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RE: [LandCafe] Re: Four Horsemen

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  • harrypollard
    Demand deposits are not the only kind of money but they are the largest component by far. Wiki mentions that in 2010 of the broad money supply (M2) only $915.7
    Message 1 of 90 , Jan 25, 2013

      Demand deposits are not the only kind of money but they are the largest component by far. Wiki mentions that in 2010 of the broad money supply (M2) only $915.7 billion of the $8,853.4 billion was physical coins and paper money.

       

      Nothing you say addresses the lack of inflation effect from the almost 50% increase in demand deposits in a few months. If there were countervailing financial actions, it doesn’t show in measurement of total demand deposits which rise precipitously over long periods.

       

      Harry

       

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      From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On Behalf Of roy_langston
      Sent: Friday, January 25, 2013 12:20 PM
      To: LandCafe@yahoogroups.com
      Subject: [LandCafe] Re: Four Horsemen

       

       

      --- In LandCafe@yahoogroups.com, Harry Pollard wrote:

      > Demand deposits have been declared money (except, I believe in MO).

      They are indisputably money.

      > Yet, we
      > have a situation in which they increase dramatically as a result of
      > "stimulus" payments without causing inflation.

      What has the stock market done since 2009? As I have explained before, official inflation statistics are calculated to call labor price increases "inflation" and asset price increases "a booming economy." And I would suggest that anyone running a household knows consumer prices have increased by a lot more in the last four years than the official inflation statistics claim.

      In any case, demand deposits are not the only kind of money, and in the last decade or two the relationships between different kinds of accounts like demand deposit accounts and money market accounts has become complex, and the line between demand deposits and other kinds of deposits has become blurred. The financial industry has enabled an almost transparent exchange between e.g., brokerage accounts and demand deposit accounts.

      > It has been part of monetary
      > theory forever that increasing the amount of money results in higher prices (Quantity Theory).

      But demand deposits are not the only kind of money.

      > I know that Roy suggested that these payments merely made up for lowered demand deposits,

      Sorry, I should have just said "money," which includes various kinds of deposits in addition to demand deposits.

      > but this was an example of Roy making a statement in the hope no-one will check it.

      No, I just inadvertently wrote, "demand deposit money" when I should have just written, "money," as the subject was the effect of money on inflation, not only the effect of demand deposits. My bad. I should have realized Harry was confusing the issue by committing fallacies of composition and division. But what is true of broad money is not always true of demand deposits, and what is true of demand deposits is not always true of broad money.

      > "This did not happen, however, in the financial crisis that began in 2008.
      > In fact, demand deposits in the U.S. increased dramatically, from around
      > $310bn in August 2008 to a peak of around $460bn in December
      > 2008.[5]"

      OK, that's an increase of $150G. But in the period from Aug 2008 to Mar 2010, total LOANS _DECREASED_ by _$600G_, or four times as much:

      http://pragcap.com/wp-content/uploads/2011/03/base.png

      I.e., the increase in demand deposits was to offset the dramatic contraction in lending the Fed knew would happen -- and did -- when major banks started failing. You will never understand anything about monetary economics by looking at only one source of only one kind of money. To expect inflation in the midst of massive, system-wide deleveraging is ridiculous. Demand deposits were rapidly being increased to stave off DEflation.

      > This fairly sudden increase in demand deposits - almost 50% - should surely
      > have introduced a severe price rise if demand deposits are money, but it
      > didn't (and didn't for many months following the increase - I checked).

      Wrong. It might have severely increased prices if demand deposits were the only form of money, but they aren't. Look at what happened to the broad M3 money supply in the same period:

      http://www.shadowstats.com/imgs/2011/652/image077.gif

      M3 growth was clearly tanking before Aug 2008 when demand deposits began their steep increase, and M3 growth continued to dive, reaching NEGATIVE growth before the end of 2009. Yet Harry absurdly claims that the lack of inflation consequent on demand deposit growth in the same period shows demand deposits aren't money.

      > I should say I checked because Roy said there is a delay before "inflation"
      > appears. Again he was wrong - no inflation over the next months.

      No, I was in fact correct: there is a delay between money supply increases and broad price increases. How long the delay is for various kinds of money under various circumstances is unclear. In this case, the severe turmoil in financial markets, including failures of major banks, makes any attempt to discern a quick and straightforward inflation effect from a coincident increase in demand deposits absurd if not deliberately obtuse.

      > One must be careful of what Roy says and take no notice of his
      > self-congratulation and declarations of "proof".

      Even I have to be more careful of what I say where Harry is concerned, as seen above ;^)

      -- Roy Langston

    • roy_langston
      ... Inflation is shorter and more descriptive. ... Having a label and definition for the concept helps people share information about it. ... Maybe that s
      Message 90 of 90 , Feb 1, 2013
        --- In LandCafe@yahoogroups.com, "harrypollard" wrote:

        > So why not say they are changing systematically?

        "Inflation" is shorter and more descriptive.

        > How does calling rising prices inflation help to "understand how, when and why"?

        Having a label and definition for the concept helps people share information about it.

        > Whereas inflation in its original meaning indicates that the money issuer has done something.

        Maybe that's part of it: the apologists for bankster privilege want to conceal the fact that it is private commercial banks that are issuing the money, not government.

        -- Roy Langston
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