Sources and Sinks of M1 Money in a Four Sector Economy

[Joe Leote]

This is a link to the abstract/download page for my working paper posted
on SSRN.

Sources and Sinks of M1 Money in a Four Sector Model of the U.S.
Financial System
http://ssrn.com/abstract=2257270

Joe

[Jean Erick]

 

     Money is that which functions solely as the sole generic value in exchange transactions.  It is declared, legally, that acting in its unassigned role in commerce

as the unenforceable receipt for real goods, only it shall stand in to pay taxes and creditors must accept it for payment of debts.

 

     Money is an intangible concept that is expressed tangibly via account records of amounts and, more popularly, as the "token" that is the dollar.

Money has historically been that one real good which can be exchanged for any other good.  The "generic" good.  Gold, cigarettes, sea shells, salt, etc.

Modern fiat money is entirely different from historic money because fiat money's only primary function is to be a "receipt" for goods.  Again, money is essentially entirely intangible,

and the expressions of it are worth only what society as a whole perceives them to be as far as do they and WILL they function as value in exchange transactions.

 

     There is one and only one sink/source for money and that is the Fed buy/sell ratio.  An above one number means the Fed is operating as a money source,  A less than one number means the Fed is operating as a money sink.

 

     Banks have been given the power to rent out money and rent out drawing rights on money.  Drawing rights on money are effectively money but are not money conceptually.  They are debt.  There is nobody here, except myself, that I have seen recognize this double feature to bank lending.  Another confusion is that some loans are  made at %100 reserve  ratio, rented out without accompanying drawing rights (what I call intermmediary lending).

 

     The Fed creates money.  The banks create drawing rights on money.

 

There is a difference between the M1 "money supply" and the "supply of money", (the tally of money).  The failure to distinguish between money and debt that is effectively money is extant in M1, and the conceptual failure of your paper.  M1 tallies some money and "effective money" (drawing rights), not money per se.

 

    If you were to recognize this reality, you could distinguish between money and debt, tally sources/sinks of them both and how each affects the other, and you could describe it in a fairly easily comprehensible, powerfully accurate, and eloquent manner.

 

James

[Joe Leote]

My project is an effort to recognize the mechanics and dynamics of the financial system in accord with the prevailing customs of society. If it does not conform to your views, then my response is, neither does the structure or dynamic changes of the aggregate balance sheets of Fed, Treasury, Banks, and Nonbank sectors of the United States financial system.

Joe