AM, Michel Bauwens wrote:
Dear Sepp,
because the discussion is largely technical, this is all I can do, but perhaps you can add an extra comment?
also, if you are in contact with Marc, please give him a chance to say something about the evolution of the bibo project since december 2009,
Michel
Michel Bauwens 16th February 2011
In December 2009, Sepp Hasslberger introduced to us Bibo, a proposed standard for stable currencies, that would replace the current inherently unstable banking money system.
This article has become our most comment rich article, in particular through a recurring debate between one of the Bibo co-authors Marc, and Ardeshir Mehta.
Ardeshir has written an article that challenges one of the main points of monetary reformers, i.e. that the current system leads to the infinite creation of debt through compound interest.
You can find it here.
The context:
“Currently, most if not all money is loaned into existence by banks, and is thus based on interest-bearing debt. There is no question that neither interest nor debt-based money are good for society, and I have written denouncing both debt and interest elsewhere. However, there is a fairly common thesis, based on the fact that money is loaned into existence as interest-bearing debt, that if new loans are not continually being issued in ever-increasing amounts, enough money will not be created to pay the interest on existing loans; and as a result, at least some those loans will be defaulted upon, resulting in inevitable foreclosures. “
-- P2P Foundation: http://p2pfoundation.net - http://blog.p2pfoundation.net
Connect: http://p2pfoundation.ning.com; Discuss: http://lists.ourproject.org/cgi-bin/mailman/listinfo/p2p-foundation
Updates: http://del.icio.us/mbauwens; http://friendfeed.com/mbauwens; http://twitter.com/mbauwens; http://www.facebook.com/mbauwens
Commons Strategies Group, http://www.commonsstrategies.org/
this is perfect comment and I'll add it, Michel On Tue, Feb 8, 2011 at 9:13 PM, Sepp Hasslberger <[email protected]> wrote:
Dear Michel,
it is a largely technical discussion and I hope it can resolve, although I have doubts that the two people doing the discussing can listen to each other, or comprehend and find common ground.
Probably the operative word in this (the subject of contention) is a difference between "infinite" and "unbounded".
While there is no infinite creation of debt, it certainly is unbounded, meaning the system does not provide a limit to the debt being created. As a matter of fact, charging interest on money created by the banks substantially out of nothing, initiates a flow of resources towards the banks that becomes ever greater, the more the economy grows. Since most of our money we currently use is created by commercial banks through loans, most of our money (except a small part that is actual cash) is expected to pay interest. As individual loans are repaid, other loans must take their place, so overall, our economy is perpetually in debt, and perpetually pays a tribute to the banks creating the money, through the mechanism of interest.
It is this mechanism that brings about instability of the economy. There can be no growth without a corresponding growth of the tribute, which incidentally is never being created. Only the principal is being created, but the repayment is ALWAYS more than the principal. So under the current system, the more we work the faster everything we produce and everything we own, will end up being owned by the banks. There is nothing to be done about it, under the current system. Therefore we can say that the system is unstable.
Ardeshir argues that every individual loan gets paid back within a certain number of years, and therefore the debt cannot grow towards infinity. He fails to see that every paid back loan must be replaced by two new loans, leading to exponential payments to the banks by the economy as a whole.
In Ardeshir's own paper, he has several tables of repayment of loans. Looking at those tables (let's use the first table in his article), it is quite clear that the money created by the loan (the balance in year 1) is 13,800. After 30 years, the total of payments made is 28,260, more than double of the money first created. So an initial sum of money is created, and after a period of years, twice that money is paid back to the bank, extinguishing the original loan. The taker of the loan had to 1) pay back the money he originally obtained, and 2) pay back another time that much, which he had to obtain from somewhere else.
In the overall view of the economy, two things are necessary to do so. 1) Someone else has to take a loan of 13,800 just to keep the economy going steady state (the money originally borrowed vanished out of the economy by repayment and has thus to be replenished). 2) Someone else again has to take a loan of 14,460 so that the first person taking the original loan could find somewhere in the economy the money to pay the interest.
By accumulation of interest, the whole of the economy thus ends up working for the banks, in addition to being forced to continually expand (with consequences for us humans in the rat race, and for the environment being destroyed in the process). So there is really little argument that the system is inherently unstable.
Marc expresses that instability with a mathematical formula. Ardeshir says the instability does not exist (actually his argument is a technical one saying the instability isn't infinite). Anyone who can conceptualize the economy as a whole, as opposed to just one single loan, can see that something doesn't add up and that reform is urgent.
Kind regards Sepp
*"The individual is supreme and finds the way through intuition"*
http://www.newmediaexplorer.org/sepp/ http://www.laleva.org http://blog.hasslberger.com/ http://www.facebook.com/hasslberger http://twitter.com/healthsupreme
.
On Feb 8, 2011, at 5:14 AM, Michel Bauwens wrote:
Dear Sepp,
because the discussion is largely technical, this is all I can do, but perhaps you can add an extra comment?
also, if you are in contact with Marc, please give him a chance to say something about the evolution of the bibo project since december 2009,
Michel
<http://blog.p2pfoundation.net/?p=13869> [image: photo of Michel Bauwens] Michel Bauwens 16th February 2011
In December 2009, Sepp Hasslberger introduced to us Bibo, a proposed standard for stable currencies, that would replace the current inherently unstable banking money system.
This article has become our most comment rich article, in particular through a recurring debate between one of the Bibo co-authors Marc, and Ardeshir Mehta.
Ardeshir has written an article that challenges one of the main points of monetary reformers, i.e. that the current system leads to the infinite creation of debt through compound interest.
You can find it here<http://homepage.mac.com/ardeshir/DebunkingTheDebt-VirusHypothesis.html> .
The context:
*“Currently, most if not all money is loaned into existence by banks, and is thus based on interest-bearing debt. There is no question that neither interest nor debt-based money are good for society, and I have written denouncing both debt and interest elsewhere. However, there is a fairly common thesis, based on the fact that money is loaned into existence as interest-bearing debt, that if new loans are not continually being issued in ever-increasing amounts, enough money will not be created to pay the interest on existing loans; and as a result, at least some those loans will be defaulted upon, resulting in inevitable foreclosures. “*
-- P2P Foundation: http://p2pfoundation.net - http://blog.p2pfoundation.net
Connect: http://p2pfoundation.ning.com; Discuss: http://lists.ourproject.org/cgi-bin/mailman/listinfo/p2p-foundation
Updates: http://del.icio.us/mbauwens; http://friendfeed.com/mbauwens; http://twitter.com/mbauwens; http://www.facebook.com/mbauwens
Commons Strategies Group, http://www.commonsstrategies.org/
-- P2P Foundation: http://p2pfoundation.net - http://blog.p2pfoundation.net Connect: http://p2pfoundation.ning.com; Discuss: http://lists.ourproject.org/cgi-bin/mailman/listinfo/p2p-foundation Updates: http://del.icio.us/mbauwens; http://friendfeed.com/mbauwens; http://twitter.com/mbauwens; http://www.facebook.com/mbauwens Commons Strategies Group, http://www.commonsstrategies.org/
participants (2)
-
Michel Bauwens -
Sepp Hasslberger