Is Credit Card Debt an expansion of the Money Supply?

[Black Flag]

Why continue? From a red herring you dive straight into a straw man. I never once claimed that paper couldn't be used for money. Who are you talking to anyway?

Ya, you're right - you drifted from this statement you made

"..I didn't claim that I didn't value FRBN's. I said I didn't value them directly..."

...as if your opinion of value held some universal merit - which we have seen does not.

[Steven Douglas]

Ya, you're right - you drifted from this statement you made

"..I didn't claim that I didn't value FRBN's. I said I didn't value them directly..."

...as if your opinion of value held some universal merit - which we have seen does not.

It wasn't an opinion -- just an observation, with an actual attendant logical train of thought - one you did not address at all, save with unrelated red herrings and finally with a strawman argument that made me realize you might be giving knee-jerk responses without actually reading any of my arguments.

Direct and indirect value are salient to understanding a fundamental difference between paper currency (or electronic entries on a debit card) as money, which has indirect value only, and tangible goods, like gold, which can have both indirect value as a medium of exchange, and direct value as an actual good in itself.

Unlike paper money, both the direct and indirect value of an ounce of gold are at all times EQUAL. If I am pricing that gold in FRBN, one ounce will get me $1,631 - and if I am pricing it in goods and services from a tailor I deal with, who does happen to accept gold and silver coin as payment, that same ounce of gold (which to you isn't even "money", whatever that means, but to him it is) will buy $1,631 FRBN equivalent worth of whatever I want from that tailor. Indirect or direct, the value is the same. NOT so with paper money, and that's the difference (as well as why Weimar Deutschmarks and Continentals were only worth something once upon a time). The indirect (exchange) value of paper money is not equal to the direct value of the paper itself. Likewise with base metal coins.


Lastly, you obviously have a very narrow personal definition for what money is, or can be, the criteria of which you haven't really established at all, except loosely in context:

Take a gold coin and try to buy your food, they will laugh at you - or you will have to suffer a huge discount to its commodity price.
Take a gold coin to France and try to buy your food, they will laugh at you - or you will have to suffer a huge discount to its commodity price.

But I take the FRBN and they say "Thank you, sir!"

Gold is not money ... today.

In that context, using your logic, it would seem that the following is some kind of criteria for what is NOT money:

1- being laughed at - OR
2- suffering a huge discount to a commodity price
3- not universally accepted

Am I missing something? If not, do you see how absolutely silly that is? In point of fact, NOBODY laughs at gold except you, and I'm sure only in a forum to try to make a point, as if argument by ridicule could accomplish that. Gold might not be EFFICIENT as a form of money (TODAY), but that does not mean that it cannot be used as money - or that gold is not being used as money today.

I said much earlier that I trade in US minted silver coins all the time. I like using these coins as money, and have made quite the habit of it, given that I don't like keeping money in FRBN any more than I would bitcoins. The reason for this: FRBN's have this nasty habit of CONSTANTLY INEXORABLY LOSING VALUE. So I convert them as quickly as I acquire them into a far more stable currency.

So I do have a circle of people that I trade with for all kinds of basic needs -- merchants that I personally cultivated for the sole purpose of circulating and trading with using only US minted silver coins - with no laughter, as they are more than enthusiastically accepted, and no "discount to its commodity price". They seem to think of it as money, just as I do.

That leaves "not universally accepted", which seems to be another of your personal criterion (if not yours, source please) for what can or cannot be called money. The fact that I can trade in silver coin with a finite number of merchants does not take away from the fact that I DO, in fact, use US minted silver coin as money. So what, exactly in your mind, makes it "not money", and what's the source of that reasoning?

[rpwi]

Correct. That is the fundamental fraud of the Fractional Reserve system

Yet don't you see that if banks promise more checking accounts than they have in dollars...and customers don't bother to verify that the banks have their dollars...that this results in inflation?

[Black Flag]

Yet don't you see that if banks promise more checking accounts than they have in dollars...and customers don't bother to verify that the banks have their dollars...that this results in inflation?

No.

The mechanics:
- Deposit withdrawn
- Spent for product
- Producer Deposits

The amount of money in the system can never exceed the amount of money.

If "everyone" withdrew, the system would collapse, because there is not enough money.

Therefore, the system can never have, right now, more money then there is.

So the amount of money in the system can never be more then M0 at any one time, given the system has not collapsed.

Now, the rate of transactions are faster as the withdrawal/spending/re-deposit happens in a microsecond. But that, too, does not change the amount of money in the system, but the number of transactions the system can support per second - and I know of few economic theories other than crack pot Keynes that attributes rate of transactions to be equal to be money to be a causation of inflation.

[Black Flag]

It wasn't an opinion -- just an observation, with an actual attendant logical train of thought - one you did not address at all, save with unrelated red herrings and finally with a strawman argument that made me realize you might be giving knee-jerk responses without actually reading any of my arguments.

Steven, I did address and agreed that it was YOUR observation, and I gave mine which was opposite of yours.

Now you tried to use YOUR observation as a platform to create a theory - but my observation undermine your platform - therefore, you can only hold your position based on opinion until you absorb further information.

Direct and indirect value are salient to understanding a fundamental difference between paper currency (or electronic entries on a debit card) as money, which has indirect value only, and tangible goods, like gold, which can have both indirect value as a medium of exchange, and direct value as an actual good in itself.

Your opinion is in the measure.

Your opinion - you believe golds has MORE direct value, by being gold, then paper, being paper.

You tried to show this by example.

I showed paper is far more used as a commodity then gold

You get frustrated and point to gold in historical vaults.

I show paper today in current vaults.

You get frustrated.

[Black Flag]

Unlike paper money, both the direct and indirect value of an ounce of gold are at all times EQUAL.

Not true.

Value for gold in raw form -natural gold nuggets- trades easily 3 to 8x per oz. value.

Gold in jewellery has massive price/value over bar, as does gold coin over bar.

Gold bar is less valuable then gold certificates as you need to pay storage and insurance for gold bar but not for -say- Mocatta Certs.... gee, paper more valuable the the gold... hmmm....

...and the same thing with paper.
Paper on your walls is a lot less valuable then paper in your wallet.

Just watch your face when I put a piece of old wallpaper of yours in the fire, followed by an old $100 bill - we'll see which one you think has "direct" value.

[rpwi]

Ok, you misunderstand the graph and the action of the FED, while being correct about the MB contents.

This is the DEPOSIT BANKS excess reserves.

My mistake but it doesn't affect the argument at large. I just glanced at your graph and assumed it was a MB graph. In my initial post I referenced the spike in MB:

http://www.shadowstats.com/charts/mo...e-money-supply (bottom right)

And asked the question...if MB is the most proper determiner for inflation...then why in 2008 when we had an unprecedented spike in MB...did not inflation spike more than 10%? You have yet to provide an answer to this question.

So the FED created money in exchange for these banks unmarketable assets (bad mortgages and stuff).

These banks, instead of making loans, put the new money into the reserve of the FED, thus excess reserves.

Thus, this money has not entered the market. It sits unused and uncirculated.

It DOES count to the MB, but is has the same effect as the FED not printing as far as inflation concerns (not used, no inflation) BUT it has the effect of protecting the banks capital requirements, which is a matter of solvency.

What you propose is impossible. Let's first address the graph, you used: "Excess Reserves of Depository Institutions". This is basically how much reserves banks have above their reserve ratio. So basically this is telling us that the ratio between checking accounts and the dollars/MB they correspond with is shrinking (my point entirely).

Banks do not 'put the new money into the reserve of the FED'. The money is already held as a liability of the Fed. Either has a dollar bill...or has a 'electronic dollar bill'. If ABC bank has the following balance sheet:

Assets:

Cash:10m
'Electronic Cash' or Deposit at their local Fed Branch: 10m
Investments: 25m

Liabilities:

Demand Deposits: 30m
MISC Borrowing: 10M

Equity:

Retained Earnings: 5m

Then how do they 'hoard' dollars the fed? I don't get the circulating argument as well. Dollars (either paper or electronic) held as reserves at banks don't really circulate accept to meet withdrawals or to be transferred to another bank. Indeed, legally only banks can hold electronic dollars which is very unfair of the Fed and create privilege for the banks. In essence it's the demand deposits that do most of the circulating...what happened in 2008 to present was fractional banking took a HUGE hit and the money multiplier collapsed. This merely means banks aren't gambling as much with our checking account reserves like they used to. The collapse in M1 while MB exploded is why we didn't have runaway inflation. M1 IS money. Now the story with M1 is a little more complicated as M2 and M3...while dipping...bounced back much more sharply. Near demand deposits are more of a worry now with fractional banking than just normal checking accounts. The reason is we've had a huge transfer of wealth from the poor to the wealthy in this country and the wealthy prefer interest bearing bank accounts over the mundane checking accounts you and I have. Banks also prefer to invest in M2 and M3 because the yields are so pathetic they are practically non-existant and M2 and M3 bank money is subject to less regulation (most notably with reserve requirements and FDIC rules).

[Black Flag]

Lastly, you obviously have a very narrow personal definition for what money is, or can be, the criteria of which you haven't really established at all, except loosely in context:

Hmmm.....Steven....

It is the very definition of M0, which you accept. So it really isn't much of a criteria to accept what you and other call "money".

Our difference is you want to make a debt instrument - which can only be created by an exchange of money - which is an action; that is an exchange; to be the same as the object of the exchange.

Like I said to Roy, you want the dog's bark to be the same thing as a dog - so when a dog bark's you think there are two dogs outside your door!
And equally, when you open the door, and see only one, you argue "Ha! All that has happened is the other dog evaporated...but he was really there up to that point!!"

[Black Flag]

My mistake but it doesn't affect the argument at large. I just glanced at your graph and assumed it was a MB graph. In my initial post I referenced the spike in MB:

http://www.shadowstats.com/charts/mo...e-money-supply (bottom right)

And asked the question...if MB is the most proper determiner for inflation...then why in 2008 when we had an unprecedented spike in MB...did not inflation spike more than 10%? You have yet to provide an answer to this question.

I did so, sir, which is why you look at the excess reserves graph.

If I print up a bunch of money, but you merely stash them under your pillow, does the creation of money create inflation. No.

I think we are orbiting around this issue, and that is you (and Steven and a lot of others) believe money is a wholly different unique economic good with different economic laws operating upon it vs. every other economic good.

So you think apples and the law of supply and demand "does this", but when it comes to money, the law of supply and demand is completely different, you make up bizarre theories of thin-air money, debt-money, and massive other cause/consequence stories that never actually reflect anything of reality.

If I said to you that the a guy ordering a bushel of apples and pays in advance, and gets a receipt for delivery in 30 days, and then declared that receipt was the same as physical apples in hand, you'd look at me cross-eyed. *Ed: If I further said the receipt for apples has increased the supply of apples, and thus caused the price of apples to fall...ie: inflation of apples... you'd laugh at me!... and demand "what bizarre law of supply and demand are you applying, BF???"

Yet you want me to believe the same story after you substitute "money" for "apple".

So, inflation and monetary expansion all operates under the laws of Supply and Demand

If I produces a billion zillion diamonds, because diamonds are not rare, but I stuff the diamonds in a huge warehouse, and only take a handful out a month, what price do you believe the diamonds will demand? The a price based on the number in the warehouse, or the number brought out for sale?

[Black Flag]

...well since Debeer's makes a mint on diamonds, the price of diamonds is not reflected by the number of diamonds in their warehouse, but by the number they bring out for sale.

...and astonishingly, same with money.

The banks are not selling the money they have --- it sits unsold in *their* warehouse, called the Excess Reserves at the FED. Banks selling money is called "loans" and they are not selling.

The day they do sell (and that day will come), you will then - and only then - see the spike in inflation you are looking for.