An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Monday, March 4, 2013
Matthew McOsker — How money enters the economy through deficit spending
First pane is incorrect. If both constantly produced for each other they could accumulate way more than 2,000 worth of real assets. Correct: that neither couldn't have more than $2K, but this is obvious because only $2k exists, no kidding. The goods that both produce during a period of time could exceed many times the dollars in circulation.
money is not wealth it is a financial claim on wealth
Miller how would that work? On paper the value of goods could be over $2000 but who would buy it paying more? There's only $2000 in circulation so how can someone "pay" more? Mark-to-Market is not same as Mark-to-book. Where will the extra dollars come from?
The "units" in these equations are "$NFA"... so both of your observations are true imo...
ie they certainly can produce more than $2000 in real assets but they could never settle transactions for them in $NFA in an amount exceeding $2000.. if one or both of them saves $NFA, then the max transaction amount would be $2000 minus the $NFA savings amount...
Hi there. Great comments all. I was really trying to make the chart simple. It excludes trade deficits, and endogenous money. In the first panel, those $2,000 could trade hands quite a bit, but their net worth measured in dollars cannot exceed $2,000. The first panel was also a stepping stone to the next two to show how taxes and deficits drain, or add dollars to the economy.
Hopefully, the gist is correct to explain the basic process to a layperson - trying to get folks to understand that it is not a household budget.
It's cute but doesn't really explain anything.
ReplyDeletehttp://www.addictinginfo.org/2013/03/04/americas-wealth-inequality-is-worse-than-you-think-video/
ReplyDeleteFirst pane is incorrect. If both constantly produced for each other they could accumulate way more than 2,000 worth of real assets. Correct: that neither couldn't have more than $2K, but this is obvious because only $2k exists, no kidding. The goods that both produce during a period of time could exceed many times the dollars in circulation.
ReplyDeletemoney is not wealth it is a financial claim on wealth
Miller how would that work? On paper the value of goods could be over $2000 but who would buy it paying more? There's only $2000 in circulation so how can someone "pay" more? Mark-to-Market is not same as Mark-to-book. Where will the extra dollars come from?
ReplyDeletemiller/net,
ReplyDeleteThe "units" in these equations are "$NFA"... so both of your observations are true imo...
ie they certainly can produce more than $2000 in real assets but they could never settle transactions for them in $NFA in an amount exceeding $2000.. if one or both of them saves $NFA, then the max transaction amount would be $2000 minus the $NFA savings amount...
rsp,
I think Matt Franko has it right.
ReplyDeleteHi there. Great comments all. I was really trying to make the chart simple. It excludes trade deficits, and endogenous money. In the first panel, those $2,000 could trade hands quite a bit, but their net worth measured in dollars cannot exceed $2,000. The first panel was also a stepping stone to the next two to show how taxes and deficits drain, or add dollars to the economy.
ReplyDeleteHopefully, the gist is correct to explain the basic process to a layperson - trying to get folks to understand that it is not a household budget.