tag:blogger.com,1999:blog-6476989946886057900.comments2022-11-09T08:34:43.240-08:00<small> <i> the </i> </small> Mechanical Money <small> <i> blog </i> </small>Roger Sparkshttp://www.blogger.com/profile/01734503500078064208noreply@blogger.comBlogger260125tag:blogger.com,1999:blog-6476989946886057900.post-24429208890274990242022-02-20T19:39:57.904-08:002022-02-20T19:39:57.904-08:00Thanks!
I think debt works for the borrower until...Thanks!<br /><br />I think debt works for the borrower until it doesn't. Governments seem better able than individuals to ride out the doesn't. Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-28082672145886085452022-02-19T16:39:20.264-08:002022-02-19T16:39:20.264-08:00What a great concept. I wish I could get over my f...What a great concept. I wish I could get over my feat of getting into debt. I only invest when I have money up front. I love reading your blog posts!Ethical Preservation of Religious Artifactshttps://www.blogger.com/profile/04474425564871364464noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-20638385459066156652022-02-19T09:53:47.965-08:002022-02-19T09:53:47.965-08:00Hi Josh,
I have a newer post on this blog site. N...Hi Josh,<br /><br />I have a newer post on this blog site. Now I would respond that your bank lender is giving you 'tickets'. Money as a 'ticket'. <br /><br /><br />So, I would agree that the bank is giving me money, thereby becoming a partner in my business.<br /><br />Then we look at what the bank is doing. We wonder where does the bank get ALL THESE TICKETS that are being loaned? It indeed seems that money/tickets are being created somehow.<br /><br />I fear that it is far easier to create tickets than to recover/vanish them.<br /><br />RogerRoger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-52175147842391635162022-02-18T06:20:17.587-08:002022-02-18T06:20:17.587-08:00Roger,
I'm thinking in terms of construction...Roger,<br /><br /><br />I'm thinking in terms of construction or farm loans. The preloaded money in the loan account feels like a "promise" to the borrower. It's like the bank is saying, "We'll take a risk on your proposal. We'll transfer emblems of our support for you to the lumber yard or the seed company in order to get you going. At the end of the season when you sell your houses or your crops, we'll take the money back which you borrowed, plus a little more. We'll use that 'little more' to cover other risks we are underwriting and keep the whole process rolling down the track."<br /><br /><br />The bank is lending money, but that money is merely a promise to cover the costs of building or farming until the newly created housing or crops are realized. (Somewhere in the bank, there has to be "real" money deposits, doesn't there? Money that was deposited by savers who had been productive and had actually produced real wealth?) Those newly created houses and granaries filled with wheat are real wealth and are traded for money, part of which goes back to cover the loans taken out. The profit, if there is one, is not destroyed with the retired loan or bond. That, or part of it, is put back into the bank as interest and used as a foundation for further lending.<br /><br />How's that? I'm I getting it? <br /><br />It still feels like to me that much of that lending and borrowing activity is a gambling or risk taking enterprise with rules that keep it from spinning to far out of control. Money, when it stopped being sea shells, or pigs, or gold coins became an object of shared belief between the people who had faith that it represented the potential to become something they desired.<br /><br />We better hope we, the entire world, continues to believe in money and the hope it represents.<br /><br />I still am wondering how the government feels about tens of thousands of lending institutions creating money, money which is backed by its "full faith...etc." Is the Fed really in control of the money supply? It doesn't feel like it.<br /><br />Still thinking.<br /><br />JoshAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-76976361672103669202022-02-16T17:48:28.002-08:002022-02-16T17:48:28.002-08:00A single economic shock does what it does but, bei...A single economic shock does what it does but, being single, would smooth out as time passed. Even the tax levy should return to normal should it be true that it was but a single shock.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-66638453811170368422022-02-15T14:56:21.965-08:002022-02-15T14:56:21.965-08:00The sole sustained negative effect comes from the ...The sole sustained negative effect comes from the proportional property tax levy.IronSignoreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-76279793508760914722022-02-07T09:21:00.277-08:002022-02-07T09:21:00.277-08:00Josh,
Thanks for the comment.
For the first ques...Josh,<br /><br />Thanks for the comment.<br /><br />For the first question, I think the ability of the borrower to order his life can be disrupted. As in "The best of plans can be upended by unforeseen events." In the event of external disruption, both borrower and lender need to be fair with one-another. There could be a need to rejigger plans.<br /><br />Can private banks create money? I would say "Yes, using an implicit license from government." Earlier today, I described it this way in a blog comment:<br /><br />"I got to thinking this morning about a child who wants to go to the drug store. Mom always says "NO".<br /><br />Finally, Mom says “Yes, you can go.”<br /><br />Now what? The child can go but has no entry once there. Only if the child has money can the child do more than walk through the store. This child needs “evidence of permission”.<br /><br />Money is “evidence of permission”.<br /><br />Banks have the ability to create “evidence of permission”.<br /><br />Turning to the destruction of “evidence of permission”, it really can’t be destroyed. It can only be returned to the entity that granted it originally.<br /><br />So, if Mom said, “Bring back the evidence of permission.”, it would be very hard for the child to do that. Maybe the child could work and thereby earn evidence that he could return to Mom."<br /><br />The comment is a little out of context with your question but may apply. Loans made by the central bank would clearly constitute new money (usually called "reserves" in the U.S.). Reserves don't necessarily directly translate to private bank deposits as can be seen in the two charts referenced in the article.<br /><br />The topic of money turns out to be difficult to tie down. I appreciate your thoughts.<br /><br />Roger<br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-89215934059481290522022-02-07T06:13:33.313-08:002022-02-07T06:13:33.313-08:00Okay, Roger. I'll try to put it back together...Okay, Roger. I'll try to put it back together.<br /><br />My understanding of money is shifting again. You used the metaphor "money is a ticket" which has reminded me of all the tickets I've kept as souvenirs of past ship/airplane/train/bus rides, concerts, etc. Once they were used to gain entry onto a means of transportation, or into an event venue, they lost all but sentimental value. Your money-as-ticket metaphor works if the same ticket can be used for multiple entries into similar activities. Okay. <br /><br />Also, those tickets only work if those who redeem them believe that they represent value/wealth which they can use themselves. Money, more and more, is sounding like faith, and when I think of faith, I can't help but think of Hebrews 15;1 "Now faith is the substance of things hoped for, the evidence of things not seen." Isn't that what money is? So money's value is predicated on the belief of people using it that it is the substance of things they want which they can't see in the present but hope for in the future.<br /><br />What happens if people lose their faith in money in much the same way that they lose their faith in their respective religion? Then the script/scripture is valueless. I feel like I don't want people to realize that money is a token of faith. It's better if they just keep on thinking that it has value in an of itself. Less likely for the system to crash.<br /><br />I can see how what a bank does through its creation and assignment of loan monies is give someone an opportunity to participate in the economy and spread the risk of that loan out to the other deposit holders. <br /><br />In one of your posts you talked about the risk the bank takes when lending money, saying that the promise of future profit is based on the borrower ordering their lives in consistent productive activities. What happens when the borrower can't order his life in that way because of a chaotic social system, disrupted by criminality, disease, or scores of millions of illegal immigrants undercutting the value of his labor and limiting access to meaningful entry-level work for himself or his children?<br /><br />Also, I just watched a video of Allen Greenspan talking about inflation. In it he asserts that there is a one-to-one correlation between the oversupply of money and the appearance of inflation. We're seeing inflation start to kick in now. This correlates to the chart you posted showing the money in bank deposits versus the GDP. The question that arose in my mind while listening to him talk is this: does the law acknowledge and permit bank-created money, or is it just an unintended consequence of the assumption of risk-reward dynamics of the financial industry? Because he made it sound like the only place money could be created was within the federal government.<br /><br />Sorry about this post. I know it's a mess, but it's like putting a plate back together with crazy glue after you dropped it on the kitchen floor.<br /><br />JoshAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-19510884867611672412022-02-06T08:45:10.040-08:002022-02-06T08:45:10.040-08:00I've done that!
Please try again. From my exp...I've done that!<br /><br />Please try again. From my experiences, the first effort was well thought-thru, the second effort even better thought-thru. GLRoger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-48681605142821641942022-02-05T11:30:12.061-08:002022-02-05T11:30:12.061-08:00Roger,
I wrote a reply to you this morning and am...Roger,<br /><br />I wrote a reply to you this morning and am afraid I hit the wrong button and have lost it.<br /><br />Did you get a post from me where I talk about my shifting understanding of money, and where I make reference to the Wizard of Oz?<br /><br />JoshAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-39319614951848823332022-01-25T14:15:01.116-08:002022-01-25T14:15:01.116-08:00Hi Josh,
I think you are understanding my thinkin...Hi Josh,<br /><br />I think you are understanding my thinking here. Creating money is not exactly the same as lending money. To clarify things in my own mind, I think of reusing money and actually creating new money. When I lend to you, we are reusing money because I cannot create money. For me to get money, I need to work or sell something first.<br /><br />Banks may also relend their own money. If banks lend more money than they own in their own deposit account, then we ask how they can do that?<br /><br />Two theories of how: 1. Banks lend my money to others without telling me. We know this may be happening because each year, we can add all the bank deposits in the nation and see that they increase each year. Someone must be creating money and then it shows up in bank deposit accounts. <b>OR</b><br /><br />2. Banks create money with every loan. This gives the same annual increase in deposit accounts but follows a different logic. Banks are not reusing my money; they are simply creating new money. This makes private banks look like a private version of the central bank. We need an assumption that banks have an implicit license from government to do this, which is logical considering that banks are heavily regulated by the central bank and government guarantees private bank deposit accounts up to a limit<br /><br />Either way, the bank is giving the borrower access into the marketplace.<br /><br />So far as the creation of wealth is concerned, we can have two views: 1. The creation of wealth is real; money has value; the bond can be sold. <b>OR</b><br /><br />2. The creation of wealth is an illusion. You can't create wealth from nothing; the bond has no value until it has performed.<br /><br />I think reality wanders somewhere between these two extremes. Borrowers who sign loans tend to perform on them. They order their lives into a performing lifestyle. On the money side, access into the market is immediate and measurable. The problem here is that competition for existing goods is increased so all those folks who had to work for money now find an extra increment of borrowed money competing with their hard-earned money.<br /><br />Sorry for the long reply but you asked a good question,<br /><br />Roger<br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-80567694255660695362022-01-25T08:14:31.832-08:002022-01-25T08:14:31.832-08:00Roger,
I was watching a history of the stock ma...Roger, <br /><br />I was watching a history of the stock market crash of 1929 yesterday and the interviewees all spoke of leverage as being the cause, or at least one of them, of the overheated and dangerous bubble economy which finally broke and plunged the world into a decade of misery and stagnation.<br /><br />I am still working to understand these dynamics, but when you say that the bank created money is a ticket which will increase wealth by two units for every unit of that bank created money, is that a form of leverage? There is only an assumption that two units of wealth will be created for every one unit of bank money. Until that wealth is created, it is just speculatory in nature. Am I thinking of it the right way.<br /><br />I like your ticket metaphor. I have a lot of tickets that I have kept as souvenirs recording my travels and participation in various events. Once the trip is over, once the concert is over, they have almost no practical value, but in the event itself they ruled the day.<br /><br />I'm thinking.<br /><br />Josh<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-90785779269200467242022-01-05T06:47:32.359-08:002022-01-05T06:47:32.359-08:00Okay, Roger.
I'm going to reread this -- seve...Okay, Roger.<br /><br />I'm going to reread this -- several times, I'm sure -- to assimilate the creation and flow of money. (Love the use of the backs of envelopes.)<br /><br />JoshAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-28733809097379256352021-09-02T04:37:31.598-07:002021-09-02T04:37:31.598-07:00Hi edzimmer,
My apologies to you for not moderati...Hi edzimmer,<br /><br />My apologies to you for not moderating your comment MUCH sooner. I made a terrible mistake in not understanding a change to blogger's comment approval methods, just gaining that understanding yesterday. I'll try to keep comment-moderating current from now on.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-71465004097256322012021-09-01T00:40:22.652-07:002021-09-01T00:40:22.652-07:00"must be making loans of real money owned by ..."must be making loans of real money owned by others" sounds like loanable funds which is not how private sector lending works. I guess you could characterise private sector bank lending as speculating with "government created money" but they the process does create money that can be used in the economy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-84635582370925589842020-05-17T14:13:07.488-07:002020-05-17T14:13:07.488-07:00Roger,
Sorry for the delayed comment, but I like y...Roger,<br />Sorry for the delayed comment, but I like your labels of essential & non-essential - but I'd like to apply them to the economy, not just to a "sector". In my view, GDP measures the "essential" economy - that includes all household spending on finished goods and services. (I've been calling that the "productive" economy, but I like your term much better.) But there's another economy not measured by GDP that I've been calling the "non-productive" economy, but your use of "non-essential" fits much better - that's what's generically called the FIRE (Financial, Insurance, Real Estate) economy.<br /><br />I don't know whether I had formulated this KISS version of MMT the last time we talked back in December, but I'll post it here again anyway:<br /><br /><b>GDP is the sum of household, business and government spending (and likewise the income of those sectors equals that spending, because ALL spending is someone else's income). Our economy depends on household spending (2/3 of GDP). That spending is limited by household income (which comes only from those three sectors). Business provides that income to the extent demand (business opportunity) exists, and government provides the rest (by way of bookkeeping entries to household bank accounts). All that's important to the economy is maintaining this flow, and with a fiat currency (whose value, by definition, depends ONLY on currency-users perception), there are no limits other than that perception.</b><br /><br />This is the production-and-consumption economy that I'm now calling the "essential" economy. The fact that the income side of GDP includes the net income of all domestic employees/employers but does NOT include personal or corporate income taxes or personal property taxes (nor the government's borrowings) show that those taxes/borrowings don't "fund" the production-and-consumption spending (& never did) which is what MMT has been saying. But it also shows that there's another economy that I've been calling "non-productive" that "non-essential" may well be the better descriptor.<br /><br />I'd like to discuss this with you further if you're up to it.edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-193015212348476512020-05-03T20:05:21.620-07:002020-05-03T20:05:21.620-07:00"Whoa! Are we saying that at least part of go..."Whoa! Are we saying that at least part of government relief will go to savings"<br /><br />Actually, all the government relief will go to savings. It can't be otherwise. The accounting identities make that clear. Excluding the external sector for simplicity, here is the identity:<br /><br />(G - T) = (S - I)<br /><br />Every dollar of deficit spending, i.e., G > T, ends up as a dollar of net financial assets, i.e., S > I.<br /><br />e.g., Say the government gives someone $100. Since saving is the excess of income over consumption, that $100 is all saving, some intended, some unintended. $100 = $100. Now say that person spends $90 into the economy. There is now $10 of intended saving, and $90 in the community. $100 = $10 + $90. And so on. Each round of spending means that the initial $100 of saving is being distributed among the community. At every single point of time, there will always be exactly $100 of saving in the community. This is true even if money received is used for paying down loans, because that counts as an increase in that person's savings.<br /><br />If some of that spending is on imports, than a portion of that saving ends up in the foreign sector. Ahmed Fareshttps://www.blogger.com/profile/07105255828394485657noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-9276231163658571522019-12-19T14:26:07.458-08:002019-12-19T14:26:07.458-08:00Roger: If you're saying that the SFC format ma...Roger: If you're saying that the SFC format makes certain relationships clearer (ie, easier to see & understand), we have no disagreement there. Depending on what you're looking for you might consider other formatting options, eg google "Flow of Funds Accounts" & look at the Investopedia & Wikipedia pages. The Wikipedia page describes (& links to) the Fed's attempt to do what it appears you're trying to do, ie, depict the whole economy, including the financial sector. I explained earlier why I don't think that possible (due to impossibility of measuring so much of what we call "wealth"), but you're in good company with the Fed, so I'm distinctly the outlier.edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-53091923462419961392019-12-19T11:02:18.274-08:002019-12-19T11:02:18.274-08:00Yes, I think I am seeing something different; but ...Yes, I think I am seeing something different; but I am struggling to clearly explain what it is.<br /><br />First--nice job on briefly explaining balance sheets and what you are seeing in them.<br /><br />OK, let me try this. SFC formatting presents parallel balance sheets for (in my examples) Households and Firms. The interplay between the two balance sheets is shown. If every conceivable interplay is quantified, the two balance sheets should tally to zero (which reflects that one balance sheet is the reverse image of the other). <br /><br />So I see the SFC format as emphasizing the interplay between sectors, while a balance sheet details the flows of a selected sector. (The NIPA numbers (as you say) measure the productive sector.) The SFC format will include the financial sector as it is required to bring the sectors into balance.<br /><br />Now that I pointed out the differences (using my judgement), would you agree that this a a valid difference between the two formats?<br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-47478934681163426502019-12-16T12:06:52.121-08:002019-12-16T12:06:52.121-08:00Roger: All financial statements are of the followi...Roger: All financial statements are of the following form:<br />BALANCE (total of all below, which equals zero)<br /> Assets (currency measure of what's owned)<br /> Liabilities (currency measure of what's owed)<br /> Equity (assets minus liabilities, ie, stock)<br /> Net (revenues minus expenses, ie, flow)<br /> Revenues (currency received during current period)<br /> Expenses (currency spent during current period)<br /><br />Each particular entity divides its Asset, Liability, Revenue, & Expense accounts into subsidiary accounts reflective of what's important to management of the particular entity. (Management has certain amount & ratio expectations for the Revenue & Expense accounts (by design or experience) & when they deviate from those expectations, they drill down into the subsidiary accounts to find the source of the deviation & assess their options for correcting it.)<br /><br />The national economy is such an entity. Its Revenue & Expense accounts are shown in Account 1 on page 9 of the NIPA Primer at https://www.bea.gov/sites/default/files/methodologies/nipa_primer.pdf (It's shown in T-account format, Revenues on the left, Expenses on the right. Subsidiary accounts are shown as separate tables (Accounts 2-7), but that's just formatting (because they believe it makes their meaning clearer) but they could as well be displayed inline (as above) or (from what I can see) in SFC format.<br /><br />Note that the NIPA is an agreed measure of the PRODUCTIVE economy (used by most nations) & its Net (ie, Revenues minus expenses) equals zero (showing that the economy has no Net profit (& therefore, builds no Assets or Liabilities) from its productive economy. Now there's a whole non-productive economy (banks, stock brokers, money advisors, insurance industry, federal income taxes, etc,) that IMO can't be measured (despite the Fed's FOFA program trying to do that) & I see as irrelevant ie, abolishing any or all would not negatively impact society.<br /><br />So I see SFC as simply a reformatted display of the same variables. It may show some relationships more clearly for some purposes, but I see no difference in information content. I'm still wondering if you're seeing something I'm not.edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-89994120658283710832019-12-16T04:32:21.712-08:002019-12-16T04:32:21.712-08:00Ed: Thanks for taking a look.
"Question 1: W...Ed: Thanks for taking a look.<br /><br />"Question 1: What is the 'a<>b' style of notation? What is it saying in English?"<br /><br />Here I am thinking of money as being a product owned by the holder. A line would record money being exchanged for a product(s) and the notation is something I thought would help the matrix builder (and viewer) use to keep track of things.<br /><br />"Question 2: What is it you're seeing in an SFC model that isn't already in a conventional Earnings Statement/Balance Sheet model?"<br /><br />Look at the titles of the two columns. They both use labor (a renewable resource) in a different way. They also 'consume' resources in different ways. Firms could be considered as 'converting' (not 'consuming') resources. Money is used as the medium of measurement and exchange. Strangely, labor is both consumed and renewably supplied. <br /><br />That whole collage of economic descriptors has been merged into a single internally- balanced matrix. While earnings statements and balance sheets do similar things, they are (I think) less focused on the extensive interactions that exist within a functioning economy.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-76452930898023506592019-12-16T04:19:48.052-08:002019-12-16T04:19:48.052-08:00This comment has been removed by the author.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-67149901010399465742019-12-15T13:18:20.856-08:002019-12-15T13:18:20.856-08:00Roger: Question 1: What is the 'a<>b'...Roger: Question 1: What is the 'a<>b' style of notation? What is it saying in English?<br /><br />Question 2: What is it you're seeing in an SFC model that isn't already in a conventional Earnings Statement/Balance Sheet model? To me they seem like the same thing, just different format. I'm trying to understand what differences you're seeing.edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-46604774843056194222019-12-07T13:31:30.055-08:002019-12-07T13:31:30.055-08:00Sounds good. I'[ll be looking forward to it if...Sounds good. I'[ll be looking forward to it if you go ahead.<br />edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-74514596833971248082019-12-07T13:04:04.801-08:002019-12-07T13:04:04.801-08:00Ed: A great answer--thanks.
You have probably rea...Ed: A great answer--thanks.<br /><br />You have probably read more econ theory than I. For me, the books are on the shelves--great for studying a passage or theory--but who can we believe? My recourse is to figure things out--mechanically--from what I see and can gather from resources available.<br /><br />My goal is better econ theory. What I have so far is mostly MMT without recommendations. The not-MMT part is mostly due to my insistence on a "chain of accountability" which requires durability.<br /><br />I am just starting a small project on SFC modeling. May even create a beginners post (with emphasis on "beginner) based on a mechanical perspective. Don't hold your breath.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.com