lending-amortization

["William B. Ryan" <william_b_ryan@xxxxxxxxx>]

The attached diagram also archived at
http://www.geocities.com/socredus/compendium/lending-amortization.gif
conceptually depicts the lending-amortization
process.  The curves slope upward because the diagram
depicts an economy that is generally expanding.

Remember--the modern economy is creditary not
monetary and that credit cannot be quantifiably
defined.  Only specific categories of defined
creditary instruments can be quantifiably measured.
Douglas's theorem published in his book *Social
Credit* in 1924 was expressed in general terms:
Loans create deposits; the repayment of loans cancel
deposits.

The diagram shows a curve labeled "flux" and a curve
labeled "reflux."  Theoreticians used these terms as
long ago as the nineteenth century in description of
the lending-amortization process.  The flux (or
efflux) is the flow of loans into the economy.  The
reflux is the amortization of those loans back to the
banks.

The instantaneous differential between the flux and
its reflux depicted at *Tx* represents the rate of
increase to the quantity of transactional deposits
(M1) held by the public.  The banks as businesses are
members of the public.  As banks they are
conceptually separate.  So the banker as a person
plays dual roles in the modern economy.  As
businesses the banks hold transactional deposits with
themselves that are conceptually part of M1.

Note that the reflux *lags* the flux.  The banks
credit the reflux partly to its customers *principal*
or *debt* accounts owed to the banks, in accordance
with the loan agreements.  The remainder - the
*interest* portion of the amortization - is credited
to their own (the banks') transactional accounts that
they hold with themselves.

Therefore, interest simply represents accounting
adjustments the banks make that *transfer* funds from
their customers' transactional accounts to their own
transactional accounts in payment for financial
services rendered.  Those adjustments (in and of
themselves) have no effect on the totality of M1
circulating in the economy.





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