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Posted (edited)
On 7/25/2022 at 12:21 AM, nsplayr said:

image.jpeg.5b6f2f4339a668d611233ea81bab1aec.jpeg

I can break it into two parts to help you read it. 

 

Neoclassical econ asserts that money is exogenous, like a lump of gold that produces X coins (we won't get into medieval coinage), or the gov creating Y bank notes (we won't get into the creation of the BoE). Given some constant exogenous lump of money, the set of available projects at a given time determines where that money will flow as investment. The individuals who hold it (savers) always want to maximize their return (individuals are utility maximizers with insatiable wants, and have all available info on all projects at any moment all the time). There is a natural rate of interest, like a natural law, according to the available technology (which defines labour productivity). So, in this fantasy world money flows towards projects according to these natural features, the money can't go anywhere else. Its powerless. 

Exogenous money is critical to this vision. People save money (collect it) then invest it, investment determines capital, which determines total amount produced. In this interpretation, there is one good (like corn), which is consumed, invested, and used as money. The problem is if money isn't exogenous, what changes?

Edited by Random Guy
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Posted (edited)

The deferred asset the Fed is creating as we type demonstrates that money is not an exogenous commodity, like gold. The Fed can write a liability to its ledger and is only constrained by the political rules we define for it. The Fed doesn't have to purchase private assets, like bank loans, in order to create reserve deposits. This money is not preexisting, and someone makes the determination of who will receive that money, in this case banks. And money is what allocates all resources--which means that there is a strict hierarchy created at the moment money is created.  

Edited by Random Guy
exogenous -> exogenous commodity. technically there is a case where the Fed creating liabilities of its own accord would qualify as exogenous. However, the Fed is creating liabilities according to the behaviour of other agents in the economy (endogenous)
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18 hours ago, nsplayr said:

My opinion is you’re either really quirky or you’re an AI chatbot. Either way, I don’t really wanna engage here. GL!

It seems to me that HAL's back and he's upped his game. Caution - back in the day HAL was good at reading lips/today HAL can probably secretly monitor/observe every move you make, etc, etc.  It sure seems like one of HALs many new mission sets is showcased in this money/finance discussion.

 

Edited by waveshaper
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This is an interesting chart. What are derivatives? How much risk is hidden within them? (remember MBSs and CDSs?) How much of your wealth is dependent on the performance of derivatives? How much of your part of the world economy, into which you spend your actual wealth, is dependent on derivatives?

All of the World's Money and Markets in One Visualization, 2020 Edition

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Posted (edited)
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 @ViperMan People who advocate for that framework forget that money is ultimately worthless - it depends on a real economy to function. The actual effect of printing money distorts and damages the real economy.

Quote

@Lord Ratner If your system *requires* a government entity with the unconstrained ability to spend money that does not exist, your system is broken.

 

Just saw your edit ViperMan, and I'm replying in this thread given the subject. So I can clear up this confusion, if you'll bear with me. Even if it sounds crazy, gyro tumbling crazy.  

 

When you object to money being printed, is it clear in your mind what exactly money is in that scenario? In other words, when money isn't printed, where does it come from, where is it kept, what is it?

 

In the second quote (Lord Ratners'), we must ask ourselves: when money does exist for the gov to spend, where and what is it? Because we can imagine the Treasury General Account (TGA) at the Federal Reserve as having a positive balance (this is the checking account of the Treasury, just like our checking account at a bank). If that account is empty, so to speak, 'money doesn't exist' for the gov to spend. But the Fed can always mark up the TGA, like it did during Covid or right now. So if the account can be set to whatever value we choose, what does it mean for 'money to exist' or 'not exist'? 

 

Edited by Random Guy
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All money is 'printed'.

Whether its the Bureau for Engraving and Printing (which creates cash, a Fed liability), the Mint (coins, a Fed liability), the Fed's ledger (digital reserve deposits, a Fed liability), or the Treasury (US Treasuries aka money market collateral, a Treasury liability).

We think that this stuff is money, but 97% of money is private. Created by private banks. And there is no other money. So what's different between the Fed (a bank) creating a loan to buy a financial asset, and Wells Fargo creating a loan via a credit card for you to buy a financial asset? We can replace what we're buying, rather than a financial asset, we could buy an airplane (F-35 vs a Boeing commercial aircraft), pay employees (gov payroll, firm payroll financed via commercial paper), etc. 

The action is identical, the purchase equivalent--but your belief is that one is printing money, but the other is not. When in fact they are the same. All money is 'printed' by banks. 

image.thumb.png.cf53abbbccfe078173e8a22b2184e0a6.png

 

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Before someone posts "Yeah, but the gov is giving people money", or "When the gov spends its inflationary". Private banks do the exact same thing. Credit cards are loans for consumption, banks create the deposits from nothing. Home mortgages (makes up ~50% of total money in the US economy) are unproductive, houses don't produce goods and services for the public. Margin debt, for stock trading, that's fresh deposits created by banks from nothing for speculating on stocks.

The big difference we see if that private banks have created huge amounts money, printed money, and directed it towards housing and stock purchases. Which caused asset price inflation. But people don't consider this 'inflation', when it is. 

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On 7/25/2022 at 12:18 AM, Random Guy said:

The Fed can write a liability to its ledger and is only constrained by the political rules we define for it.

This is the fundamental flaw in the entire ideology. 

 

If this was true we'd have no inflation. But we did have inflation, and that inflation will destabilize the societal faith in the system, which is a prerequisite to the functioning of the system. 

 

If faith in the system is lost, the system is lost. Watch what happens when the bond market decides to ignore.

 

Money is a proxy for human output, period. If you increase the amount of money without also increasing the output (growth), you will eventually get inflation. The entire system of modern economic has been constructed to deny or disprove this reality, yet here we are. Between the Yen, the Eurozone bond divergence, and our own inflation, any suggestion that MMT or Keynesian economics are valid theories should be laughed out of the room.

 

For my whole life the economists like Krugman have been trying to convince us that the laws of personal finance don't apply to macroeconomic systems. It's bullshit. The only difference is the time it takes to fall apart.

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Your spew is difficult to keep pace with - I'll give you that. In fact, I have a feeling you might be having fun with GPT-3 (https://openai.com/api/)?

Aaaaaannnnnnnywaaaayyyyy. The part that is MMT is the idea that deficit spending is 'free'. A Stony Brook economics professor, Stephanie Kelton, wrote a (terrible) book about it called The Deficit Myth, in which she spells out a lot of the theory that you promulgate in this thread. In a sentence, the idea is that the government can spend and spend and spend and all will be ok. The implicit assumption that is taken for granted, is that this only works for so long, and is additionally propped up by the fact that we hold the world's reserve currency.

On 7/24/2022 at 11:41 AM, Random Guy said:

@ViperMan Not being cagey at all. It's a fair question to you, 'What part is MMT?' Specifically--I want to know your level of knowledge, what makes something 'MMT', how do you know? 

In this thread I've posted an MMT source, a response by Bill Mitchel, which is just a current event for folks interested in current economic news. The rest is entirely Post-Keynesian and official gov sources, such as the Fed and the Bank of England (central banks themselves). I've specifically avoided MMT sources because of the political antagonism between US Republicans and MMT'ers in the US progressive party, given most folks here aren't US progressives and were taught Neoclassical Econ. I don't need MMT sources to describe the financial system, and I'm not advocating policy (excluding our earlier discussion of "Favorite Big Booty Latinas").

If you agree tracing a drop of fuel through a jet is a valid exercise to understand reality, you cannot be against tracing a unit of currency through the financial system to understand reality--assuming you accept that money is at the core of our economic system <-- I presume you accept that premise. 

Edit: But yes, its fitting that a billionaire wants you to believe that money doesn't make him powerful.  Money has 'no power in and of itself'. Musk is powerless.  😄

Money is a key factor that helps the economy function, but productivity is the core of the economic system. Elon Musk, though you dismissed him without refuting him, sufficiently understands and stated that money's function is to allow goods and services to be transferred through its medium, and to transfer spending across time and space.

On 7/25/2022 at 11:23 AM, Random Guy said:

Just saw your edit ViperMan, and I'm replying in this thread given the subject. So I can clear up this confusion, if you'll bear with me. Even if it sounds crazy, gyro tumbling crazy.  

When you object to money being printed, is it clear in your mind what exactly money is in that scenario? In other words, when money isn't printed, where does it come from, where is it kept, what is it?

In the second quote (Lord Ratners'), we must ask ourselves: when money does exist for the gov to spend, where and what is it? Because we can imagine the Treasury General Account (TGA) at the Federal Reserve as having a positive balance (this is the checking account of the Treasury, just like our checking account at a bank). If that account is empty, so to speak, 'money doesn't exist' for the gov to spend. But the Fed can always mark up the TGA, like it did during Covid or right now. So if the account can be set to whatever value we choose, what does it mean for 'money to exist' or 'not exist'?

You seem to be wrapping yourself up about a relic of the modern financial system - not every dollar in existence has a physical bill. Nor has anyone you're speaking to asserted such. My objection is not about money being printed - when there is productivity, there needs to be money in order to facilitate transaction. The problem becomes when there is no productivity, misdirected productivity, or even negative productivity. The phraseology "printing money" refers specifically to those situations wherein the government has exhausted all sources of revenue, determines they need more, and goes to the federal reserve for a "loan." That, by definition, is spending without productivity, and is thus inflationary. It creates demand where there was no supply (i.e. no supply of previous labor).

On 7/25/2022 at 12:00 PM, Random Guy said:

Before someone posts "Yeah, but the gov is giving people money", or "When the gov spends its inflationary". Private banks do the exact same thing. Credit cards are loans for consumption, banks create the deposits from nothing. Home mortgages (makes up ~50% of total money in the US economy) are unproductive, houses don't produce goods and services for the public. Margin debt, for stock trading, that's fresh deposits created by banks from nothing for speculating on stocks.

The big difference we see if that private banks have created huge amounts money, printed money, and directed it towards housing and stock purchases. Which caused asset price inflation. But people don't consider this 'inflation', when it is. 

Private banks are different for a number of important reasons.

1. They cannot initiate unlimited loans.

2. They cannot (do not) provide a loans without collateral.

3. Private banks can become insolvent and go bankrupt.

The Fed is precisely to opposite of each of those factors.

Home mortgages are not unproductive. Your mortgage (if you have one) provides you "housing services" each and every month - ultimately providing you housing for an indeterminate amount of time if you succeed in paying it all the way off. Look up imputed income. You'll gain an understanding about just how productive a mortgage can be.

Lastly, I think people do consider that inflation. Who doesn't think the stock market and housing are at all time highs because there's a dearth of money rushing around in the system? For real.

I have one question for you. What is your purpose?

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Posted (edited)

The purpose here is to learn about financial systems, reconnect folks' instruments panels, so to speak.   

First, private banks do lend unsecured. But I don't follow your argument that private money creation is never inflationary, but gov money creation is always inflationary. In the case of Fed QE, inflation for consumer goods was low from 2008-2020, yet Fed money creation was quite large. QE supports asset price inflation. The gov spending from 2020-2022, on the other hand, was directed towards goods and services, and we see an associated increase in consumer goods inflation. Wages are muted, profit margins have increased. In effect this was gov transfer to businesses in the form of profits. But this is getting quite into specifics when you haven't quite nailed down clearly for me what money is and is not. 

I'm not here to argue the merits of MMT, whatever you think that is. I'm here to discuss operations and dynamics of financial systems and money. MMT is largely about policy, and I leave policy up to each of you. We can reconnect your instrument panel, what you do with the jet is your choice.

It seems as though you have swapped one word, money, which you don't have a concrete understanding of, for another word, productivity, in an effort to escape the investigative spotlight. So, I'll ask you define your new term, what is 'productivity'? And, let's get specific, imagine a town without money (common in the anthropological record, ~4000BC time frame, middle east). A group of folks living together who go about their day as a team, assigning tasks according to a hierarchy, and living without any monetary constructs to allocate labour or other resources. They eat mostly barley, have simple tools. Is productivity present in this setting? In the context of productivity being any increase in outputs for any given combination of inputs, the exchange of 'money' is irrelevant to the technology used by the folks in town, isn't it? If a member of this team organizes the digging of irrigation ditches to increase crop output, does money somehow magically appear, agreed to by everyone of the team, to facilitate an exchange of labour for an increased crop at harvest time? Why?

Or, imagine your younger self (instead of the Sumer example). Brand new 2LT, copying and pasting data from one document to another. Your wage is fixed. You discover "Ctrl + C, Ctrl + V", increasing your data transfer productivity 2x. Does this create money? Does it require money in order for you to learn something new? Are children not learning because they aren't paid or because insufficient money exists in circulation elsewhere? What would be an example of misdirected or negative productivity changing a quantity of money or the capacity to create money of a money creator like a bank?

Edited by Random Guy
spelling + added examples
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Posted (edited)
19 hours ago, Lord Ratner said:

This is the fundamental flaw in the entire ideology. 

 

If this was true we'd have no inflation. But we did have inflation, and that inflation will destabilize the societal faith in the system, which is a prerequisite to the functioning of the system. 

 

If faith in the system is lost, the system is lost. Watch what happens when the bond market decides to ignore.

 

Money is a proxy for human output, period. If you increase the amount of money without also increasing the output (growth), you will eventually get inflation. The entire system of modern economic has been constructed to deny or disprove this reality, yet here we are. Between the Yen, the Eurozone bond divergence, and our own inflation, any suggestion that MMT or Keynesian economics are valid theories should be laughed out of the room.

 

For my whole life the economists like Krugman have been trying to convince us that the laws of personal finance don't apply to macroeconomic systems. It's bullshit. The only difference is the time it takes to fall apart.

Note I didn't say the system wasn't flawed. We can trace a drop of fuel through an engine without saying whether or not the engine is flawed. All systems are flawed, that's called entropy 😄. Whether or not its good or bad is another thing entirely. 

Whether or not the Fed and private banks can create money is different than money's effect on prices. Clearly, we can identify that banks create lots of money, and some of it is inflationary, and, some of the inflation falls into categories that people ignore (ex: asset price inflation, no one complains that house & stock prices are rising to the degree that gas prices are). Here is a chart showing the balance of Fed purchases (increase in gov money) relative to the US CPI: 

Image

Money cannot be a 'proxy' for human output, because lots of human output, especially in services, is non-monetary in nature (ex: a mother's work producing children). Or, imagine a slave economy, where all output is produced by slaves and consumed by slave-holders, and that output has no price. The quantity of money and the quantity of output would be irrelevant to one another. 

 

Can we agree that banks are the source of money? Private and public banks are money creators, and this occurs when banks issue loans? I want to know where else money comes from, if this is not the only source.

Edited by Random Guy
Werner "Where does money come from" link added
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5 hours ago, Random Guy said:

ex: asset price inflation, no one complains that house & stock prices are rising to the degree that gas prices are

You keep saying things that are ridiculous. Millions of people are complaining that housing prices are inflated. Others like myself complain that the Fed doesn't consider them in calculations of inflation. OER is a joke, but then again, the Fed is a joke, so it fits.

 

You are intentionally being obtuse. It's funny, because you speak a language that academics use when they are intentionally avoiding an attack on their thesis. Hyper focus on semantics and definitional disagreements instead of the concepts, which are obvious. If they aren't obvious to you, then you simply aren't smart enough for the conversation you're attempting to have. That might be why you sound like a bot, btw. Using a vocabulary based on pattern matching and imitation rather than understanding.

 

We're seeing the same nonsensical arguments with the CRT and trans issues. Suddenly the definition of racism and gender aren't what they've been for thousands of years, and anyone who doesn't accept these new definitions are the idiots, not the clowns who decided to unilaterally redefine them to support their bankrupt ideology. Sounds like they new definition of money.

 

A couple points on things you missed, before I'm completely bored with this circle jerk.

6 hours ago, Random Guy said:

But I don't follow your argument that private money creation is never inflationary, but gov money creation is always inflationary.

All money creation is always inflationary. But in a healthy system the "created" money that is loaned out and inflationary is offset by "destroyed" money that is paid to the loan and deflationary.

The private system usually maintains this balance, because failing to do so would lead to insolvency and dissolution. But here comes the Fed, buying private securities from the banks (MBS are a great example) which distorts the lending calculus and encourages bad lending that will never be paid back.

The Fed will cause massive deflation if it meaningfully reduces the balance sheet, but no one expects that to happen considering the government would lose it's ability to deficit spend without a guaranteed buyer of low-interest bonds.

6 hours ago, Random Guy said:

You discover "Ctrl + C, Ctrl + V", increasing your data transfer productivity 2x. Does this create money? Does it require money in order for you to learn something new? Are children not learning because they aren't paid or because insufficient money exists in circulation elsewhere?

No, because money ≠ productivity, and that fact you think ViperMan (or I) was suggesting that is the clearest indication that you are incapable of keeping up with the conversation. Productivity is the most reduced form of what any two participants in a system are exchanging when they use money (any form) as a method of exchange. Ultimately, money is a claim on human effort, and different humans have different prices for their effort.

 

In your example above, money is (obviously) not created. The discovery of additional, previously unavailable human effort through the increase in productivity from Ctrl+Z Ctrl+V is deflationary, as the money supply is unchanged, but the available product has increased. 

 

It also explains why the Fed's reckless money "printing" binge has been able to persist for so long. The world has been increasing productivity exponentially over the past 20 years thanks largely to the Internet, but also to automation and globalization of manufacturing and services labor. That deflationary explosion in additional available human effort (productivity) had been offset by a clueless fed that was simultaneously increasing it's "money-printing" operations exponentially in pursuit of their arbitrary and idiotic target of 2% inflation. They openly admitted for years that they didn't know why their stimulus wasn't having an inflationary effect, yet they intentionally omitted the wild inflation of housing and equities, and completely missed the huge deflation of globalization. So they just kept printing.

Then COVID hit and the deflation spigot slammed shut. Human productivity plummeted and spending did not. Boom, record setting inflation in one year. And if you actually use the housing-inclusive formula that was used in the 80s for CPI then inflation right now is the highest in American history. Ever.

Thanks to Russia and China, the globalization experiment is dead, so we now lack the intense deflationary pressure we relied on to obscure the effects of irresponsible money-printing. The Fed claims to be fighting inflation, but until they reach a policy rate that impedes government deficit spending, we aren't going to escape inflation.

 

Here's the best quote I've ever heard from someone we've been taking seriously for years, Jerome Powell. This was one month ago!

"We understand better how little we understand about inflation.”

But these are the people who are going to fix this? That's the system we're in, where the central authority for managing inflation literally doesn't understand it.

 

We simply have too much debt in the system. Corporate, personal, and government, and too much of it was spent on unproductive endeavors. We either let inflation rage for a few years (5-10 I suspect) with ~0 growth or we tackle inflation and let the housing, equities, and debt markets collapse by about 50-75 percent. All that assumes we find Jesus on responsible spending which, to the howling of the Keynesians and MMT hacks, will look similar to smart personal financial actions: Don't spend more than you make, and only take it debt you can pay off.

 

But what we're probably going to get is more academics arguing that money isn't actually real and banks can just create money and the Fed doesn't actually print money and blah blah blah blah blah blah blah. 

A theory is not valid because the detractors cannot convince the supporters of it's realize fallacy. Theories are by default invalid until validated by outcomes. Our financial system has been constructed around the theory that debt doesn't matter at a macro level, and now the theory is collapsing, as it was always doomed to.

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I missed a couple other faulty examples you used:

6 hours ago, Random Guy said:

Money cannot be a 'proxy' for human output, because lots of human output, especially in services, is non-monetary in nature (ex: a mother's work producing children)

A mother is not exchanging with her children, that is a closed system.

 

Also... Have you heard of daycare? Nannies? Au pairs? Babysitting? If you've found non-monetary daycare, please let me know.

6 hours ago, Random Guy said:

Or, imagine a slave economy, where all output is produced by slaves and consumed by slave-holders, and that output has no price. The quantity of money and the quantity of output would be irrelevant to one another. 

Slavery was massively deflationary, which is why it was so damn popular. Input costs, in money, were dramatically reduced if you put the cost of human effort to near-zero. 

The slaveholder was merely the collective representation of the entire plantations's productivity cost to outside buyers. You think the output of slaves was consumed by slave-holders? They were just hoarding all the cotton for themselves? 

6 hours ago, Random Guy said:

Can we agree that banks are the source of money? Private and public banks are money creators, and this occurs when banks issue loans? I want to know where else money comes from, if this is not the only source.

Which money? Banks do not print dollars. Dollars are money. They don't mind for gold, which was money for a long time. Anyone can make money, if the system, as supported by the society, allows for it. Hell, even counterfeiters create money if they can get away with it. And in all cases, the creation of money reduces it's value relative what it can be exchanged for.

 

Our system allows for the creation of money beyond the rate of productive growth. That will always be inflationary. It doesn't matter if the money is metal, paper, or digital, or if it came from a Fed printing press or bank database. If it can be exchanged for something that is not money, it will have a direct effect on inflation.

 

They were talking about minting a $1T coin in 2020 to fund the government. What bank was that going to come from?

If Congress passes a law tomorrow that says colon polyps can now be used as hard currency, then they will have created money. Not from a bank.

 

And is it really creating a loan when there is no intention or ability to pay off? More linguistic trick fuckery. A loan is only a loan if it is paid back. I believe a fair argument can be made that the government has no intention of paying back the trillions of dollars in deficit spending they authorize each year.

 

But we call it a loan so that the entire philosophical basis for the system can persist. But it's not a loan, no matter how much you or they proclaim it to be, and therefore the system is in effect already failed. If money is not being created as a loan, it is simply being created. 

 

Our system, this monetary system that I suggest will fail, is predicated on the idea that certain loans never need to be paid back. That is definitionally not a loan. So if the Federal reserve "prints money" by "loaning" it to the government with no honest intention of being paid back, then the money is being created without being part of a loan.

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Posted (edited)
5 hours ago, Lord Ratner said:

Millions of people are complaining that housing prices are inflated. Others like myself complain that the Fed doesn't consider them in calculations of inflation. OER is a joke, but then again, the Fed is a joke, so it fits.

The Fed has a mandate to control prices, but asset prices aren't included in that mandate. The Fed inflates asset prices, intentionally. Again, I'm not saying the Fed is good or bad, I'm trying to get at a good description of money creation in order to trace its path through the system, we're just trying to identify where the fuel comes from in the first place. And the Fed is one component of money creation, when it marks up the accounts of its account holders, who are banks. The private banks themselves create most of the money supply.   

 

 

5 hours ago, Lord Ratner said:

All money creation is always inflationary. But in a healthy system the "created" money that is loaned out and inflationary is offset by "destroyed" money that is paid to the loan and deflationary.

Ok, here is a claim we can test. When a bank issues a loan, such as an investment bank, it would be interested in recouping the loan [principle + interest (risk) + inflation (expected)]. So any bank loan (money creation) would have included in it an adjustment for the inflation associated with not just this loan, but all loans, over the respective period of time. Is this adjustment for the change in total private bank lending over time (typically referred to as a 'credit impulse') reflected in bank loan documentation? Not that I am aware of.

We can also look at the change to CPI or CPI + asset prices when defaults rise, because defaulting loans means that the corresponding destroyed money is never destroyed. During periods of cascading defaults (firesales) does the CPI or asset prices rise? No, typically both decrease

Next we can think about it from the perspective of a single loan for a business that purchases only labour, a single 'monetary circuit' (Graziani, pictured below). #1, the bank creates deposits for the firm, #2 the firm pays workers... [If all money is always inflationary, are workers wages rising? The wage contract is typically agreed to and fixed prior to payment]... #3 Workers buy and consume the output... [If all money is inflationary, are the prices for the produced goods increasing? I don't believe so, firms typically set prices equal to costs plus a markup and don't respond to immediate changes in demand. Plus, any inrease in prices means an inrease in inventory, which would mean losses for the firm and default because the workers don't have enough money to pay increasing prices for the output, they would need additional loans from the bank]... #4 The firm repays the loan destroying the money created by the bank.  

Where in this circuit are prices changing because 'all money is always inflationary'?

  

 

image.png.b768e7af5a572fe3ada479681ebaa762.png

 

5 hours ago, Lord Ratner said:

The private system usually maintains this balance, because failing to do so would lead to insolvency and dissolution. But here comes the Fed, buying private securities from the banks (MBS are a great example) which distorts the lending calculus and encourages bad lending that will never be paid back. The Fed will cause massive deflation if it meaningfully reduces the balance sheet, but no one expects that to happen considering the government would lose it's ability to deficit spend without a guaranteed buyer of low-interest bonds.

Please see the chart I posted above, which shows the response of CPI to Fed QE operations (no correlation). I agree that the Fed causes a change in lending behaviour, and you are spot on about that increasing 'moral hazard' and potentially 'misallocating resources', and that the asset price inflation will likely reverse if the Fed attempts to unwind QE which is happening now. These are valid points--and I'm not trying to antagonize you, I like your analysis--but I want to purge from it a reliance upon commodity money first and foremost. Banks create money, gov and private banks, and they are the decision makers about where the path of our economy leads (what we make, what we consume, where its made, etc). And this is not neutral <-- not just some function of the highest rates of perceived return, but subjective decisions of imperfect people with power.    

 

5 hours ago, Lord Ratner said:

No, because money ≠ productivity, and that fact you think ViperMan (or I) was suggesting that is the clearest indication that you are incapable of keeping up with the conversation. Productivity is the most reduced form of what any two participants in a system are exchanging when they use money (any form) as a method of exchange. Ultimately, money is a claim on human effort, and different humans have different prices for their effort. In your example above, money is (obviously) not created. The discovery of additional, previously unavailable human effort through the increase in productivity from Ctrl+Z Ctrl+V is deflationary, as the money supply is unchanged, but the available product has increased. 

I don't understand what you are trying to convey here. When I purchase milk at the store, I am receiving productivity because I am paying with money. But if someone gives me the same milk, I am not receiving productivity because no money is involved? In the case of 2LT copypaster the increase in productivity doesn't do anything to the price for his labour. His wages don't go down as a result of his productivity increase. 

Regardless, we don't need a theory of prices or inflation in order to trace a unit of currency through the financial system. We only need to agree on the origin and substance of money in the real world, which today comes from a bank and resides on bank ledgers digitally.

 

5 hours ago, Lord Ratner said:

It also explains why the Fed's reckless money "printing" binge has been able to persist for so long. The world has been increasing productivity exponentially over the past 20 years thanks largely to the Internet, but also to automation and globalization of manufacturing and services labor. That deflationary explosion in additional available human effort (productivity) had been offset by a clueless fed that was simultaneously increasing it's "money-printing" operations exponentially in pursuit of their arbitrary and idiotic target of 2% inflation. They openly admitted for years that they didn't know why their stimulus wasn't having an inflationary effect, yet they intentionally omitted the wild inflation of housing and equities, and completely missed the huge deflation of globalization. So they just kept printing.

Well, the Fed is not authorized politically to disburse deposits to households. They are fully aware of the impact of QE on asset prices, that was Bernanke's stated intention ('wealth effects'). But at the very least your statement here is agreement that bank money creation is not always inflationary--in the case of QE an equal amount of reserves was not destroyed, the Fed added reserves and has not taken them out yet. I think you must concede this point, and I will re-reference this chart, which shows Fed QE yoy change correlation with CPI change (no correlation of Fed printing to CPI): 

 

Image

 

5 hours ago, Lord Ratner said:

Then COVID hit and the deflation spigot slammed shut. Human productivity plummeted and spending did not. Boom, record setting inflation in one year. And if you actually use the housing-inclusive formula that was used in the 80s for CPI then inflation right now is the highest in American history. Ever. Thanks to Russia and China, the globalization experiment is dead, so we now lack the intense deflationary pressure we relied on to obscure the effects of irresponsible money-printing. The Fed claims to be fighting inflation, but until they reach a policy rate that impedes government deficit spending, we aren't going to escape inflation.

COVID reduced productivity, and reduced (constrained) supply through unforeseen bottlenecks, which has contributed to inflation in goods and services. The impact on globalization is unclear, but your speculation may be correct. But the 'irresponsible money printing' here is unclear--all money is printed, what makes some money responsible and some irresponsible? Again, genuine question, and keep in mind that banks regularly create money for increasing future output, in other words, that output doesn't exist today for purchase. 

 

5 hours ago, Lord Ratner said:

Here's the best quote I've ever heard from someone we've been taking seriously for years, Jerome Powell. This was one month ago!

"We understand better how little we understand about inflation.”

But these are the people who are going to fix this? That's the system we're in, where the central authority for managing inflation literally doesn't understand it.

And this is where I want to get to. Neoclassical economists do not have an empirically valid theory of inflation. Post-Keynesians do. And I posted about this earlier in the thread--the Fed paper which acknowledged Post-Keynesian theories of inflation and money. When we say that the central authority doesn't understand--THEY DO UNDERSTAND. They just want something very different from you, and they are getting what they want. 

 

 

5 hours ago, Lord Ratner said:

We simply have too much debt in the system. Corporate, personal, and government, and too much of it was spent on unproductive endeavors. We either let inflation rage for a few years (5-10 I suspect) with ~0 growth or we tackle inflation and let the housing, equities, and debt markets collapse by about 50-75 percent. All that assumes we find Jesus on responsible spending which, to the howling of the Keynesians and MMT hacks, will look similar to smart personal financial actions: Don't spend more than you make, and only take it debt you can pay off.

Not just too much debt, too much debt which won't be repaid--unproductive debt. And, a big part of that is housing debt. Any debt which does not increase income is technically considered unproductive. All mortgage debt, consumer debt, is by that definition unproductive. 

Remember, when you say 'Keynesian' you are specifically referring to the school known as 'New Keynesianism', which isn't based on the works of Keynes! It's based largely on the work of Hick's and Solow, and known as Neoliberalism, a resurgence of classical economic ideas from the 18th century. The idea that money is an exogenous commodity

 

 

5 hours ago, Lord Ratner said:

But what we're probably going to get is more academics arguing that money isn't actually real and banks can just create money and the Fed doesn't actually print money and blah blah blah blah blah blah blah. 

A theory is not valid because the detractors cannot convince the supporters of it's realize fallacy. Theories are by default invalid until validated by outcomes. Our financial system has been constructed around the theory that debt doesn't matter at a macro level, and now the theory is collapsing, as it was always doomed to.

 

F--- the academics mate. Private debt levels and repayment capacity of constrained balance sheets matters. That's the point of all this. Everyone here needs to know how the system actually works. Trace the drop of fuel through the machine, trace the unit of bank money from creation to destruction--that way people can decide for themselves what policy is the best way forward.

Edited by Random Guy
added chart, removed LTV reference
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18 hours ago, Lord Ratner said:

I missed a couple other faulty examples you used:

A mother is not exchanging with her children, that is a closed system.

What is a mother paid for her product, the child itself? Nothing. Keep in mind that this output is the source of all future output, but women aren't compensated for it.  

 

18 hours ago, Lord Ratner said:

Also... Have you heard of daycare? Nannies? Au pairs? Babysitting? If you've found non-monetary daycare, please let me know.

Mothers are not paid for that labour. Do you pay your wife a wage, according to a contract, and does she negotiate her wages with you, subject to terms of law? 

 

18 hours ago, Lord Ratner said:

Slavery was massively deflationary, which is why it was so damn popular. Input costs, in money, were dramatically reduced if you put the cost of human effort to near-zero. 

The slaveholder was merely the collective representation of the entire plantations's productivity cost to outside buyers. You think the output of slaves was consumed by slave-holders? They were just hoarding all the cotton for themselves? 

This is not a reference to the southern US. Slave economies were the basis of social organization for thousands of years, beginning before the Sumerians themselves

 

18 hours ago, Lord Ratner said:

Which money? Banks do not print dollars. Dollars are money. They don't mind for gold, which was money for a long time. Anyone can make money, if the system, as supported by the society, allows for it. Hell, even counterfeiters create money if they can get away with it. And in all cases, the creation of money reduces it's value relative what it can be exchanged for.

This is our point of contention--if banks do not print dollars, where does money come from? Who/what creates the money supply today? What is the process?

 

18 hours ago, Lord Ratner said:

Our system allows for the creation of money beyond the rate of productive growth. That will always be inflationary. It doesn't matter if the money is metal, paper, or digital, or if it came from a Fed printing press or bank database. If it can be exchanged for something that is not money, it will have a direct effect on inflation.

This is classical monetary inflation (too much money chasing too few goods) and this was refuted by the Fed. Inflation is not just a monetary phenomenon, and supply is not the only factor contributing to price changes. The paper is linked earlier. 

 

18 hours ago, Lord Ratner said:

They were talking about minting a $1T coin in 2020 to fund the government. What bank was that going to come from?

The platinum coin denominated as $1T would be produced by the mint and purchased by the Fed. The Fed would mark up the TGA by $1T and put the coin in a glass case on the wall. This is Rohan Grey's PhD paper, the source of this discussion topic, it's worth a read. 

18 hours ago, Lord Ratner said:

If Congress passes a law tomorrow that says colon polyps can now be used as hard currency, then they will have created money. Not from a bank.

Not sure how this relates to the financial system as it exists today. Similarly I don't think this would pass for a sufficient explanation of an aircraft system today either. 

 

18 hours ago, Lord Ratner said:

And is it really creating a loan when there is no intention or ability to pay off? More linguistic trick ery. A loan is only a loan if it is paid back. I believe a fair argument can be made that the government has no intention of paying back the trillions of dollars in deficit spending they authorize each year.

Yes. The bank balance sheet expands, liabilities are created, those liabilities can be used for making payments. A loan is a legal contract, and exists within a legal system. All the effects and dynamics of law apply. The underlying collateral, if there is any, as private property, rights to use of property, all are affected.

image.thumb.png.7ef8571d81ef1e917594b82543f16432.png

The IMF makes lots of dollar denominated loans to states that can't create dollars except through exports or asset sales that it knows won't be repaid, those loans have binding legal properties which are then wrought upon the debtor state--and that debtor cannot call the IMF and say 'hey, this isn't a loan sorry'.

The US Gov won't 'pay back the debt', because in accounting terms that doesn't make sense. So long as someone has a desire to save, separate of the desires or behaviour of the private sector, the gov is the only entity which can swap an interest bearing note for those deposits. This is covered in detail via the animated slideshow linked earlier in the thread (screenshot above). If we trace the unit of currency through the financial system, the answer to your question becomes self-evident. You don't have to hear it from me. 

 

18 hours ago, Lord Ratner said:

But we call it a loan so that the entire philosophical basis for the system can persist. But it's not a loan, no matter how much you or they proclaim it to be, and therefore the system is in effect already failed. If money is not being created as a loan, it is simply being created.

Here I think you mean that liabilities are being created and the corresponding asset has no market value. Or, in the case where the bank has positive equity, it can write liabilities to its ledger and create money--its not purchasing a loan contract from a borrower, its using the empty space on its balance sheet created from past loans and other loans (assets) currently on its books. 

image.png.43ecec65efc3629cb62f874432e52ced.png

Indeed, the deferred asset the Fed is creating right now demonstrates that money does not always need to be a loan, the Fed is just marking up its liabilities and assets without any contractual obligation applied to any human being. It's literally risk-free money for banks created from nothing. 

 

 

18 hours ago, Lord Ratner said:

Our system, this monetary system that I suggest will fail, is predicated on the idea that certain loans never need to be paid back. That is definitionally not a loan. So if the Federal reserve "prints money" by "loaning" it to the government with no honest intention of being paid back, then the money is being created without being part of a loan.

If you repay all loans, right now, using existing deposits, what happens to the money supply?

Edited by Random Guy
missing negation
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4 hours ago, nsplayr said:

The Office Love GIF

 

This is how money is created:

A borrower goes to a bank to borrow money. The bank and the borrower sign a loan contract, which states that the bank will loan the borrower 100,000 dollars. The bank writes onto its ledger that it now owns a loan contract, market value of $100,000. The bank then writes into its ledger an 'Account Payable' of $100,000 and labels it deposits. That's it. $100k of freshly printed private bank money.   

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