What is Social Credit ?

What is Social Credit ?


Today the banks lend our money into existence. Our checking accounts are created by bank loans. Banks lend to households and they lend to single-proprietorships, partnerships and corporations. They are able to create loans -- new money, new purchasing power -- if they have reserves to cover their loans. When we write checks to each other that does not increase total deposits, since one checking account is debited the amount as another is credited the amount. But when the Fed buys treasury securities from the banks that event injects fresh deposits -- which increase reserves, allowing expansion of purchasing power by an amount that depends on the fraction of reserves that must by law remain in the vault to secure each new loan.

Under this system of today, it is the banks, who inject investment money, usually to corporations, and most often, following the de-industrialization and the long-term neglect of our infrastructure, most often housing.

But the bankers -- the big bankers -- have the power to increase or decrease purchasing power in the system by expanding or contracting credit -- by making or not making loans or by calling in loans. When they call in loans or reduce the rate of writing new loans to below rate at which loans are being paid off, there is a contraction of checkable demand deposits (less money in circulation). This contraction of spendable deposits ("money supply" as economists say) is first felt as a reduction of purchasing power at the old prices. Now if all prices drop to accommodate the reduction in spendable deposits -- that is if fall in price compensates for fall in money supply -- then prices in terms of dollars you must pay for an item will be lower, but purchasing power will not be affected. However, -- and this is the important part that few people understand -- if prices do not adjust to reduced money supply, that is if prices do not fall to match smaller wages and profits -- then purchasing power will be lost by people receiving fewer dollars (reduced wages, reduced revenues and profits). Either businesses will be forced to sell at prices lower than their original cost of production or else they will have unsold inventories. In this case they must either lay off workers or reduce wages or -- go out of business with everyone losing their jobs, and a new buyer of the bankrupt business buying up that business and rehiring the old workers at lower wages with less benefits. (The recent Health Reform is an aspect of this phenomenon, obviously.)

Now here comes the heart of the problem -- a problem which social credit perfectly solves. Banks contract the spendable deposits by calling loans or lending less. This means people will have less cash to spend, either because of wage reductions, pension reductions, unemployment or cuts in working hours. Now I said above that if all prices and payment obligations shrink with the reduction of wages -- fall in price keeps pace with fall in wage and fall in wage keeps pace with fall in price -- then all will be well and purchasing power will not be effected. Economists call that the "neutrality" of money in affecting purchasing power. Wouldn't it be great if when prices went up wages went up too so that you did not fall behind. And wouldn't it be great if when wages went down, prices would fall too so, again, you stay even. But money neutrality -- and the similar concept of Say's Law (which is not a law at all -- but a lie that covers what really happens) are both concepts that you never find in economies of recent times. Let us now see why "neutrality" and Says Law do not obtain and why the economy is not correcting, why we are caught in a Kleptastrophe.

First contracted credit (fewer outstanding loans, less spendable checking deposits and less spending of those deposits) means firms receive less money with which to pay workers, managers, owners. There may be wage contracts, but unless the union is controlled by communists actually out to destroy the manufacturer rather than maximize employee purchasing power -- or the union is too stupid to see when the employer is really up against the wall and not just bargaining hard -- contacts can be renegotiated. Wages can be reduced to match the fall in prices --otherwise the firm will fold and reopen when investors rematerialize industrial capital overseas. But there is another expense besides wages, that does not adjust downward -- and that is the schedule of debt payments. Most home owners have fixed interest-rate mortgages and so do most firms. Debt burdens do not shrink when the money supply contracts -- which means that there will not be enough money in circulating (getting paychecks and writing grocery checks) for people to continue eating and warming their homes and paying taxes and at the same time keeping up the payments on loans that do not shrink as paychecks and retail prices shrink. Paychecks are smaller and revenue from sales by firms are smaller but the bank still demands the same debt payment as when spendable checkbook deposits were more plentiful and were people spending less cautiously.

But what does it mean that the debt burden of households and firms does not shrink with purchasing power, that payments to the bank must continue the same even though people have cuts in pay, cuts in profit, cuts in pensions, cuts in benefits etc. It means that the bank ends up with a larger share of the national economic pie and the workers, pensioners, entrepreneurs, farm owners etc. end up with fewer and smaller slices of the pie. Businesses are foreclosed and only people connected with the financial industry have the purchasing power to buy up the foreclosed properties -- they end up owning every house and business that goes down.

But not only do debt payments not go down when the banks shrink the loan-created checking deposits (i.e., when they contract the money supply), neither do property taxes and many other taxes. Income tax is graduated (with higher and lower income brackets), but if employers choose to fire some rather than cut everyone's wages -- then those who remain employed will continue with the same high income tax bracket as before. Like debt burdens, income tax burden will not fall for those still employed. But the government will still have the loss of income tax from those now unemployed. They will seek to raise taxes to keep up the same level of bureaucrat comfort as before. But there are so many different ways that taxing and government spending can adapt to the crunch that it is too complex for this summary -- so let's just stick the part of the analysis that involves the fact that when wages and prices fall after a credit contraction (shrinking of spendable checking deposits) debt burdens do not fall to compensate.

In social credit we may call this the A + B theorem -- with "A "being wages and profits paid out by firms from their revenues and B being payments on the debt from the loans that create our purchasing power. "A + B" represents total cost (note: actually depreciation and taxes figure in here too, but I am keeping it simple) -- which must be covered by selling price for a firm to break even or have "normal profits" if we include pay and "bonus" to entrepreneurs. Let me say that simpler. In order to pay everyone involved in production and the bank as well (A + B) the good or service sold must be priced at at least at A + B. When the checking deposits shrink A (wages and profits) may be reduced, but debt burden (B) will not be reduced -- due to the power of bankers in making the rules -- and so wage earners and profit-based firms are hit even harder by the contraction as the bankers, receiving "B" are actually better off -- because like the people who did not lose their jobs and whose wages were not cut - they are actually better off in a deflationary world. Firms have had to cut prices -- how cheap laptops and i-pods were this Christmas! -- in order to get inventory off the shelves, but at prices far under "A + B" (with, remember, B not shrinking) -- and so businesses will work to whittle down "A" as much as possible, whittle down the wage component of "A" to save as much of the profit component of A as they can -- while making their "B" debt payments as usual. IF they fail in this they go under.

Remember, the financial sector, including all of the bondholders, like deflation, because that means that their income from bonds and securitized fixed mortgages etc. will stay the same as prices go down in deflation -- increasing their wealth, increasing the value of their bond portfolios. The debtors will be crushed by the same amount that the bondholders receive their deflation windfall. If I take out a loan while making $100,000 a year and my income, due to credit contraction, is reduced to $20,000 per year -- it will be very difficult for me to keep my house and feed and clothe and provide comforts and relishes to my family while meeting my unchanged debt obligations. I go under.

Now this all of this disaster for the earners of "A" has been brought about by the credit contraction (the calling in of loans -- margin calls, calling loans too long delinquent etc. ) of the bankers who receive unadjusting "B" -- and when the debtor fails, receives ownership of the collateral (house , the assets of the company etc., repossessed car etc.)

For the banker bent on wealth maximization (think about it -- the bond holder seeks to maximize the indebtedness of Americans) his goal is to lend at a high interest rate during periods of "easy money" -- when lots of loans outstanding keep spendable checking deposits large and inviting -- so that Joe Citizen will take on as much debt as he thinks he can handle in these good times (which he imagines will last forever) -- and of course the banks, during their "seedtime" will hire a million people to phone every American to get them to borrow money on every bit of equity they may have in their homes -- and the people, with big eyes for new cars, big plasma screens and bigger houses, and vacations, and Christmas shopping, but also for gasoline and heating fuel etc. that monopolists have priced far into the stratosphere stratosphere -- so that even the people who have been managing their budget closely will be compelled to take out a loan to make ends meet given their debt obligations -- so that in the end everyone places themselves into debt up to the maximum -- even as the Presidents (Carter and Bush) tell them that the new high-tech economy, after all of the leveraged buy-outs etc. is going to be lean and mean and better than ever -- when actually they were turned into concentration camp ghosts before they expired and were torn down to be replaced by China based production under international ownership. What I am saying is that, the during the "seed" phase of the bankers exploitation cycle everyone got in debt because they thought easy money would continue or that somehow the emergency caused by high fuel prices would go away and everything would "somehow" be worked out later.

But later never came. Instead the bankers, as in 1929, deliberately contracted credit, calling in bad loans -- all planned at the higher levels of banking -- the local managers often quite pained by the suffering and disruption and ruin the contraction was causing those to whom they had so happily extended loans a few years or a few months before. When the spendable deposits are shrunk and the and people can't meet expenses -- the banks reap a great harvest. They get the homes and businesses which were the collateral for the loans they made. Workers now have a tiny wage (or unemployment or underemployment or fewer hours) and business owners negative profit. Small business or their domestic (small) corporations go out of business -- but the real assets (land, machines, buildings) do not vanish, they simply change hands -- they are owned by the bankers and the international allies of the bankers. When a company is foreclosed -- usually it reopens as a cheaper, shabbier and lower paying place, but often too it is allowed to go under so as to increase monopoly concentration of competing firms -- the banks float the international corporations which compete with the domestic local entrepreneur businesses -- so the banks use the credit-expansion/ credit-contraction business cycle to destroy the competition -- and it works perfectly. Where are all the high-tech firms that once thrived in the US? Where are all the banks that used to compete with Chase Manhattan? (Remember, it is the bigger banks connected with wall street that play this game, not the little savings and loan run by "George Baily"-like characters (from the Frank Capra film).

Now we are ready to spell out what Social Credit is and who it can solve national economic problems and the problems that have come upon most of the world's households in this kleptastrophe.

Under the Social Credit system we get rid reliance on the bankers loans based on fractional reserves and with spendable deposits increased or decreased by the Fed's buying and selling of securities to the big investment banks, which work their way to the little banks slowly and imperfectly -- the money often going to invest in construction in China or other low-wage land ow-environment- user-cost countries -- THAT SYSTEM IS ELIMINATED. Instead, new money arrives each month at each household (not to firms) -- this money takes the place of loan money. It is debt free and it does not have to be paid back. (No, it is not impossible. It is no less impossible that the fact that we can finance two wars when were are already busted and sunk to the center of the earth in a debt hole that neither householder nor government can climb out of. -- Now let me tell you the secret: We are killing Iraqis in payment to our Jewish creditors and we are killing Afghanistanis and soon Pakistanis in payment to our Chinese creditors. And we will soon be killing each other for both of them. -- ) As I was saying, the social credit dividend goes to each household and the housewife etc. then takes the money to the stores and buys what she thinks best for her family. Father still goes to work, and mother too if she prefers that to domestic production of home culture and her own children's social and cultural development etc -- the householder still has a job -- but more leisure because he does not have to pay the Rothschilds -- all debt incurred under the old criminal system has been repudiated -- and so people need only work a fraction of what they worked before.

This Social Credit System -- let's call it the American version of Social Credit -- to distinguish it from the more purist C.H.Douglas versions that are widely promoted by populists in Australia, Canada, New Zealand, and, in dark basements of Britain. American Social Credit is a lazy combination of Douglas, Kitson and Soddy -- taken with a great deal of artistic license. As I was saying, this Social Credit System gives money to the householder, who then takes it to become the effective demand for new goods and services offered by firms. The people not being entirely wage dependent for their consumption (for their buying) are able to pay a higher price firm enabling the firm earn some profit that does not have to be eaten into by payments of "B" the usurer. The firm can make an honest profit and the amount of purchasing power in play will not be tampered with by devious criminals in top floor offices of the Rockefeller Center or the small group of investment bankers who on the Second Floor of the New York Federal Reserve Bank tell the FOMC chief (Geitner's old job) what the open market sales and purchases of securities will be. (Remember, these purchases and sales of treasury securities between Fed and bankers is what under the present system expands and contract the supply of loanable funds that finance business investment and mortgages (i.e. increasing and decreasing spendable deposits, those debt-based deposits that provide our purchasing power, such as it is). All that will be shut down under social credit. There would be no Fed. Money would be created by the Treasury, and credit would be created by the National Credit Office with every penny of credit going to household and not to any agency of Government. The householder will be the first spender, not the government and not the elite international corporation. The housewife will again (or for the first time) direct production and become the center of the attention of profit seeking entrepreneurs as they once again (as not since the 1920's and early 1950's) do everything they can to satisfy her wants for herself and her family -- which is called Consumer Sovereignty, something that only Social Credit really provides without tricks -- without debt and the grand larceny of intentional manipulations of credit to set up and then knock down households with inflation and deflation, boom and bust, easy credit and tight credit, investment and bankruptcy and transfer of assets from workers, entrepreneurs and engineers to bankers and their crony monopoly corporations.

It is very important that the households receive the social credit checks and not the government. The big spending Democrat is the partner of the banker (the Republican IS the banker!) -- I'm speaking of the decision makers, the policy setters of the party, not the rank-and-file fool who is led by the nose by deceit and bribes and scares and seduction and envy and whatever politically useful emotion paid agitators can stir up. But under Social Credit, the household gets the money, they spend it on what they think households need most -- what is best for their children and for their own personal development and health and future and public contributions they wish to make -- the American citizen will once again have money to give to charity, even as charity will not be as necessary -- although there will always be spendthrifts -- there are other problems which are addressed by populist remedies other than social credit -- but we are not talking about those here.

The government will continue to get its money by taxation. It will not spend the social credit money itself. It will only get that money when it is paid to them as taxes. There will be no withholding on social credit. (Very important.)

Social Credit will not replace earned wages. People will still go to work. But they will not have to work to pay big debt and they (Oh wow! I just realized I didn't push the save button all this time -- this time I am lucky!! ) as I was saying they will not have to work to pay their household debt -- except a reasonable mortgage debt on a bank with 100 percent backing -- people can deposit their debt-free treasury note money at 3 percent interest and people wanting to buy a home will borrow at say 6 percent -- which will be fixed for all time -- inflation being impossible without the dishonest banker expanding and contracting credit at will. The householder will not have to work until May or some other late month just to pay the national debt, the tax to pay interest on the national debt. That debt, to the Rothschild interests will be repudiated -- as gained by fraud and malfeasance and the igniting of wars and boom-bust cycles and bubbles and other forms of financial and government boondoggle scandals. The Rothschids and other banking dynasties will have most of their money taken from them in reparations -- let them go into the wine business or sell fine art -- under Social Credit the Rothschilds have no function -- even as they are a dead weight loss on society today -- remember, a banker is not an entrepreneur -- he only controls entrepreneurs and engineers and workers because of his monopoly of credit -- the Rothschild's control too much to be good entrepreneurs -- Investment Bankers of the City of London and Wall Street care nothing about pleasing the American housewife, or any other American family member -- the banker profits not from building better a better mousetrap or computer mouse, and neither does the big corporation -- rather, they profit by creating monopoly for themselves, monopoly created by destroying the competition through the shock of damaging expansions and contractions of credit as already explained.

Governments will tax and they will provide public services. But the money will originate in the hands of the householders -- not the government owned by the corporation getting into a war, or building up a giant Homeland Security boondoggle -- or fake crises that each have to be met with expenditure of trillions and the regulation and shut down of everyone not related to a big financier etc.

Businesses will need to apply less for loans because they will be profitable enough to expand without loans, that is provided they still can satisfy the housewife, if they can still attract her dollars (social credit plus wages and profits from business ownership). Social credit is real free enterprise, the only really workable market system that can hold up a complex modern society without the scam, boom and bust and all out corruption of the debt-money private credit monopoly system we now languish and perish under.

Because the housewife directs production with the purchasing power that social credit and a husbands pay-check that does not have to go to pay creditors and the tax man who turns it over to Rothschild as interest on the National Debt. Motive for war will be gone. Wars, as Hobson showed over a hundred years ago, is caused by the people not having enough money to buy what they themselves produce -- so that firms had to sell abroad (in exchange for raw materials etc.) to sell that they produced -- giving credit to foreign countries to develop their resources on condition that they buy from the Imperialist country's firms -- because, as Douglas put it, the domestic population only earned "A" while the products for sale had to cover both "A" (wages, profits) and "B" usury -- so that a constant stream of loans by usurers were necessary to keep firms going -- a responsibility abused by rigging the game with expansions and contractions until the banker and his pet monopoly corporations owned everything. The heck with that noise! All of that will be out of our lives forever -- if and when we -- all nations -- rise up and overthrow the money power and replace it with treasury money, social credit, debt repudiation against international crime banking syndicates.

Did I explain it? Probably not. And I am not going to polish this. It is 4:25 a.m.

Thanks for asking me how it works. I hope my thumbnail explanation of my version of social credit is clear.

Present system -- the A + B problem The Financial sector manipulates us into booms and busts
by either expanding loans (and B) or contracting loans while obligations of firms and houses to
pay on their loans the amount stipulated in the loan contract remains the same -- forcing bankruptcies and foreclosures. Interest payment obligations, "B," grow in expansion but they do not shrink loans are cut back and fewer dollars are in circulation to meet household needs and debt obligations.

Social credit. The National Credit office is like an Anti-matter IRS -- not a penny it issues goes to government. The prime thing is the dividend going to household and the wages plus dividends going to businesses (to the retailer who with it pays his suppliers and his employees). The government sector is not shown here and neither is the banking sector -- the banks being 100 percent fractional banking with regulated interest rates -- as in the 1950's when savings accounts earned 3 percent and borrowing firms and home-buyers paid 6 percent on loans. In short we have no usury, except the tightly regulated "George Baily" savings and loans. Banks will all be state run and state regulated -- no Federal Involvement. The banking system will not control the money supply, -- that will be the job of the Treasury Department and the Social Credit Institution (called the National Credit Office in the Diagram above)

On the question of how much money should each household get and how often -- and how to keep the flow even -- and how to conduct an Irving Fisher type monetary policy with a pure treasury system of public treasury notes -- Lincoln money -- "debt free Greenbacks" which funded the Civil War and lasted up to the time of the Federal Reserve -- but not in abundance thanks to the Robber Barons forcing the gold standard -- not allowing any new issue of greenbacks to expand with the economy ... etc. All that is trivial -- the costs of trial and error could not possible come near one 100th of what the Kleptastrophe and the Imperialist wars of just the new century have cost us -- and working out the system will end business cycles forever -- provided we can keep the old tribes that have gotten so good at the usury system from sneaking it back in on us.

Social Credit in combination with a few other populist measures is a genie that could end debt slavery almost in the blink of an eye. But we would all have to commit to "using a wish."

So that is the system we could and should have. What I predict however is that you will get newly disguised and more deceptive and malevolently flexible version -- like Windows Vista to replace Windows XP -- of current Rothschild usury -- which Dr. Stiglitz has already prepared for us. It has been waiting in the wings for a long time -- its outline decided upon even before 9-11 -- although Stiglitz is giving it its public face -- pretending that it is the solution to the Kleptastrophe when if fact it is the capstone of the Kleptastrophe, the final destination of the Kleptastrophe envisioned by the chosen agents of the Money Power who brought it forth.

Dick Eastman
Yakima, Washington