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may 34 april 33 march 35 february 28 january 37 2013 412 december 33 november 31 october 35 september 32 august 33 july 36 june 31 may 36 april 39 march 40 february 31 january 35 2012 476 december 38 november 35 october 51 september 41 august 35 july 39 june 37 may 31 april 38 march 36 february 44 january 51 2011 571 december 44 november 38 october 41 september 53 august 54 july 52 june 50 may 45 april 54 march 46 february 37 january 57 2010 361 december 51 november 43 a matter of life and death counterthoughts green lines if you pray omg the kitchen floor s all wet under every rock a critter i blogger some days i wake up with thoughts like these this is too good to pass up making nice to krugman making the wrong argument ge capital debt deleveraging and more debt it s not what you thought symmetry catechism questions a look at the debt problem 4 a look at the debt problem 3 a look at the debt problem 2 simplified a look at the debt problem jealousy bars budget deficit charts let us begin eliminate the mortgage interest deduction debt and patriotism the men of good will change the rules art says graphic form krugman says long form krugman says short form awesome the cost of interest at winterspeak the management of fiat money newline in a recent comment here jb peeb give and take observations krugman says the far side of the moon geometric constants election day reminder in case you missed it october 47 september 43 august 35 july 39 june 31 may 9 april 8 march 12 february 23 january 20 2009 79 december 17 november 10 october 14 september 20 august 3 july 7 june 4 april 1 march 1 february 1 january 1 links the 12 pages pdf html scribd money as credit paul krugman john mason gavin kennedy crisis timeline 1 crisis timeline 2 statistical abstracts measuringworth bea economic accounts bls inflation jobs flow of funds debt st louis fed fred money stock 1947 58 economagic usgovernmentspending top tax rates recession dates corp taxes 2006 irs tax data pk sources historicalstatistics org historical charts perot charts mark wieczorek the secret economist econompic john williams sgs crystal bull aquinum s razor flavianopolis william f hummell ecometry the l curve businomics blog on banking crises cybereconomics tim duy like a father to me worthwhile canadian the skeptical optimist nextblog better of thought action the troublesome economist the candid blogger blended purple frozen arctic tundra truth addicts anon jbpeebles mayday books dredd blog dolor s rants the 40 year old freshman thinking on the margin redonomics broad oak unsettling economics irrational expectations theory2life prac spoiler tips vin s read more faq s image host a very nice menu www w3 schools bloogger help image test and t2 blogger sentral html color codes google translate link within a page supreme court jester dave ross 1 dave ross 2 organize your stuff interesting jim kardi teknomo numerical ignorance mental workout g scaled data g normalized data tufte data analysis arthurian website about me contact labels real is a calculation 1 2 3 4 5 6 7 1966 1970s growth 1986 2000 2013 revision 400k smoothing a call for better argument a little r n r accelerated repayment of debt accidental discoveries adjusting debt for inflation artish b is greater than a b h finte behavioral ec best put downs bullard s earthquake c d of wealth calculating labor share civ civilization coinage coping cost and productivity cost push cost push inflation credit efficiency crisis chronicles cycle of civilization debasement debt debt and context debt and inflation debt and recovery debt bulge debt good and bad debt is not credit debt productivity debt to gdp debt to gdp in comments def credit def debt def economic activity def financial cost def gdp def general equilibrium def inflation def inside money def investment def issue and reissue def laffer limit def outside money deflation demand pull inflation disarray dpd echoes economic forces economics v the economy eroc erosion of debt evolution of the excuse expectations factors failure s embrace fallacy of composition fcm fed policy federal spending feedback loops final spending financial cost financialization five words five digit years forget about debt fpi fred free banking era full disclosure fun with the mpc gang8 gds gold shortage gresham s law gross domestic spending growth rate calc growth phase growth historical revisionism hoarding hodrick prescott household debt hover craft how to pay for it humor because you might not know if i didn t say i couldn t sleep iceberg inflation introduction is it ego captain jerry says krugman laffer curve limits long and variable loops malaise matched set fekete math problems medium of account military spending milton friedman mmt money multiplier more debt than money is policy motives moving average new tools of policy non linear not only household debt oil parameters for debt pfi policy predicting recession price controls printing vs spending problem x productivity questions r reading and writing red and green reduction reviews scott sumner sequence 2 serfdom simulacron simulated evidence slack special report spreadsheeting stagflation standard deviation star trek stimulus sumner symmetry in deception taxes taylor rule the difference between debt and credit the economy is transaction the k r shift the long decline the supply side the tint knob they don t know timeline tongue in cheek tot ulc umic unsustainable urgency verdoorn waste fraud abuse withering shoots zoho the new arthurian economics copyright 2010 2018 arthur shipman wednesday november 3 2010 the far side of the moon i have a question this isn t it the u s dollar is backed by federal debt when you walk around that fact inspect it kick the tires and such you get to the far side of it where you can see what it means that the dollar is backed by debt what it means is for every dollar of money every dollar of base money i think there must be a dollar of federal debt to back it up there has to be that debt okay so now the question does there also have to be a dollar of money for every dollar of federal debt no but i m thinkin there has to be a dollar of money for every dollar of federal debt held by the federal reserve is that right any thoughts the fate of an upcoming post depends on your answer posted by the arthurian at 7 07 pm 6 comments greg said ive been tossing around something a little different but probably related i ve been thinking about what the balance sheets of the fed and banks would look like if all americans asked for their pay in cash for a while in a related thought what if we took out a loan from bank a made the deposit at bank b ad then took the loan out in cash when you convert your bank balance to cash the end result is a debit at the federal reserve right if all bank balances were converted to cash banks would have no deposits and the fed would have debts equal to the amount of outstanding cash this seems to jive with your statement our money is backed by govt federal reserve debt november 3 2010 at 7 57 pm the arthurian said i have a terrible time with technical terms truly i think if a bank has cash this cash is reserves it is cash on hand or cash in reserve if you withdraw cash they have less in reserve if we all withdraw cash they have a lot less in reserve and that affects the amount of outstanding loans they are allowed to have so they might have to call in some loans or they might have to borrow reserves from some other bank or from the fed if we all demand cash and there isn t enough cash that s a problem a run on the bank when you convert your balance to cash the bank is left with less cash if they withdraw cash from their account at the fed there is less left in their reserve account both cash and reserve account balances count as part of base money and if the bank has the money in its reserve account or as cash then it can lend a multiple of that amount of money but if you have the money the bank doesn t have it so the bank cannot lend a multiple of it that s what i think is true god i hope somebody that knows for sure stops by and feels like talking i think if all bank balances were converted into cash we would run out of cash before we ran out of bank balances we can t withdraw more than is in our accounts and banks can t withdraw more than they have in their reserve accounts at the fed but they can lend a multiple of that much i don t have it clear in my head yet greg it s a jumble november 3 2010 at 8 29 pm greg said i obviously dont have it all clear either but this both cash and reserve account balances count as part of base money and if the bank has the money in its reserve account or as cash then it can lend a multiple of that amount of money but if you have the money the bank doesn t have it so the bank cannot lend a multiple of it is not quite right this makes it sound like a bank acquires deposits and then can loan out a multiple of those deposits the money multiplier one thing mmters have proven is that the multiplier is false loans are demand driven a credit worthy customer will get a loan and the bank will then adjust its reserve position after the fact loans create deposits its one of the mantras of mmt i agree with the rest of your post what i was trying to get at is that if everyone had all their money converted to cash banks would have no deposits so the only record of the cash would be a debt in the same amount as the outstanding cash at the federal reserve i think this means our money is backed by the federal reserve debt just like you said november 4 2010 at 9 15 pm jbpeebles said it s late but i ll try the shadow banking system created cash from nothing by forward selling future streams of income from let s say a mortgage the sale creates money where none existed money goes to the originator from the financial institution buying the mortgage without a transfer of an asset of equivalent value this is the shadow part is created out of free air the value of the mortgage exceeds the price of the house sold because of the promise of interest payments on the house therefore dollars are created when the mortgage is sold exceeding the value of the house asset now let s say the bank that originated the loan and sold it takes that money and uses it as a deposit from which it gets a loan 10 times larger with that loan it buys other banks mortgages then resells them it can use that profit to pay off its debts using fractional reserve banking and near zero costs of borrowing a financial entity can use shadow banking to make money both figuratively and literally with capital requirements low enough morgan stanley for instance was leveraged forty to one or more at the height of the commodities bubble in 2008 all a big bank needs is near zero rates and the ability to borrow to ride a bubble of its own making the commodities futures trading commission cftc lowered the capital requirements as part of a bush gop de regulation mantra that encouraged speculation in a greedy abuse of fractional reserve lending as in the example i gave with mortgages november 5 2010 at 2 05 am the arthurian said the multiplier is false loans are demand driven greg mmt looks at the same economy as everybody else and tells everybody else they have things backwards when i stop and look at an mmt observation i can see that it makes sense or that it might make sense if i delve into it but when i m running with an idea i rely on habit and i end up running the wrong way you might say can you point me to a link or two that discuss the multiplier is false loans create deposits its one of the mantras of mmt my argument to go off on a tangent here is that economic policy has not changed for a long time and that policy encourages the use of credit fifty or sixty years back this policy worked well because at the time we were making insufficient use of credit today however after too many years of the same policy we are making excessive use of credit now given this view of the world when i look at what you have written here loans are demand driven a credit worthy customer will get a loan and the bank will then adjust its reserve position after the fact loans create deposits what i see is mmt is looking at current conditions yeah the bank can adjust its reserve position after the fact but the bank never had to do that until the use of credit became excessive so to me mmt describes the conditions arising from long term encouragement of the use of credit mmt describes the result of bad policy hi jb it was late but you did well reading your remarks i had a couple objections but you dealt with them it is satisfying to read something like that i like this too to make money both figuratively and literally that s a good line anyhow it seems the crux of your argument is that interest is the problem the shadow banking system created cash from nothing without a transfer of an asset of equivalent value the value of the mortgage exceeds the price of the house sold because of the promise of interest payments i agree of course that interest is the problem but man has used interest in his dealings since the first caveman farmer loaned seeds to his neighbor so why is it only now or only occasionally that interest leads to the sort of problems you describe the only answer i can see is that now and occasionally the reliance on credit becomes excessive so again economic policy has not changed for a long time and it encourages the use of credit today after too many years of the same policy we rely excessively on credit this problem can only be solved by changing our policy in regard to credit use november 5 2010 at 5 06 am greg said can you point me to a link or two that discuss the multiplier is false here ya go http bilbo economicoutlook net blog p 1623 what gets ignored is the direction when you look at static situations you see loans 1000 reserves 100 and then say oh see the reserves are levered up 10 to 1 therefore that is a multiplication of the reserve level all a bank needs is reserves and then they create 10 time the amount of loans and then further ooooh this policy of increasing the reserves the last few years is going to result in ten times that amount of loans hyperinflation what mmt sees via understanding the real way loans happen first creating the deposit and leading to the seeking of necessary reserves 10 in this case is that simply raising reserves will not stimulate lending in and of itself because there is no way that action will make more people come to the door seeking funds people dont come to the banks for loans when they think the banks have money to lend they come to the banks seeking loans when they have income to service the loan a person with enough income knows they will always find a bank somewhere that will lend its in the banks interest to create a loan for a credit worthy customer the only difference over time is the price of the loan november 7 2010 at 9 56 am post a comment 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