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That looks like velocity of money.

 

I went and checked wikipedia for velocity of money. The definitions pointed to other definitions that when plugged together canceled terms to the point of meaninglessness. I guess I will have to google harder.

 

I don't see money supply changing much. Maybe someone can explain it different. I do see demand for money changing big time. Bank deposits look to be up $0.5 trillion y/y, and another $0.5 trillion has been sucked into the U.S. Treasury supplementary financing account, so there's $1 trillion in demand that wasn't there last year. On the other side, maybe the currency swap is "printing" but it's temporary and might only be mitigating additional demand from abroad that everyone's talking about.

 

By your equation, gdp would have to fall 15% to keep the balance between inflation & deflation. More if the foreign demand is right. I could see that, but it's a surprising number. Puts things in some serious perspective, especially if you believe in the foreign demand story and think this demand sticks. GDP down how much?

 

I am with you in that I do not necessarily assume this deleverage will be permanent. It seems to me that the PTB are doing all they can to enable releveraging whenever stinky bankers see fit. On the other hand, I am also willing to accept that we are having credit money destruction now, but my view is that it will be followed by more and worse money increases later.

 

So in my scenario, money is destroyed now quickly, and GDP starts accelerate down as the money destruction starts screwing up the real economy. Eventually the orgy of money destruction will conclude, and the GDP will continue to fall until industry can pay workers. That all depends on the stinky bankers.

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I went and checked wikipedia for velocity of money. The definitions pointed to other definitions that when plugged together canceled terms to the point of meaninglessness. I guess I will have to google harder.

I am with you in that I do not necessarily assume this deleverage will be permanent. It seems to me that the PTB are doing all they can to enable releveraging whenever stinky bankers see fit. On the other hand, I am also willing to accept that we are having credit money destruction now, but my view is that it will be followed by more and worse money increases later.

 

So in my scenario, money is destroyed now quickly, and GDP starts accelerate down as the money destruction starts screwing up the real economy. Eventually the orgy of money destruction will conclude, and the GDP will continue to fall until industry can pay workers. That all depends on the stinky bankers.

703653[/snapback]

Yup. Government and the banks can only make the situation worse by misallocating more capital. Inflation (government printing) will do the same.

 

not investment advice. ;)

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Can't agree that it causes price increases. The only dollars that matter for your equation are those that are not in demand (as much as the goods). I think demand for dollars will be high (for savings) and a lot of income is going to be diverted to paying back debt. GDP's going down alright, but demand for goods might go down even more.

 

There's a difference in a collapse caused by the typical overinvestment business cycle and a credit bubble.

 

In the classic overproduction cycle, lending goes primarily to businesses, and on the down side of the cycle, prices and wages fall until producers can again make a profit. The main takeaway here is that the investment went largely into productive assets, and all that's needed to get the unwasted part going again is for prices to fall. We had something like that 8 years ago in the telecom/internet boom.

 

This time around, the money went first and primarily to the lenders, and much of it went into non productive assets--land. It's true that there was tremendous investment in China, particularly from the USA, Japan, and a few other Asian countries, all of which outsourced to China. (That's where some of the USA's  trade deficit with Japan went when Japan outsourced.) Because of that, they might have the luxury of a typical recession. The problem for the US particularly, and somewhat of Europe, is that all we have to show for our debt is debt, and maybe a swimming pool. It's not enough to wait for prices to fall. We also have to pay off that debt, and we have to rebuild capital with which to start producing again.

 

If someone doesn't come up with another scam soon, we're deep in the stool.

703652[/snapback]

I was working on a reply when you sent this, so I might be out of sync.

 

I am an EE so did not take econ classes, so never could understand the idea of overproduction. I guess I will have to bite the bullet, so that I can articulate things better.

 

For now I will say that I feel that everyone who wants to work should be able to work. The fact that there are unemployed people and legitimate ventures without a way to employ them is just a shame. I don't know how to solve the problem, but I feel that things would be in better shape if we did not let banking suck all the money into a central place where it can be created/destroyed causing massive shocks to the real productive economy that produces food and goods and services that people need to live and to live better.

 

I agree with you on the need for a new bubble to dodge a bullet. I believe that alternative energy could be just the ticket. They talk about this stuff at another site that maybe we both visit.

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Government and the banks can only make the situation worse by misallocating more capital. Inflation (government printing) will do the same.

 

not investment advice. ;)

703654[/snapback]

 

I agree, my point is that bankers should be disintermediated out of the real economy.

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I agree, my point is that bankers should be disintermediated out of the real economy.

703656[/snapback]

Wow! That's harsh.

 

My original major was EE, but switched to computer science. Took 3 economics classes just for kicks, none for credit since I already filled those requirements. Been interested ever since.

 

If you want a good toilet or commute-friendly basic economics book, Economics in One Easy Lesson, Henry Hazlitt. It's 200 pages broken into 26 chapters.

 

I do hope that if the government does decide to print that they at least put it into good infrastructure programs like alternate energy. Then again, they'll probably waste over 90% of what they spend. Dam it, but we could use a few good dams.

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Wow! That's harsh.

 

If you want a good toilet or commute-friendly basic economics book, Economics in One Easy Lesson, Henry Hazlitt. It's 200 pages broken into 26 chapters.

 

I do hope that if the government does decide to print that they at least put it into good infrastructure programs like alternate energy. Then again, they'll probably waste over 90% of what they spend. Dam it, but we could use a few good dams.

703657[/snapback]

 

Many tanks for the book suggestion!

post-2158-1224920682.jpg

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Velocity of money is how many times money gets spent every year. It's important to tax collectors because every time someone spends money they get a cut. It's also important to ward-of-the-state economists who support government tax policies. To the rest of us, it's utterly meaningless.

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It's not enough to wait for prices to fall. We also have to pay off that debt, and we have to rebuild capital with which to start producing again.

Is the debt you are referring to mainly the one to foreign countries or just debts in general in our economy?

 

As far as rebuilding capital, I figured that most capital for everything was raised as needed through borrowing from banks instead of from savings, so all we would need to do is start loaning again. I guess the obstacle would be that banks would not want to lend to firms that were not already making money; a chicken/egg problem.

 

OTOH, if business has to finance itself from operations, a slow spinup, then WTF do we need the banks for?

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Is the debt you are referring to mainly the one to foreign countries or just debts in general in our economy?

 

As far as rebuilding capital, I figured that most capital for everything was raised as needed through borrowing from banks instead of from savings, so all we would need to do is start loaning again. I guess the obstacle would be that banks would not want to lend to firms that were not already making money; a chicken/egg problem.

 

OTOH, if business has to finance itself from operations, a slow spinup, then WTF do we need the banks for?

703660[/snapback]

Depends. Are you going to pay the one and default on the other? If you pay both, it doesn't matter. More later.

 

Money isn't capital. Capital is stuff like machines, seed corn, leather & thread, etc. You make some corn, I make some shoes, and we exchange it for money. When you save money, it's the same as if you didn't eat all of my shoes, so you can pay to see a belly dancer that needs to buy the rest of my shoes. The saved money represents real goods. When government prints money or banks lend beyond savings, the banker's son goes to see the belly dancer and there's nothing left for you to buy with the money, so it becomes worthless.

 

So if I have debt, it's like I ate your corn but didn't make any shoes, so noone gets to see the belly dancer. Printing money can't change that. The only proper functions of a bank are to store money, make it easier to exchange it and move it around, and to match up savers with producers. There's also a theory that banks can serve a social function and lend money to productive people to buy things like houses and education and color HDTV, but it's just a theory, and look where it got us.

 

www.Mises.org is a good place to learn a lot more. (There's some odd stuff, but it's mostly pretty good.) Check especially the articles and litrature section. (Yes, I'm seriously biased towards classical economics)

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Depends. Are you going to pay the one and default on the other? If you pay both, it doesn't matter. More later.

 

Money isn't capital. Capital is stuff like machines, seed corn, leather & thread, etc. You make some corn, I make some shoes, and we exchange it for money. When you save money, it's the same as if you didn't eat all of my shoes, so you can pay to see a belly dancer that needs to buy the rest of my shoes. The saved money represents real goods. When government prints money or banks lend beyond savings, the banker's son goes to see the belly dancer and there's nothing left for you to buy with the money, so it becomes worthless.

 

So if I have debt, it's like I ate your corn but didn't make any shoes, so noone gets to see the belly dancer.

 

www.Mises.org is a good place to learn a lot more. Check especially the articles and litrature section. (Yes, I'm seriously biased towards classical economics)

703661[/snapback]

Thank you for clarification. I feel the same way, but with different metaphors that need 3-D graphics to explain. :lol: I will start digging into mises.org.

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Here comes the changes:

 

U.S. has plundered world wealth with dlr -China paper

 

" BEIJING, Oct 24 (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

 

The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies."

http://www.reuters.com/article/companyNews...PEK466920081024

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Here comes the changes:

 

U.S. has plundered world wealth with dlr -China paper

 

" BEIJING, Oct 24 (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

 

The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies."

http://www.reuters.com/article/companyNews...PEK466920081024

703664[/snapback]

 

Didn't they make noise about this a month or so ago? Last time they complained, they got the bailout plan... what do you suppose they want this time?

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Depends. Are you going to pay the one and default on the other? If you pay both, it doesn't matter. More later.

 

Money isn't capital. Capital is stuff like machines, seed corn, leather & thread, etc. You make some corn, I make some shoes, and we exchange it for money. When you save money, it's the same as if you didn't eat all of my shoes, so you can pay to see a belly dancer that needs to buy the rest of my shoes. The saved money represents real goods. When government prints money or banks lend beyond savings, the banker's son goes to see the belly dancer and there's nothing left for you to buy with the money, so it becomes worthless.

 

So if I have debt, it's like I ate your corn but didn't make any shoes, so noone gets to see the belly dancer. Printing money can't change that. The only proper functions of a bank are to store money, make it easier to exchange it and move it around, and to match up savers with producers. There's also a theory that banks can serve a social function and lend money to productive people to buy things like houses and education and color HDTV, but it's just a theory, and look where it got us.

 

www.Mises.org is a good place to learn a lot more. (There's some odd stuff, but it's mostly pretty good.) Check especially the articles and litrature section. (Yes, I'm seriously biased towards classical economics)

703661[/snapback]

 

The banksters funny money was seen as good as everyone else's and now they're destroying the real wealth that existed.

 

Maybe that's what Jefferson was writing about:

 

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs" -Thomas Jefferson

 

They didn't print it per se, but the SIV leveraging machines (MBS, CDOs and other whatnots like Hedge funds) were cranking out debt dollahs as if there was no tomorrow.

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