Is Credit Card Debt an expansion of the Money Supply?

[Black Flag]

If you're theory that bank money wasn't money...or more importantly it did not have the affect of the money (like inflation) then in 2008 when the MB spiked to unprecedented levels (bottom right graph of the first link) we should have seen more than a 10% spike in inflation.

No.

This is the reason why:

ed; whoops, forgot the graph

The money has NOT been added to the economy, nor loaned.
It sits in FED.

Thus, printing a qazzilion dollars by the FED, but kept in the FED vault is exactly the same effect as the FED not printing a gazzilion dollars.

Other thing to consider is...there are other causes of inflation. Crop failures, over-population, immigration, monopolies

Never.

Crop failures spike prices in CROPS, not systemic across the market.
Supply and demand changes in commodities other than money does not cause inflation.

It creates supply and demand issues in that commodity and adjacent products - nothing more.

A shortage of Ferraris - with their subsequent rise in price - is not "inflation".

redemptions of the dollar from being a reserve currency

Huh?

How does spending a dollar cause inflation?

competition with other currencies

This is true.

Money is an economic good, and obeys all the laws of economics -no more and no less- as all other economic goods.

The Law of Supply and Demand effects money.
Competition affects demand.
Therefore, competitive currency will affect the demand curve of money.

Huh You can largely look at the supply of money but it is not the whole story.

All of your other "causation" are not relevant at all to inflation/deflation.

But as I pointed out above, in this post and previous posts, the supply/demand law commands money, like it does all economic goods.

Yes, supply changes impact money, thus inflation and deflation.

And, as we agree here, demand changes also impacts money, thus inflation and deflation.

[Black Flag]

rpwi, what's the difference between MB and M0? I always thought they were both just the sum of all FRNs + coins + electronic deposits at the Fed that can be exchanged for FRNs or coins.

You are correct.

[Steven Douglas]

I don't value FRBN's directly -- I only value what I can exchange them for, and only to that extent. However, in and of themselves, they have no direct value to me.

Bull.

If I held up briefcase and said "This briefcase is worth $1 million" you laugh ... until I said, it had a million bucks in it. Then you would stop laughing.

You aren't "calculating" oooo..look at all the goodies I can buy with a million --- you are looking at it exactly like you would look at a 500oz of gold

Yeah? How would you feel if I held up a briefcase full of Weimar Republic Deutschmarks? All large denominations, too (they're not rare, you can get a briefcase full of them in Germany still).

You missed the point completely (deliberately?). I didn't claim that I didn't value FRBN's. I said I didn't value them directly. I value apples directly. But if I'm an apple farmer or food merchant I could also value them indirectly - for what I could exchange them for (for things I actually do value directly).

If I was in Vegas and found an abandoned briefcase filled with black chips from Harrah's, I'd be screaming for joy. But that doesn't mean I have a black chip fetish. It means I can go cash them OUT for FRBN's, which I can then go "cash out" for the things I actually do directly value.

Gambling chips and FRBN's ONLY have indirect exchange value -- which is temporal, fleeting, and constantly eroding. Without that RIGHT NOW exchange value (e.g., they eventually become like Continentals - worthless) they are essentially valueless.

Gold, on the other hand, has DIRECT value, and has throughout most of human civilization throughout recorded history. I own (and directly value) some gold that isn't money. I have right now three dental crowns made of white gold in my mouth that I value - for its utility. I use other gold I have in a semiconductor sputtering process, and I have a friend who uses gold to create leads from integrated circuit chip substrates in ceramic packages he creates.

So unlike Harrah's black chips and the Fed's FRBN's, which ONLY have indirect exchange value, and only in the moment, gold has both direct value and indirect exchange value.

[cubical]

This is quite incorrect. A bank regularly creates inflation though it's creation of deposits. An analogy to illustrate.

Say the money supply was 1000 pounds of gold in a local economy. Instead of the people trading gold between each other...they decide to deposit it with a gold smith who lets them trade claim slips as well. Goldsmith notices that these claim slips are not being redeemed regularly...so with a sneaky move goes out and loans some it. Because he has created more gold slips than there is gold he has created inflation. Even though he has create a corresponding amount of debt.

Couple different ways to conceptional this. When you deposit money at a bank and get a checking account, you are in reality getting an interest bearing investment that has an infinitely small interest rate and an infinitely quick maturity. So one can say anytime you backup long term assets with short term debt you are creating money.

Yes, but banks can't do this unless they are getting loans from the fed or they are counterfeiting. In your example the gold smith is counterfeiting whatever the notes he is giving out. Do really believe the banks are doing the same?

[Black Flag]

Yeah? How would you feel if I held up a briefcase full of Weimar Republic Deutschmarks? All large denominations, too (they're not rare, you can get a briefcase full of them in Germany still).

Exactly.
You do not value them - and if you took a ton of gold to Fijians, they'd throw it in the garbage.

That's the point - value is imputed.

. I said I didn't value them directly.

And you missed my point.

I do not care about your reasons why you do or do not or how you value anything - that is all up to you.

But the way YOU do it has no merit on anyone else or how they do it.

Gold has only indirect exchange value - you can't eat a bar of gold, nor use it to fuel your car. You have to exchange it for the thing you do eat and gasoline.

Same as FRBN -no different.

[matt0611]

Exactly.
You do not value them - and if you took a ton of gold to Fijians, they'd throw it in the garbage.

That's the point - value is imputed.



And you missed my point.

I do not care about your reasons why you do or do not or how you value anything - that is all up to you.

But the way YOU do it has no merit on anyone else or how they do it.

Gold has only indirect exchange value - you can't eat a bar of gold, nor use it to fuel your car. You have to exchange it for the thing you do eat and gasoline.

Same as FRBN -no different.

I don't think I agree with this. Gold has some direct economic uses. Ornamental, dental, semiconductor etc.
FRNs have no real direct uses.

[wgadget]

Toilet paper, wall paper, kindling...

[rpwi]

rpwi, what's the difference between MB and M0? I always thought they were both just the sum of all FRNs + coins + electronic deposits at the Fed that can be exchanged for FRNs or coins.

Depends on the country...in England M0 and MB are the same (which is more logical). In the US, the conventional wisdom is to refer to MB as merely being how much cash and coin circulates outside of the banking system. Since obviously cash that is held by a bank...or fed deposits held by the bank...are part of the economy and base money supply...M0 is not a super important measure. MB is the best measure of direct government money because it includes all cash, coin and deposits at the Fed.

[rpwi]

They are not backed by T-bills.

A Treasury note is debt .... it is used for the government to GET money, not to BACK money.

You do not make an IOU, get money for it, then claim your IOU 'backs' the money you just got.

Well...t-bills 'back' the monetary base in more of an indirect way. Certainly the Fed doesn't practice direct redemptions of dollars for t-bills...but in their accounting entries they absolutely back dollars with t-bills (most of the time). Do they need to do this? No. Some of this is accounting orthodoxy. They could just fabricate another asset and use that to balance the dollar liability (say the asset of 'Federal Reserve Brownie Points' or 'good will'). I personally think it is quite foolish of the Fed to almost exclusively purchase t-bills and not just because the yields are pathetic... IMO direct rebates to the treasury would probably be the most efficient use of the money. Now the Fed is somewhat constrained by these accounting rules...but they've been playing games with 'swaps' to get around them lately. All very evil.

The reason they do the charade is to mask the raw creation of money by using the middle man to give credibility to it.

The Fed does indeed do a lot of masking. From 2008 to present, they've taken the MB from about 1 trillion to 2.6 trillion. Does that mean the Fed merely created 1.6 trillion? Noooo.... They created a LOT more...but then destroyed a lot more so only the net increase was 1.6 trillion. Since each deal from the Fed incurs heavy transaction fees this means the public is getting fleeced out of t-bill interest that would normally go to reduce the deficit. This is extremely evil and no politicians are talking about. You can for example read about some of the churning the Fed and the horribly corrupt open market works at:

http://wps.pearsoncustom.com/pcp_mil...ent/index.html

My argument is:
it is absolutely not money.

It is a debt and liability;

It is both. Why is this not possible? Anything can be money... Baseball cards...sea-shells... So could one say corporate bonds be used as money? One could pay for their groceries with a corporate bond for IBM perhaps? If this is possible why would it be impossible for checking accounts to be money?

My point is:
- if you assign the cause/effect of money to something that is not money, you will build crackpot theories and crackpot explanations for economic effects which will lead you to make bizarre claims (paying off debt shrinks money supply) and proclaim bizarre policies which, in the end, will undermine the marketplace.

It's not a crackpot theory. Even orthodox economics agrees with anti-fractional bankers in regards to the fundamentals of how bank money works. Both agree that the measure of money needs to include bank money (almost all econ texts discuss M1, M2 and M3. Both agree that bank money can create inflation...and while not mentioned as much...most agree that repaying debts does wind down the money supply. I'm sure if you asked any top Federal Reserve official or treasury official they would actually agree on all these points.

[rpwi]

No.

This is the reason why:

ed; whoops, forgot the graph

The money has NOT been added to the economy, nor loaned.
It sits in FED.

Thus, printing a qazzilion dollars by the FED, but kept in the FED vault is exactly the same effect as the FED not printing a gazzilion dollars.

Not true. The measure of MB is all cash in circulation + all cash in private bank vaults + all coinage + all private bank deposits at the Federal Reserve. Pretty much all of MB is in the economy. If the Federal Reserve had been holding MB in their vaults...it would not have been counted as MB. Logically it makes no sense that the Fed would create a lot of MB and then do nothing with it. Are you saying they printed a trillion plus in dollar bills and just sat on it? That's clearly not the case. They mostly created liabilities (fed deposits) to purchase an assortment of assets from the private sector to bail it out. Again the reason why inflation didn't spike (it did go up more than experts are willing to admit) is because bank aggregates crashed. Once banks start relending at their normal money multipliers...we could see mega-inflation.

Never.

Crop failures spike prices in CROPS, not systemic across the market.

Not true. Money is only valuable for what it can buy...if there isn't that much stuff on the market to buy...then the value of money goes down. If people can't spend their money on crops...they'll spend their money on other things like say...fish. And the price of fish goes up. So indeed a crop failure would cause systemic inflation in an economy.

Supply and demand changes in commodities other than money does not cause inflation.

So if a blight wipes out 99% of the food supply in the world...you're saying their would be no inflation??

How does spending a dollar cause inflation?

The dollar is a reserve currency. It's a good deal. We send worthless pieces of paper to countries like latin American and they send us ore, ag products and real wealth. As long as these countries keep the dollars for internal transactions...we luck out. But there will come a day...when these countries will get fed up with the dollar and no longer are willing to use it as a local intermediary of exchange. They will send it back to the US. But they will get real wealth in exchange. We will send them say soybeans and machine parts...and they will send us worthless pieces of paper. This absolutely will create inflation...and probably mega-inflation at that.

But as I pointed out above, in this post and previous posts, the supply/demand law commands money, like it does all economic goods.

Yes and no. Money is not natural. Because it has the ability to satisfy legal tender laws it has a lot of artificial power and is somewhat exempt from the laws of supply and demand. Also the central banks around the world are constantly meddling with the monetary bases and bank aggregates...so none of this is natural and competitive.