The Dems largely rule the state, even with a Republican governor, who acts more Democratic than anything else. The budget got huge, with the tech boom, then the real estate boom, the spending went through the roof. The economy was kicking ass, but the state legislature assumed that it would ALWAYS be kicking ass. So they added 40% more government, assuming it could be paid through taxes on the private sector. Then when both the tech and real estate bubbles burst, the crazy state spending continued. No one re-adjusted it to accomadate for a decreased state revenue. The govt raised taxes in attempts of raising more capital, but small businesses decided to leave, especially with Nevada right next door which has no taxes. Small business owners and rich people left the state, only to be replaced with poor and illegal aliens. So you had little to no change in state population, but massive decrease of state revenue. You also have unions who will not budge in lowering pension rates, or even consider lay-offs of any kind. Recently, a judge ruled that mandatory furloughs were unconstitutional.
Out of all the jobs lost in California, NOT ONE government job was lost, not a single gov’t job. Yes you read that correctly. We have teachers who are perverts touching kids, only to be reassigned to another district, but they won’t be fired. Think I am kidding?.. check this out…
you really think 97% of our money supply is not backed by hard currency? Really? You and i have a different view of currency.
A transaction is a transaction, not money.
So you think the money supply is some amount over time? I don’t. At any given moment there is so much supply. I my employer decides to start paying me bi-weekly instead of once a month, they did not inflate the money supply.
No it hasn’t. An asset is not “money”, neither is the value of an asset. The TV I bought for $1500 five years ago is worth a fraction of that. This is not deflation.
only if you believe credit is money. it would have been interesting to see the author go a bit further into how the money is “created” rather than just saying it was created.
But they must have credit to do this? How come this credit is not money? or is he saying in reality credit is not money?
wrong. the mortgage also has value because the house has value?
If I go to a pawn shop and hawk my wife’s ring for $10k, the rings value is not dependent on whether I come back to get it. An we didn’t just create $10k in currency.
I have an employment contract with my employer. Their promise to pay me for my services has not increasing the currency base. Them deciding to pay me less is not deflation. Them deciding to pay me less often ( less velocity) is not deflation.
I put a stereo on layaway and make payment for a few months. I pay $1k for it. It being on sale for $500 is not deflation.
Why aren’t all assets that can be turned in cash “money”? Why just mortgages? Why just credit?
What does the above have to do with money supply. it’s much easier to have a discussion when you keep things short and to the point.
Is there something special about this asset that turns it’s value into money? Or are the value of all assets “money”?
even though they now own the home?
Why even put the house up as collateral then?
Again, worthless?
wrong. The money that would have been the mortgage payment will spent elsewhere in the market. Me deciding I want to take a cruise instead of paying my mortgage doesn’t destroy money. I decide i want default on my mortgage to rent a bigger house at a better price, no money is destroyed.
Because it can’t.
now psychology effects the money supply? Is there any thing that doesn’t effect the money supply? Is there an official list that I can reference.?
[quote]jo3 wrote:
Pardon the ignorance, but what factor(s) caused CA to be in the shitty situation it’s currently in? When I think of CA, I think of entertainment, TMT (technology, media, telecom), and health care… 3 huge industries that should generate a ton of GDP.
Also, the CA state school system (public universities) is regarded as one of the best in the nation. Is all the talent leaving the state?[/quote]
CA also leads the nation in over-regulation. It has become a very difficult place to do business profitably. Companies that can leave are doing so.
Here’s an example that effects the general population: Where I live, the local air pollution control district has decided that wood fires in people’s homes contribute to particulate pollution. So, they create a rule that they will only allow people to have a wood fire in the fireplace OF THIER OWN HOME on certain days that the air district arbitrarily decides. They actually have people drive around looking at chimneys and writing $200 tickets. Bear in mind that the air basin would have attained the goal levels for PM pollution already, so they just jacked the limits down further so they can continue regulating. It is this kind of invasive bullshit that we deal with every day here.
you really think 97% of our money supply is not backed by hard currency? Really? You and i have a different view of currency.
A transaction is a transaction, not money.
So you think the money supply is some amount over time? I don’t. At any given moment there is so much supply. I my employer decides to start paying me bi-weekly instead of once a month, they did not inflate the money supply.
No it hasn’t. An asset is not “money”, neither is the value of an asset. The TV I bought for $1500 five years ago is worth a fraction of that. This is not deflation.
only if you believe credit is money. it would have been interesting to see the author go a bit further into how the money is “created” rather than just saying it was created.
But they must have credit to do this? How come this credit is not money? or is he saying in reality credit is not money?
wrong. the mortgage also has value because the house has value?
If I go to a pawn shop and hawk my wife’s ring for $10k, the rings value is not dependent on whether I come back to get it. An we didn’t just create $10k in currency.
I have an employment contract with my employer. Their promise to pay me for my services has not increasing the currency base. Them deciding to pay me less is not deflation. Them deciding to pay me less often ( less velocity) is not deflation.
I put a stereo on layaway and make payment for a few months. I pay $1k for it. It being on sale for $500 is not deflation.
Why aren’t all assets that can be turned in cash “money”? Why just mortgages? Why just credit?
What does the above have to do with money supply. it’s much easier to have a discussion when you keep things short and to the point.
Is there something special about this asset that turns it’s value into money? Or are the value of all assets “money”?
even though they now own the home?
Why even put the house up as collateral then?
Again, worthless?
wrong. The money that would have been the mortgage payment will spent elsewhere in the market. Me deciding I want to take a cruise instead of paying my mortgage doesn’t destroy money. I decide i want default on my mortgage to rent a bigger house at a better price, no money is destroyed.
Because it can’t.
now psychology effects the money supply? Is there any thing that doesn’t effect the money supply? Is there an official list that I can reference.?[/quote]
dhickey,
I really do not know how to respond to the ignorant nonsense that you responded with above. Either I gave you way too much credit, or you have some worldview that I am somehow threatening and you are clinging onto it with all you have. Or, you are just screwing with me.
I do not pull such facts, statistics, and definitions out of my ass. I could care less if you and I have a different view of currency, as long as mine is taken from commonly agreed upon economic language.
As for my point of less than 5% of our basic money supply being paper and physical coin, check the federal reserve for yourself.
Do the math for yourself. At the moment, I am tired of politely answering your questions.
Having paused to re-read your response, I am inclined to think the issue lies in what you “feel” certain words mean. Again, I do not feel anything other than the definitions that I have studied and are regularly agreed upon to discuss such things.
Suggestions:
Learn the definitions of the following terms and phrases"
money creation
fractional reserve lending
money supply
quantitative easing
central bank money
commercial bank money
money multiplier
expansionary policy
contractionary policy
monetary base
discount rate
money velocity…
Just a few as a starting point. This should lead you down many more rabbit holes.
Again, I have never had a need to convince you of anything. You have asked me questions that I apparently mistook as genuine interest, and i have spent an inordinate amount of time attempting to answer them. If the purpose was simply to give you an excuse for an internet rant, save your time (or do your homework).
Also, as far as the article, I simply did not have the time to walk through specifics and a quick google search pulled up the quoted piece above. It was meant as a very general overview, not a specific treatise.
As I have said before, if I speak in generalities, you nitpick. If I get specific, you tell me what you “feel.”
If you have a question or disagreement, lay it out and support it with research that backs it up.
BTW, a TV is not the same as a house.
An engagement ring is not the same as a commercial property.
I bought a Wendy’s double cheese yesterday afternoon. I did not add its cost to my net worth. I did not finance its purchase with a bank loan created through fractional reserve lending.
I’ve been lurking these forums for months now, and ironically THIS is the post I create an account for.
I know Americans start to act throw a fit at the mere mention of an increase in taxes, but that is simply what needs to be done. All levels of American Government are running massive deficits.
The solution is very simple: Tax the shit out of the rich.
The Republican argument is often that this would remove the motive to “work hard.” That’s bullshit, plain and simple. The American Dream is dead. The number one factor in your socioeconomic status is your parents income! Be sure to choose your parents well. Social Mobility has been dead since the Reagan years, transferring all social expenses to those who could least afford them.
Go ahead, call me a socialist. Taxes need to rise. The “fiscally conservative” Governments of the previous decade have been riding the wave of high taxation in previous decades, by selling public assets, privatization, contracting out etc…
Money Supply
What Does It Mean?
What Does Money Supply Mean?
The entire quantity of bills, coins, loans, credit and other liquid instruments in a country’s economy.
Investopedia Says
Investopedia explains Money Supply
Money supply is divided into multiple categories - M0, M1, M2 and M3 - according to the type and size of account in which the instrument is kept. The money supply is important to economists trying to understand how policies will affect interest rates and growth.
Illinois is fucked. My college is a state school, University of Illinois at Chicago, and the state owes them $436 million. They sent out an email to the whole student body and it pretty much said, “we are probably fucked in the future”. So a bunch of our staff is taking furloughs but they’ll probably still come in to teach anyways, at least the Applied Health Sciences dept. will. The Illinois gov’t has let this problem loom the past 2 years and hasn’t done shit about it, no cutting, no nothing. Instead they kept on borrowing money and now we are getting fucked. I might not be able to graduate at the school I’m currently at, how pathetic is that.
[quote]JEATON wrote:
Money Supply
What Does It Mean?
What Does Money Supply Mean?
The entire quantity of bills, coins, loans, credit and other liquid instruments in a country’s economy.
Investopedia Says
Investopedia explains Money Supply
Money supply is divided into multiple categories - M0, M1, M2 and M3 - according to the type and size of account in which the instrument is kept. The money supply is important to economists trying to understand how policies will affect interest rates and growth. [/quote]
fine. under what definition of monetary base do you think deflation will occur? I am pretty sure what you call deflation of the money supply, I will call reduced supply of credit.
This is the simplest explanation of money supply i could find that matched my view.
The central bank creates or destroys currency. Not Joe Schmoe Bank in BFE. No psychology of consumers. Not me paying too much for my house and then deciding to spend my money on something other than my mortgage. It operates the same in a 100% reserve system as it does in a fractional reserve system.
If you believe the central bank is going to start selling more assets than it buys, then I agree that this would be deflation.
dhickey,
I really do not know how to respond to the ignorant nonsense that you responded with above. Either I gave you way too much credit, or you have some worldview that I am somehow threatening and you are clinging onto it with all you have. Or, you are just screwing with me.
I do not pull such facts, statistics, and definitions out of my ass. I could care less if you and I have a different view of currency, as long as mine is taken from commonly agreed upon economic language.
As for my point of less than 5% of our basic money supply being paper and physical coin, check the federal reserve for yourself.
Do the math for yourself. At the moment, I am tired of politely answering your questions.
Having paused to re-read your response, I am inclined to think the issue lies in what you “feel” certain words mean. Again, I do not feel anything other than the definitions that I have studied and are regularly agreed upon to discuss such things.
Suggestions:
Learn the definitions of the following terms and phrases"
money creation
fractional reserve lending
money supply
quantitative easing
central bank money
commercial bank money
money multiplier
expansionary policy
contractionary policy
monetary base
discount rate
money velocity…
Just a few as a starting point. This should lead you down many more rabbit holes.
Again, I have never had a need to convince you of anything. You have asked me questions that I apparently mistook as genuine interest, and i have spent an inordinate amount of time attempting to answer them. If the purpose was simply to give you an excuse for an internet rant, save your time (or do your homework).
[/quote]
hahahahahaha… welcome to PWI!!! Good luck trying to teach dhickey anything. I think I had almost this exact same post when I first came here.
[quote]JEATON wrote:
Money Supply
What Does It Mean?
What Does Money Supply Mean?
The entire quantity of bills, coins, loans, credit and other liquid instruments in a country’s economy.
Investopedia Says
Investopedia explains Money Supply
Money supply is divided into multiple categories - M0, M1, M2 and M3 - according to the type and size of account in which the instrument is kept. The money supply is important to economists trying to understand how policies will affect interest rates and growth. [/quote]
fine. under what definition of monetary base do you think deflation will occur? I am pretty sure what you call deflation of the money supply, I will call reduced supply of credit.
This is the simplest explanation of money supply i could find that matched my view.
The central bank creates or destroys currency. Not Joe Schmoe Bank in BFE. No psychology of consumers. Not me paying too much for my house and then deciding to spend my money on something other than my mortgage. It operates the same in a 100% reserve system as it does in a fractional reserve system.
If you believe the central bank is going to start selling more assets than it buys, then I agree that this would be deflation.[/quote]
I show you where less than 5% of our MONEY SUPPLY is made up of physical paper and coin (currecny).
FIVE percent.
Our money supply consists of the entire quantity of bills, coins, loans, credit and other liquid instruments in a country’s economy. Let me repeat, money supply consists of the monetary base PLUS CREDIT, LOANS AND OTHER LIQUID INSTRUMENTS.
This means that approximately 95% of our money supply is made up of credit, loans and other liquid instruments.
I am reposting the following for the third and last time:
"The monetary base is coin, paper and commercial banks’ reserves with the central bank.
Money supply is the total amount of money available in an economy at a particular time. It includes all of the monetary base plus all of the additional money created through credit via the process of fractional lending (credit and loans).
The money multiplier measures the amount the money supply increases above and beyond the monetary base.
Therefore, if deposits are up and the coin and paper remain constant, then commercial reserves would be increased (but only reserves, which remember are only a fraction of the total money supply).
Now, if deposits are up but the money multiplier is the same, then you DO NOT have more money being lent. Actually, it would appear that less money is being lent. You simply have larger reserves on hand.
Expansion of money supply is primarily accomplished through the issuance of credit/loans through the process of fractional lending. That is the purpose of the money multiplier, to determine the amount of money that has been created through fractional lending, above and beyond the monetary base.
If the money multiplier is decreasing then it means that existing loans/credit is being retired at a greater rate than new loans/credit is being created. The money supply is shrinking. (Deflation)
Central banks mandate reserve requirements, the fraction of demand deposits that have to be kept on hand for the purpose of redemptions. In this way they can limit or control the amount of money creation. They also insure that the banks have enough cash on hand to cover normal withdrawals.
So what happens if a “black swan” event occurs and an abnormally large amount a people show up at once to redeem cash? This is a bank run or systemic crisis, such as happened in the GD. The central bank has devised methods to divert such events. They regulate banks, insure deposits, and act as a lender of last resort.
This seems to have worked just fine for the last eighty odd years. Then again, we have not experienced economic conditions and the gross negligence of that period, at least until now.
The public is for the moment pacified by the belief that if something were to happen at their bank that they are insured by the government and therefore have no risk of loss. They forget that they are the government, and also that the funds that are set aside to cover such loses are finite. Again, the system is set up to handle normal events and failures just as fractional lending is set up to handle normal rates of withdrawals with a added protection factor figured in. Black Swans are not accounted for.
Finally, I think part of the confusion lies in fully understanding money creation. When a loan is made, the borrower receives the funds for the intended use. Money supply is increased. However, the monetary base is not. That is the reason a multiplier is needed in the first place. It is not as if a call goes up to the Federal Reserve, they call the Treasury Dept., and the printing presses are started up. An amount of paper currency equaling the loan is not created and then shipped to the originating bank. Remember, it is fractional lending.
Now, before I start getting pounded, yes there are mechanisms in place by which additional currency can be created and put into circulation. However, it is relatively rare and not anywhere on the scale of which would be required to offset deflationary pressures if and when they occur. If they did do so, it would take a matter of time just to offset the real difference between the monetary base and the money supply. In the beginning they would simply be replacing credits on an electronic ledger with real bills."
The above was posted in response to a statement about the money multiplier and its importance. Not relevant here, but it puts it in context.
Again, I am not a professional. I do not have a degree in economics. I do have an MBA, for what it is worth (very little). I often feel like the character in “Good Will Hunting” in that I have learned much more in life with a library card and internet access than I have in years of school.
Also, you state that that inflation will hit “when bank lending picks up.” We have had well over a year of intense efforts by the government to inflate the economy and get banks to lend. We have had a very good ten months in the markets in anticipation of this. However, actual lending has barely increased. I believe that going forward we will see even less.
Put it all in perspective, however. I am not saying that deflation is permanent. I do think that the next year to two will be very interesting.
For the last year, the Fed has been buying distressed assets in order to try to free up money and stimulate the economy. These distressed assets largely consisted of mortgages in various forms. Read the very paragraph you posted.
Now read it again.
Now again.
This is how they tweak the monetary base. They attempt to control the monetary supply by quantitative easing. I say “attempt” because it is like pushing a string. You can lead a horse to water but you can’t make him drink. You cannot force people to borrow, to take on additional debt, even at 0% interest.
You CAN pull a string. You can decrease money supply by selling assets, raising interest rates and similar, thus decreasing the MONEY SUPPLY.
I can’t keep up with you because you have yet to make the distinction between monetary base (a piece) and monetary supply (the whole).
Try this. The credit and the loans (mortgages, IOU’s and other debt instruments) are the rest of the 95% of the money supply that is not represented by the monetary base. A mortgage is not the house. It derives its value primarily from the promise and ability of the mortgagee to pay the principle plus the interest over the prescribed time. When that promise is broken, the mortgage is effectively worthless. You cant get water from a rock. Now the property is used as collateral, so it can be seized and sold for whatever the market will pay. In this way, some of the money can be recovered. Some.
But what about this. What happens when there is a second mortgage (credit/loan, ie part of the money supply)? Can the second mortgage holder resell the same property after the first mortgage?
No?
Then that “money” is now worthless. Nada, zip, zero. That amount of the money supply is now destroyed. The money supply has been deflated.
Now think of all the credit that is not backed by collateral.
I am trying to show you the big picture. You can go through and “pick the fly shit out of the pepper if you want to.” I am not writing this for publication. I am sure that any room of economists can debate minutia all day long.
And again, I don’t have any special need to convince you. I am not doing this for the money. I think far too few people ever take the time to learn the fundamentals of our economy. This allows atrocities to occur. If my information only gets you and others to read, study and discover more for yourselves, then my job is done.
If someone, through their study, can point out a valid distinction and correct a misunderstanding of mine then fantastic. Then maybe I can get something back for the time and effort I have put in to this.
Like your other posts, this is too long and goes in too many directions for me to do anything with. Maybe this is a stategy?
I certainly don’t need your prodding to learn the fundamentals of our economy. I haven’t heard anything out of you on this topic that I hadn’t heard before. I meet very few people who have read more on economics than I have. Maybe you are one of them, I don’t know. Other than Keynes himself, I do not read other Keynesians. Maybe this is where the disconnect is?
Whether you believe the money supply is really M1, M2, or M3 doesn’t matter that much to me. I do not. I believe the monetary base is M0. I believe anything else is the tool of the Keynesian. It can be used to shift blame from the central bank to forces beyond the central bank’s control like consumer action or psychology. It can also be used to justify their economic medaling. I find it similar to the CPI bullshit they have convinced us is all important, allowing them to encourage unsound financial practices. The fed can come up any calculation or hand pick particular indicators it finds most favorable to its policy. They become axiomatic and Wall Street and most “economists” gobble it up. They don’t focus on M0, because there is no one else to blame for this. They don’t focus on M3 because it looks too bad. I guess they just get to pick which one is important and that’s what must be most important?
At the start of this I was trying to go step by step through what specific component of your money supply of choice was going to shrink. Instead we get page long posts covering too many concepts at once, and whole paragraphs with information that is not even relevant.
I do agree with you on one thing. This conversation is going nowhere fast. We have established we have different views on what constitutes the monetary base and inflation/deflation. It doesn’t appear we are going to establish anything beyond this.
I believe that we may have stumbled upon a revelation.
You want to talk about how you think the economy “should” work and pretend it is the reality.
I am simply stating how the economy does work. What words actually mean. The mechanical application of specific concepts.
You want me to explain a vast field of study in a single paragraph.
Equally important, you apparently have an agenda.
I do not.
As long as we live in a world with fiat currencies, central banks, and fractional banking, and monetary policies based on such, you are doomed to a life of “pissing into the wind.”
I had a Grandmother once, who believed that the moon landing was a hoax. “Never happened,” she would say. “They filmed that nonsense out in the desert. The Bible says ain’t no man can go to the moon.”
[quote]handlebar wrote:
Jeaton’
What you described in your earlier post about deflation reminds me of Janzen’s KAPOOM theroy. I am right in saying this?[/quote]
I do not know. I have neither heard of the name or the theory before. I will google it later and see what it is about.