Saturday, May 31, 2014

The Arthurian — How does it get from this balance sheet to that one?

Accounting deals with balance sheets.
Economics deals with forces that change balance sheets....
Today, there is only about four cents of circulating money for every dollar of debt. Four cents. No wonder debt seems a burden today.

Every dollar of that debt corresponds to a dollar of money that was newly created when the debt was created. The debt still exists. So where is the other 96 cents?

A lot of it went into savings and other financial assets, and out of circulation.

There's a big focus these days on income inequality. Here's the root of the problem: Some people are earning interest and others are paying interest on more and more and more of the money in our economy.It's a mad house! A mad house!

The graph shows there's only four cents left, with which to pay the interest and principal on a dollar of debt and still do everything else we need money for.

And paying off a dollar of debt reduces that four cents by a dollar.
The New Arthurian Economics
How does it get from this balance sheet to that one?
The Arthurian


paul meli said...

I made a similar observation here a while back…

Just looking at GDP compared to the total level of dollars in “circulation” (TCMDO), $17T to approx $62T and accounting for $3.8T G and $2.7T I its clear that very little if any of “the money we have”…net savings…gets spent after it has worked its way through the system and landed in someone’s bank account as accumulated wealth.

Clonal said...

The net financial savings = national debt =~$17.2T. However, TCMDO = $62T So, where did $45T go? It is not savings. It is not being spent into the economy (otherwise it would show up as GDP) - So where did it go? I have some inklings, but I would like to hear some ideas.

Anonymous said...

Very interesting question. :)

OC, there is a continuing shortage of money, as we are still in a depression. But does anybody think that we are short more than a couple of trillion?

Fortunately, this is an MMT blog, so someone will be able to do the accounting. :)

BTW, from what I hear, several foreign countries are stockpiling US dollars so that they will not have to borrow from the IMF. Does that matter?