Computer Money

[Ann Tulintseff]

William, et al.,

Does all non-cash money exist only in banks? Or, does all non-cash
money exist both in banks and non-bank financial institutions (NBFIs)?

Thanks,
Ann

[William F Hummel]

Ann

Using the Fed's definition of M1 money, it comprises the deposit liabilities of banks and thrifts plus cash in circulation.  Therefore non-cash money exists only in banks and thrifts.

William

[Ann Tulintseff]

So, just to be clear, that means that non-bank financial institutions
must have bank accounts (or, thrift accounts) in which to hold their,
or their clients', money. Right?

Thanks!
Ann

[Ann Tulintseff]

Informing the public about the Federal Reserve
What is the money supply? Is it important?

The money supply is commonly defined to be a group of safe assets that
households and businesses can use to make payments or to hold as
short-term investments. For example, U.S. currency and balances held
in checking accounts and savings accounts are included in many
measures of the money supply.



From the Fed's website:
http://www.federalreserve.gov/faqs/money_12845.htm

There are several standard measures of the money supply, including the
monetary base, M1, and M2. The monetary base is defined as the sum of
currency in circulation and reserve balances (deposits held by banks
and other depository institutions in their accounts at the Federal
Reserve). M1 is defined as the sum of currency held by the public and
transaction deposits at depository institutions (which are financial
institutions that obtain their funds mainly through deposits from the
public, such as commercial banks, savings and loan associations,
savings banks, and credit unions). M2 is defined as M1 plus savings
deposits, small-denomination time deposits (those issued in amounts of
less than $100,000), and retail money market mutual fund shares. Data
on monetary aggregates are reported in the Federal Reserve's H.3
statistical release ("Aggregate Reserves of Depository Institutions
and the Monetary Base") and H.6 statistical release ("Money Stock
Measures").


Where is the money held for "retain money market mutual fund shares"?
Are these funds held in bank accounts?

Ann

[John Hermann]

Yes Ann, that's exactly what it means.  A better way of phrasing it would be to say that they
must have accounts with registered depository institutions.  In Australia, the term "thrift"
is not used.  The authorised depository institutions in Australia are commercial banks,
credit unions and building societies (also known as ADIs).  All other financial institutions
(NBFIs) operate through the accounts they hold with ADIs.

John Hermann

[William Hummel]

That's correct. However normally a finance company lends to a client rather
than holds a client's money in its own bank account. When it lends, it
issues a check which transfers money from its own bank account to the
borrower's bank account.

William

[William Hummel]

The Fed defines money aggregates, but largely ignores them in making
monetary policy.

William

----- Original Message -----
From: "Ann Tulintseff" <anni...@gmail.com>
To: <understan...@googlegroups.com>
Sent: Tuesday, May 22, 2012 5:01 PM
Subject: Re: Computer Money

[helge nome]

Hi Ann,
I think you have to expand on that question.
Helge

> Date: Tue, 22 May 2012 13:29:35 -0700
> Subject: Computer Money
> From: anni...@gmail.com
> To: understan...@googlegroups.com

[Joe Leote]

I created this table to attempt to distinguish between money and investments:



Monetary aggregates include items that may be recognized as crisp money, crisp investments, fuzzy money, or fuzzy investments. A fuzzy item mixes properties of crisp money and crisp investments in a single financial instrument.

A. currency and coin -> crisp money
B. bank reserves -> fuzzy money
C. transaction accounts -> fuzzy money
D. savings and time deposits -> fuzzy investments
E. bank borrowings -> fuzzy investments
F. money market mutual funds -> fuzzy investments

Items A, B, C have fixed value 1 dollar per unit and serve as customary means of payment, but bank reserves and transaction accounts may earn some return as interest, so reserves and transaction accounts begin to resemble investments, but have mostly properties of crisp money.

Items D and E are created when banks cancel transaction accounts by taking investments from depositors and borrowing in the money markets from other banks or nonbanks. These liabilities do not serve as customary means of payment, have a maturity (7 days legal delay for saving accounts withdrawals or transfers), however value is fixed 1 dollar per unit and sums may be insured against risk of loss, so these investments in banks have money-like properties too.

Item F is created when customers purchase shares in money market mutual funds MMMF. This is a transfer of funds in transaction accounts to the MMMF, since only banks can create and cancel transaction accounts, the MMMF redistributes the transaction account money to other banks while purchasing highly liquid portfolio of securities that trades at close to 1 dollar per unit in money markets. This portfolio is mostly an investment in highly liquid securities with money-like properties due to the liquidity management efforts. The transaction accounts that pass through to banks can become other investments in banks, so MMMF share investments can exceed the level of transaction accounts in the money supply.

When society is trying to convert money to investments, it cannot succeed as a group, money that is not created or cancelled by a transaction (only Fed, banks, and nonbanks withdrawing currency can create and cancel money), the money remains money and circulates through more deals in which society creates a growing portfolio of financial investments.

If society tries to convert maturing investments or equity and insurance securities into a greater stockpile of money, banks cannot service this demand for rising transaction accounts or currency, since only Fed can service the currency drain, and banks must cancel transaction accounts while expanding assets to create net new transaction accounts. A sudden demand to hold money rather than investments thus interferes with bank credit formation and forces Fed to operate as lender of last resort.

Joe

[Mark Bachmann]

Joe, what is the concept of "crisp" money?

 

    Mark Bachmann

[Joe Leote]

Mark,

I am not sure I understand the meaning of your question.

Notice the properties of "crisp" money are the opposite of the properties of "crisp" investment in the first two lines? In the terminology of fuzzy logic, easily distinct items form a "crisp" set. Items that blend into each other, such as hot, warm, and cold, are a fuzzy set.

The idea of crisp money versus a crisp investment is to sharpen the mind to recognize the basic distinctions in the use of financial instruments. Since society mixes these properties together in the monetary aggregates, it is necessary to see the distinction as well as the blending of the properties.

The fixed value of crisp money is because Fiat money units are defined by law and custom. This fixes the value of these liabilities. Crisp money has no maturity, it simply exists as money. Crisp money is subject to loss of value due to inflation, but there is no risk in the nominal or fixed value going down. Crisp money earns no rewards for holding over time, unless in a deflationary context. Crisp money is a customary means of payment.

Hope that answers your question.

Joe

PS - The problem with financialization is that liabilities are fixed while assets float, this forces a new round of investment to validate the old asset prices and repay the old liabilities. If society stops rolling over the investments to hold more money, it causes systemic default on the old liabilities.

[Ann Tulintseff]

Most people have the biggest share of their money, not in checking or
savings accounts in banks or thrifts, but in 401k's and stocks etc.
Does this money exist in the computers of banks or in the computers of
non-bank financial institutions?

I apologize if this seems like a repeat question, but I'm asking for M2 & M3?

Thanks,
Ann

>>> <mailto:anni...@gmail.com> wrote:
>>>> So, just to be clear, that means that non-bank financial
>>>> institutions
>>>> must have bank accounts (or, thrift accounts) in which to hold
>>>> their,
>>>> or their clients', money. Right?
>>>>
>>>> Thanks!
>>>> Ann
>>>>
>>>> On 5/22/12, William F Hummel<wfhu...@ca.rr.com>

>>>> <mailto:wfhu...@ca.rr.com> wrote:
>>>>> Ann
>>>>>
>>>>> Using the Fed's definition of M1 money, it comprises the deposit
>>>>> liabilities of banks and thrifts plus cash in circulation.
>>>>> Therefore
>>>>> non-cash money exists only in banks and thrifts.
>>>>>
>>>>> William
>>>>>
>>>>>
>>>>> On Tue, May 22, 2012 at 1:29 PM, Ann Tulintseff<anni...@gmail.com>

>>>>> <mailto:anni...@gmail.com>

[William Hummel]

Ann,

The money you pay for stock shares goes into a security dealer's bank
account. Normally he will spend it on other securities to sell to his
clients. You no longer have a claim on the money you paid. When you sell the
shares, the dealer will credit your bank account with whatever amount they
brought in the market.

Your question seems to mistake the market value of stocks for money itself.
Stock prices simply reflect the current market value of the shares. At the
end of the day, buyers own more shares and less money, while sellers own
fewer shares and more money. Their aggregate financial wealth may be higher
or lower depending on the market, but the total amount of money they own
remains unchanged. It just changes hands.

William



----- Original Message -----
From: "Ann Tulintseff" <anni...@gmail.com>
To: <understan...@googlegroups.com>

[Mark Bachmann]

I've just never heard to term "crisp money" before and am still not sure what it means, as distinct from any other kind of money.

 

    Mark Bachmann

[Ann Tulintseff]

I am not mistaking market value of stocks for money itself...I'm not there yet.

I'm just trying to verify whether or not ALL money that is not cash
exists in bank accounts or if non-bank financial institutions have
been given some authority to hold "money" in their own NBFI computers.

Ann

[William Hummel]

Aside from cash, only depository institutions (banks and thrifts) hold
money, and they do so as deposits on their books. NBFIs are not allowed to
create or accept deposits, and thus do not hold money other than their own
cash.

[Joe Leote]

"Crisp" is just an adjective applied to the matrix of properties which defines "money" as distinct from "investments."

"Fuzzy" is another adjective applied to instruments that mix together properties of crisp money with properties of crisp investments. The mixture of the crisp properties results in an item that is neither money nor investment, but a hybrid thing.

The adjectives "crisp" and "fuzzy" are sometimes applied in the field of fuzzy set theory which is a valid area of applied math.

Joe

[mbach...@gmail.com]

Got it now, Joe - thanks.

[helge nome]

It all speaks to the flexibility of our language, which in turn indicates the flexibility of our minds.
Helge

---

Date: Wed, 23 May 2012 19:06:02 +0000
Subject: Re: Re: Computer Money
From: mbach...@gmail.com
To: understan...@googlegroups.com

[Jim Blair]

"Your question seems to mistake the market value of stocks for money
itself. Stock prices simply reflect the current market value of the shares."

Hi,

This confusion is spread by comments on TV and in the press that someone
"gained" or "lost" $X million when the stock market (or Facebook stock
;-) went up or down yesterday. No one who didn't buy or sell any stocks
yesterday gained or lost any money. Stock holders lose money on stock
sales only when they buy, and gain money only when the sell. Their goal
typically is to buy when the price is low and then sell when the price
is higher.

[Jean Erick]

     I see a problem inherent in the question, no fault of yours.  There has been disagreement over what money is, sometimes, IMHO, a refusal to distinquish between money and debt.   I think there is about 9 Trillion US "real" money and the rest debt.  But, as I said, agreement is an endangered specie here.

 

James

----- Original Message -----

From: Ann Tulintseff

[Jean Erick]

     Joe, you're ignoring the essential fuzziness (besides your writting).  The fuzziness between money and debt itself.  This is why I get impatient.

You're talking about the secondary.  Without the primary establsihed, you're building on a foundation of sand.  I will not sub contract to this construction.

 

James

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

Sent: Wednesday, May 23, 2012 9:06 AM

Subject: Re: Computer Money

[Jean Erick]

    There is money.  There is money serially loaned, debt.  From A to B to C, etc.  There is credit creation, adding to the amount of debt which draws on money.

There is about $9 Trillion in US money, about $52 Trillion in debt overlaid upon it.  Also, there is insurance, gambling.  Logically, it is different from the others because

it involves a true false decision fork.

 

James

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

Sent: Wednesday, May 23, 2012 8:28 AM

Subject: Re: Computer Money

[Jean Erick]

     "demand deposits" is the phrase used to describe a component of M1, not "deposit liabilities".

As I understand it at this time, "demand deposits" may include both "deposit liabilities", which is money put into the banks by clients, and bank loan asset accounts which

is a creation of debt.

 

James

----- Original Message -----

From: William F Hummel

To: understan...@googlegroups.com

Sent: Tuesday, May 22, 2012 4:17 PM

Subject: Re: Computer Money

[Joe Leote]

I have covered the fuzziness between money and debt in detail in the past. So if you have such a short memory, I could care less about your potshot remarks.

Debt, money, and investment are interrelated terms which cannot be untangled because a debt investment is a contract which specifies a money-in, time to maturity, money-out relationship and I understand these matters well even if you continue to pretend to have superior understanding simply because I cannot write a treatise in every email message.

Joe

[Terry Hammonds]

If the money I pay for shares of stock goes into the securities dealers bank account, how does a company benefit from my purchase?  Do you mean just the commission fee goes into the dealer's account?  For example, if I buy $100 shares at $25 through Scottrade, I pay$2500 for shares and a $7 commission fee. Who gets the $2500?

---

From: William Hummel <wfhu...@ca.rr.com>
To: understan...@googlegroups.com
Sent: Wednesday, May 23, 2012 1:13 PM
Subject: Re: Computer Money

[William Hummel]

There are at three companies that may be involved. Which company are you referring to? 

 

A dealer may have the stock in his inventory.  If not, he will have to buy it at an exchange.  If he can sell out of inventory, his gross profit is the spread between his price and what he paid to acquire the stock, plus the $7 fee. You pay his price plus $7 and that money goes into his bank account. 

 

If he buys on the stock exchange, he pays the exchange dealer's asking price and you pay that plus $7.  Presumably the $7 fee is his gross profit.   

 

 

 

From: Terry Hammonds

To: understan...@googlegroups.com

Sent: Thursday, May 24, 2012 2:43 PM

[Joe Leote]

Terry,

You can learn a great deal about primary investment and capital formation here:

North American Securities Administrators Association
http://www.nasaa.org/

A few years ago, there were very good pdf materials regarding SCOR, small corporate offering registration.

A company gets money when it sells shares directly to investors through SCOR or through initial public offerings (IPOs).

Once the shares are traded in a secondary market the seller gets money from the buyer each time a trade occurs. The firm gets nothing unless it is selling treasury stock (a company can repurchase its shares or hold authorized shares in an account called treasury stock).

The counter-party in an SCOR or IPO or secondary market trade may or may not be be a securities dealer.

Most secondary trades should not go to dealers but should be a cross of a bid and ask of a third-party buyer and seller, since most of the float of securities is held by parties other than securities dealers.

Joe

[Jean Erick]

     No, they didn't lose money when the stock prices fell but they did lose value.

I went through this problem myself,  seeing stocks as money.  Joe

tried to cure me of it but I had to finally see it for myself.

 

James

----- Original Message -----

From: Jim Blair

To: understan...@googlegroups.com

[Terry Hammonds]

Ok, if I buy Exxon shares for $82, when/how do they get the money? Do they get the full $82?

Sent from my iPad

[William Hummel]

You didn't say who sold the shares.  If Exxon sold the shares it gets the money.  If an investor sold the Exxon shares, the investor gets the money.  If a dealer sold the shares out of his inventory, the dealer gets the money.

=

[Jim Blair]

On 5/25/2012 1:15 PM, Terry Hammonds wrote:

Ok, if I buy Exxon shares for $82, when/how do they get the money? Do they get the full $82?

Hi,

If you bought the stock from an individual, they get the $82.  If you bought it on a stock exchange,  the exchange  collects  the money, keeps a fee and sends the rest to whoever sold it to them.   Exxon does not get any of your money unless they were the seller to the exchange.  That would likely happen only if it was an IPO, or if the company issued new shares. 

It least that is how I think this works.  Any corrections?

[Joe Leote]

The exchange is a collection of broker-dealer firms. It does not buy or sell anything.

When acting as a broker, a firm on the exchange matches orders of buyers with orders of sellers, processes the transfer of ownership of money from buyer to seller, processes the transfer of ownership of securities from seller to buyer, and collects a fee.

When acting as a dealer, a firm on the exchange buys or sells from its inventory.

Market Mechanics (24 page pdf):
http://www.nasdaq.com/about/market_mechanics.pdf

Joe

[Jean Erick]

     You may have covered it, but you didn't solve it.  I did.  At least it is lanquishing out there, escorted by neither praise nor criticism.

Debt and investment are things you can do with money.  Their ---definition-- is distinct and concise, even if their identification in the economy is blurred.

I have seen no clear, concise, and accurate defintions from you.  I have seen what I regard as brilliant, artistic creations that are poetic in nature.  And mostly correct.

But not perfect in their facts or phrasing all the time.  You're brilliant, hard working and have been tremendously helpful to me and I am grateful for it.  But you're not God and you're

not perfect and you make mistakes sometimes.

     I'm just aspire to be your servant who is trying to sweep up those few mistakes.  And, I've got some ideas of my own.

 

James

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

Sent: Thursday, May 24, 2012 9:32 AM

Subject: Re: Computer Money

I have covered the fuzziness between money and debt in detail in the past. So if you have such a short memory, I could care less about your potshot remarks.

Debt, money, and investment are interrelated terms which cannot be untangled because a debt investment is a contract which specifies a money-in, time to maturity, money-out relationship and I understand these matters well even if you continue to pretend to have superior understanding simply because I cannot write a treatise in every email message.

Joe

On 5/24/2012 11:41 AM, Jean Erick wrote:

     Joe, you're ignoring the essential fuzziness (besides your writting).  The fuzziness between money and debt itself.  This is why I get impatient.

You're talking about the secondary.  Without the primary establsihed, you're building on a foundation of sand.  I will not sub contract to this construction.

 

,
Ann

[Joe Leote]

I am not trying to "solve" it. You are. I accept that money and debt qualify as fuzzy objects under the valid field of fuzzy set theory. I think the more people realize that money and debt are fuzzy objects, the better the financial system may become in the future, since collectively humanity will become more conscious of "what we are actually doing" in playing the money-investment game.

Joe

[Terry Hammonds]

It sounds like when I buy shares I am not not investing directly in the company, that is, providing capital funds for the company unless I buy during the IPO or when new shares are issued. I am simply trading my money for another person's stock or shares owned by a broker. The company gets none of the money. The company owns a majority of its own shares and they gain or lose value along with the ones I own. Those could be pledged as collateral or sold, if capital is needed. When share prices go to zero, the company still has assets such as real estate and equipment, but when debt exceeds asset value, the company is bankrupt. 

Sent from my iPad

[Terry Hammonds]

That is excellent reference material, thanks

Sent from my iPad

On May 25, 2012, at 7:17 PM, Joe Leote <tech_a...@verizon.net> wrote:

[Jean Erick]

     So, both brokers and dealers are on the exchange floor?   Can they both act as either one for different transactions?

 

James

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

Sent: Friday, May 25, 2012 4:17 PM

Subject: Re: Computer Money

[Mark Bachmann]

James,

 

This is a somewhat semantical issue since essentially all major brokers carry inventory and, therefore, are also dealers. The reverse is true as well. An entity might be a "dealer" but is functioning as a "broker"  when its representative sits on an exchange and is booking transactions there.

 

"Over-the counter" securities - usually from smaller issuers - traditionally have been sold directly out of inventory by dealers, whereas "listed" securities by definition must cross an exchange. With the proliferation of exchanges, many of them electronic, this distinction is probalby less clear cut that it used to be.

 

   Mark Bachmann

[Jean Erick]

     LOL.  Well, okay.  If you didn't try, you didn't fail.  That's a tried and true way of avoiding failure.  LOL.

Actually if you look how you have stated it, we agree.  You stated "people realize money and debt are fuzzy".

You are recognizing them as distinct before you go to the fuzzy aspect.  I have just placed a lot of emphasis

on the distinction.

     Coming in knowing very little or nothing about economics, I see how confusing some of this stuff is.

I think someone, like you, who knows it very well might have a hard time seeing how confusing it can be

to a neophyte.  And, I've stressed the issue because, as I've posted before, I think it's important to

put things in as simple terms as possible so more people can grasp it easier.  First person being me.

    But, I've learned a lot and I'm pretty happy with it.

[Joe Leote]

James,

I might try to distinguish between "money" and "debt" more clearly if I did not regard the effort as "mission impossible."

If you wish to distinguish between money and debt in a contemporary society, where money is a Fiat liability (debt) of the central bank, and money is a private liability (debt) of banks backed by government regulations and the central bank, have at it!

Joe

[George Chandler]

Joe wrote: >I might try to distinguish between "money" and "debt" more clearly if I did not regard the effort as "mission impossible." >

 

True, true, Sir Joe. One reason it difficult distinguishing between "money" and "debt" is that our predecessors got it all wrong. We continually use the term money to include both cash and debt. There is a big difference between "cash" and "debt". The difference being ...interest! Debt must be paid back...with ugh....interest. Hummel and some others have started to wisely use terms like "base money" and "burdened money" and "currency". But it is too late, we need to go back and change all the text books :)

 

[Joe Leote]

I think one would have to abolish the custom and invention of double-entry accounting to try and make money distinct from debt. If one does wish to abolish double-entry accounting, one should accept that money and debt will remain a fuzzy pair.

Joe

[Jean Erick]

     Again, it is difficult to seprate money and debt in our economy.  I am talking about establishing clear and distinct definitions  of each.  You need to know what you

are looking for before you can go looking for it.

    So, if you take the $9 Trillion figure from Wiki, which I don't have a problem with, and the take the Z1 debt at 52, you've got an effective multiplier of 5.5 or so.  And you

can quickly take a figure of money transfers via interest from that.

     As all lending is intermediary (IMHO), which becomes serial; add the debt creation of so called bank multiplier, which is not lending but drawing rights creation. and you've got

a few figures to fool with.  But you can't figure that until you see debt in terms of its drawing power on the seperate entity of money.  Figure money paid as wages

and salaries as a real money source and you've got a start.  That is, we've been taught to look at the FED as the source of new money.  Maybe it's just different.

Maybe debt is changed into money via as above (deficit spending), and other ways.  I've still got to read Keene to see what he's got.

     But, like I've said, I can't comprehend how the whole thing works as well as it does. 

 

James

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

Sent: Monday, May 28, 2012 12:22 PM

Subject: Re: Computer Money

[Terry Hammonds]

I still maintain that when households do not have enough available cash, credit is their currency.

Sent from my iPad

[Joe Leote]

If you bothered to actually read and try to understand my table of crisp versus fuzzy money and investments, you might see that I have attempted to distinguish between money and debt-investments, in a manner that would help decode the Z1 figures too. The distinction between "money" and "investments" is provisional or an ideal set of properties, actual financial instruments are a blending of these properties, which is why I say money and debt investments are fuzzy objects. To get rid of the fuzziness we would have to abolish double-entry accounting and/or banking as we know it, which have positive social values and appear to be necessary to private property system with finance (capitalism), you cannot throw out the baby with the bathwater, so you live with some cloudy concepts in the bathwater (fuzzy money and investments are here to stay).

The $9 trillion is not crisply defined "money" per the table I put up elsewhere, because this figure includes not only transaction accounts, which are the closest thing to crisp money serving also as bank liabilities or resembling investments at banks, the $9 trillion includes savings deposits and time deposits at banks, which are more like debt-investments in banks that earn interest and would entail risk of loss except for federal deposit insurance but that also have the money-like property of fixed net asset value and zero risk of loss due to insurance. So what you are calling "money" has the fuzzy properties of debt investments just as I published in my table which you seem to criticize without first trying to understand.

Also there may be double counting of debt in the $52 trillion credit figure which I have yet to study for this problem. There is credit from banks and credit to banks included in the total credit tables, it may not be reasonable to count all credit toward the contribution to aggregate demand in the economy, per the models of Steve Keen (change in debt adds to aggregate demand but I have yet to see how he determines the change in debt from Z1 data).

Joe

[Jean Erick]

     And, debt is not usually recognized for what it essentially is.  When money is lent, it then, itself,  becomes a product in the market and is called capital.

But, at it's essence, it is a mechanism for the transfer of money (interest) from one party to another.  You hold this big balloon and pay me rent for it.

Hudson went over the secondary use of it as to whether it functions only as a rentier or invested into productivity for the economy.

     %5 of $13 Trillion in mortgages = $0.65 Trillion/year  I would say that is a pretty big transfer of funds.  Taking the 1/4 of income for housing and the fact that

you pay double the price when it's over brings you to 1/8 of income for interest.  Cars are next.

 

James

----- Original Message -----

From: George Chandler

To: understan...@googlegroups.com

Sent: Tuesday, May 29, 2012 11:18 AM

Subject: Re: Computer Money

[Jean Erick]

  

Sentence 1:  abolish = distinct

Sentence 2:  abolish = fuzzy

 

Now I'm fuzzy.

 

James

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

Sent: Tuesday, May 29, 2012 7:40 PM

Subject: Re: Computer Money

[Joe Leote]

The second sentence should read, "If one does NOT wish to abolish double-entry accounting, then one should accept that money and debt will remain a fuzzy pair."

Joe

[Jim Blair]

On 5/30/2012 12:00 PM, Terry Hammonds wrote:
> I still maintain that when households do not have enough available
> cash, credit is their currency.
>
> Sent from my iPad
>

Hi,

If that is true today, it marks an unfortunate change from the past.
Before, credit was used only for major purchases that one wanted (or
better, needed) to use before enough cash could be saved to buy without
borrowing: a house, or car or remodeling but not much else.

When credit cards became available, they were more for convenience than
for credit (i.e. loans). The idea was to pay off the balance when due
each month. But they were an easy way to get a short term loan: pay a
higher interest rate, but no need for doing the paperwork to get a bank
loan. But maybe our economic problems recently are the result of people
using credit to maintain the same spending level when their income
drops. Or increasing their spending faster than their income.

The key to increasing your wealth is to keep your consumption spending
below your income, and investing the difference wisely. Collect
interest rather than paying it.

[Jean Erick]

     No disagreement here.  That scenario seems to be the recent history.

 

James

----- Original Message -----

From: Terry Hammonds

To: understan...@googlegroups.com

=

[Jean Erick]

     As before, I don't question your art, just some of your facts.

 

    And, you've added confusion by switching from money-debt to money-investments.  That derails the discussion.  You act like you're discussing it but you

derail discussion and then try to act as though that is the discussion.  What is done with the debt is --secondary-- to the fact that it is debt.  Hudson covered that. 

Debt going to rentiers or investment.  Debt is a mechanism for the exchange of money(interest) from one to the other.  I offer Plimco as evidence of this basic reality.

 

The $9 Tril is money.  The account holder can take the money and convert it to cash without any liability attached.  It's "his" money.  The fact that he may collect interest on it

is SECONDARY to that fact.

 

     Double counting of debt, or double counting of money?  Everytime you lend money, debt goes up.  If debt is money then money goes up.  It's a snake eating its tail.

It is not important whether it is a transaction account.  Transaction accounts are demand deposits.  Demand deposits include both personal checking accounts and loan accounts.

Conflation of money and debt.  The $9 Tril accounts are personal, not loan.  Savings.

 

     As in the other post.  I don't agree with you on having to get rid of double entry to make clear distinctions between money and debt.

 

    And I thought your table was pretty good.  It actually warmed a few cockles in my heart.  But we have different apporaches to this and I can't really fault yours.

Just as to clarity of expression and maybe a fact now and then.

[Joe Leote]

James,

Would you agree that these are the components of the $9 trillion figure?

TA, transaction accounts
SD, saving deposits
TD, time deposits

Would you also agree that transaction accounts TA serve as customary means of payment?

Would you also agree that saving and time deposits do not serve as customary means of payment?

Would you also agree that these are bank liabilities (debts) which look like nonbanks investing at banks, like money in, money out relationship?

If you do not agree with any of the above, make a coherent argument to the contrary. If you agree with the above, then my matrix of the properties of money and investments, and my assertion that money and debt-investments are fuzzy pairs, is useful to understand the system as it exists.

Joe

[Terry Hammonds]

Tw more examples of expansion of computer money. College students receiving financial aid are  pressured into taking value stored cards instead of mailed checks.  Banks and schools collect various fees, some clearly legal, others not so much.  Fees for using the debit option instead of the credit option, fees for calling customer assistance, fees for overdrawing the account, up to $50.  "They" are raking in millions as student debt continues to pile up. The VA will continue paying veterans mileage to get to service providers, but starting 1/1/13, it will come on a card or direct deposit. No more cash.

---

From: Joe Leote <tech_a...@verizon.net>
To: understan...@googlegroups.com
Sent: Friday, June 1, 2012 12:25 PM
Subject: Re: Computer Money

[Jean Erick]

         That does clarify the statement I disagree with.  I don't see how keeping doble entry necessitates confusion between money and debt.

 

James

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

Sent: Thursday, May 31, 2012 10:15 AM

Subject: Re: Computer Money

[Jean Erick]

      SD & TD yes.  TA is not defined enough.  I think TA (as in M1)  would include both personal checking accounts that were created by money transfers from clients to the banks

AND loan accounts in which credit (drawing power on money) loans are created.   TA is a conflation of money and debt.

[Joe Leote]

James,

FOFA - Flow of Funds Accounts.

Transaction account liabilities TA of Banks might be defined as all checkable or demand deposit accounts at commercial banks and international banks in U.S. (commercial banks FOFA L.110 & L.111) and also at Savings Institutions and Credit Unions (L.114 & L.115).

Bank Lender:
L [+], Loan Due (debit asset)
TA [+], Transaction accounts (credit liability)

Nonbank Borrower:
TA [+], Transaction accounts (debit asset)
L[+], Loan payable (credit liability)

The loan due to the Bank Lender is part of bank credit on the asset side of the books of the banks (debt) and the transaction accounts created when bank credit expands are on the liability side of the books of the banks (money) so this part of the money supply is created as money-debt pairs, we have covered this topic repeatedly in the past.

The transaction accounts TA are more money-like financial instruments then savings deposits or time deposits, which have a maturity (7 days legal maturity for saving deposit withdrawal and stated maturity for time deposits), and since investments have a maturity and are not used as customary means of payment, the saving and time deposits resemble investments into banks. However the value of these assets is fixed and upon maturity these investments may be converted back into transaction accounts.

So what you are calling "money" (transaction, saving, and time deposits) in fact has a mix of the properties expressed in my matrix, I would characterize transaction accounts as money because they are used to make payments, and saving and time deposits as investments with fixed value at banks because they are not used to make payments, but all three groups are debt owed by banks to depositors.

Joe

[Jean Erick]

     I guess I should have been more specific.  I thought you would see the implication that I do not see TA as money.  I do not see TA as money.  I see it as a compbination of

money and debt and I parse it, as you described.  I count the banks liability deposits as money and the banks asset deposits as debt.  So, I am not doing what you described.

[Joe Leote]

James,

I will simply add that the bank owns primarily debt-investments on the asset side and owes primarily debt-investments on the liability side.

Joe

[Jean Erick]

     Well, you see now that we agree on most everythng (frightening prospect, isn't it).

I think I am correct in emphasizing a distinct defintion between money and debt.

However, your perceptions are excellant and I cannot say, for sure at this time, that it is not a better way to describe the situation.

I think, as debt has always been the problem, with the exception of debasing money, I still think the set sub set money to debt is the most valid and important.

But, even if I am right, your perceptions of the reality of debt fill out the discussion in a matter needed to grasp the issues.

     Your earlier mentioning of the possibility that debt may have preceeded money was, to me, pivotal in establishing issues and context in the discussion.