I want more fiat money in the economy to make up for the reduction of credit use. (That's the whole plan.) But the quantity of fiat money has been reduced (see: M1/NGDP) while our use of the more expensive credit-money has increased. The quantity of fiat money has been reduced because of our assumption that printing money causes inflation.
Meanwhile, our use of credit has increased -- leading to the bizarre accumulation of debt -- because of our assumption that credit use is good for growth. (See "irony".)
Read it at The New Arthurian Economics
Ouroboros and Irony
by The Arthurian
Exactly.
10 comments:
A disaster, because 'borrowing and spending' is more inflationary than 'printing and spending' in the long term due to interest burdens and governments having to print the interest part and deficit spend it into the economy.
LTRO in Europe is massively inflationary in the long term, ECB would have been better printing instead of pretending no to print and injecting liquidity directly in the secondary market (and continuing to do so) buying there securities as they have been doing. A COMPLETE DISASTER THESE MORON CENTRAL BANKERS ARE CREATING.
Let's see how this monetary experiment ends up for our monetarist 'friends' ends up. At least the credit is decelerating in the periphery very fast and overall credit destruction is massively deflationary.
So they are doing it all wrong: increasing debt, increasing money, and distributing it in a completely destructive way (more money for creditors, less for debtor). Perfect combination to a political crisis in the future and currency turmoil.
I'm puzzled by all this. M1 includes demand deposit balances, a significant proportion of which are created by banks in extending credit. So using M1 to measure the amount of "fiat" money in circulation, and then contrasting that with the amount of credit money in existence, seems misleading.
Dan, I was thinking the same thing
Yep Dan he a bit wrong there, but his conclusions are right anyway: fiat money:
- Aggregate government "debt" (is in fact increasing). Does matter.
- Reserves/base money. Meaningless (even if they have increased).
Credit is measured by Z1 in USA, it's again increasing (one of the drivers of the 'recovery'). Z1 has increased MORE proportionally to fiat.
If you look at Europe situation is awful:
- Base money exploded due to ECB activity, but as did liabilities as it's all refinancing. Base money increasing doesn't matter.
- Credit is heating on the core, and then you have outright destruction in the periphery.
- Austerity is forcing diminishing fiat as balancing budgets extracts money from the system as we know. At least proportionally to credit.
So there we go again: debt increasing (with credit money), and fiat being extracted via balanced budgets and diminishing spending. When private sector can leverage more we will have an other collapse again.
I agree with you Dan, except with the term misleading. Ive been reading Art and talking this stuff with him for a couple years and he is on the right track in my view.
(Which means he mostly agrees with me!! ; ) )
Some of the graphs can be misleading that he is looking at but Art is not attempting to mislead. I'm not sure you were claiming that but I just want to attest that Art doesnt roll that way. He is searching for answers like most of us are. Sumner is misleading cuz he's misguided.
Art does not like the money=debt talk (you had a nice article on that where he commented) and he honestly doesnt get why MMT/MMR harp on the Krugmans of the world when they say things that sound like they think there is a money multiplier or that reserves get lent out. He thinks thats mostly meaningless wonkishness. Ive yet to find a way to persuade him why that is an important thing to get correct........ maybe because I dont understand it properly myself.
Arts raison d'etre is to push the "Its the private debt that is the problem people" and for that I am behind him 1000% (yes that was an intentional addition of a zero)
"When private sector can leverage more we will have an other collapse again." can = can't
Yes, I wasn't at all suggesting that Art was trying to mislead anyone. I'm just unsure about the analysis.
I also agree about the problem of attempting to re-expand the economy through private sector debt, which seems to be what is going on - as some of Mike Norman's recent posts show. I think I would be more inclined to look at private sector debt/GDP ratio rather than the ratios between different kinds of monetary aggregates.
Once concern I have is about the chart that shows the post-1980 moderation in inflation. The problem is that the biggest thing people buy - houses - are misleadingly classified as "residential investment" rather than a consumer purchase. So to my way of thinking we actually had massive inflation during the housing bubble.
I think it's weird to regard houses as an investment. Just as a car is a machine for transportation, and a pair of pants is a machine for bodily protection and warmth, a house is a machine more shelter. We should treat them all the same way.
The main point is that public debt is too small a percentage of total debt, and private debt too large. Public debt is accumulated national savings of non-government NFA, while increase of private debt is unsustainable.
This results, of course, from the propaganda that government is bad and private debt good. That propaganda is sown by the financial sector in that the higher the ratio of private debt to public, the more the financial sector extracts with rent-seeking, which has become its chief raison d'être (pun intended), as Michael Hudson never tires of pointing out.
Dan,
The CPI includes what is called as rent and rental equivalence. So housing is included in the CPI in a way. It is probably leads to an underweighting - because of counting the incresing bubble prices as an investment.
The purchase of a house should not be regarded as an "investment" as a house is a continuous financial drain (maintenance and taxes.) So the thought process behind rental equivalence is correct, but the increase in house valuation because of the bubble would be incorrectly labelled as investment income
Dan
Did you see the article at Prag Cap today where Robert Shiller condemns the idea of housing as investment?
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