Atemporal Money Supply

NOTE: The ATP represents the velocity of money (not the quantity of money, as we are lead to believe).

http://www.discusseconomics.com/banking/where-do-banks-get-their-money/

Category:

Education

Tags:

• velocity
• quanitity
• money
• supply
• m1
• m2
• m3

[YoAnarchy]

Whether or not you choose to call them money, the extra liabilities of the bank created when a loan is issued affect the price of cash because people treat the money in their banks equivalently. If people are (and remain) indifferent between credit and cash, as we know they are, there is no reason that extra credit would not have the same impact on prices as extra cash.

[SHAWNONOMICS]

I'm not sure what you mean by "extra credit".

[YoAnarchy]

By extra credit I meant the demand deposits that are issued by the commercial banks.

[SHAWNONOMICS]

Oh... you mean debt.

Yes... people can sell debt, but still... that doesn't create any new money. See my video (basketballs and banking for an explaination).

Whether or not increasing the velocity of money has the same effect as increasing the quantity of money... is an interesting question. However, in order to anser that, people first need to understand the difference (which is what I'm trying to explain).

[nunezger]

in fractional reserve banking there are two types of monies. 1)Obligations of the central bank = currency (vault cash and cash in hands of public) + bank's checking account with the FED + US treasury's checking account with the FED and 2)Obligations of commercial banks = demand deposits + other checkable deposits. your TEMPORAL vs ATEMPORAL distinction is USELESS because both types can be used as money(medium of exchange, store of value, unit of account.). 

[theVAGINAntichrist]

MAKE MORE VIDEOS

[PanzerDivisionBOM]

I think it is more appropriate to say that the fractional reserve acts as a substitute for inflation, in the same way as thievery by stealth is a substitute to thievery by overt force.

No, new money is not created. However, additional claims to money ARE created, which serve a similar effect.

What's supposed to counterbalance liberal loaning policies, is the moral hazard of a bank run, and any applicable contractual obligations. The real problem arises when you get a coercive cartel...

[D4Shawn]

In both cases, the purchases were made with cash. In one case, the cash came from your deposit, and in the other case, the cash came out of the bank's reserves.

I'm not sure what your point is.

If everybody saved their money, instead of spending it, then prices would be super low. However, what's the point of low prices if nobody spends their money?

Also, spending may increase prices in the short term, but it also signals producers to produce more, which can reduce prices by increasing supply

[NoCryingNowYes]

You deposit $1000 into a bank and then you use your debit card to buy a TV for $900. And the person who took a loan for $900 from the bank also buys a TV. Now the TV company has sold 2 TVs for $900 cash and $900 in their bank accounts.

So the price of TVs goes up.

[D4Shawn]

No. You're overlooking something:

Let's say I loan you $105. I then have an asset of $105 future dollars. Let's say I sell those future dollars for $100 present dollars. Those present dollars have to come from someone else, who can no longer spend that $100 because they don't have it any more.

The money has NOT been expanded, just because I sold my debt for cash in the present. All that has happened is that money has changed hands. There's still the same amount of money that there was before.

[NoCryingNowYes]

The point is that electronic money competes with cash for the same resources, so if there's 10 trillion dollars in cash and 90 trillion "future dollars", since people project value onto those future dollars, you will need 10 dollars to buy something that otherwise would've costed you only $1, because there's 10 times as much money, even if there isn't 10 times as much cash.

[D4Shawn]

First of all, people do not project onto a check, the same value that they project onto money. A check can only be "spent" at a bank, and only exchanged for money, whereas money, can be exchanged for goods and services, just about anywhere.

Secondly, printing dollars expands the QUANTITY of money, whereas lending money (which is all FRB is) simply increases the VELOCITY of money (the rate at which is circulates), so no... your comparison is not "perfect" at all.

[NoCryingNowYes]

"There is a difference between a title to something, and the thing itself."

But if peolpe project the same value onto the title as onto the cash itself, then both have the same value.

The example I gave about how printing dollars made the price of gold go down back in the day is perfect to explain why FRL makes the price of dollars go down today.

[D4Shawn]

No. If someone writes me a check, I can not use that as money. All I can do, is use it to retrieve money.

Someone has to go to the bank to get actual money. The only thing a check does is transfer that obligation from the customer to the vendor.

A $5 bill is not a sandwich. A warehouse receipt is not gold. A check is not money.

There is a difference between a title to something, and the thing itself.