Posted by: graemebird | May 3, 2006

A Proper Market For Supply And Demand Of Loanable Funds

This post brought over from “Gold Is Money”

Its useful, when sorting out things in Economics or banking to take the default model. My default model is 100% backed fiat where nominal Gross Domestic Revenue is fixed and prices fall all the time to reflect the growth in real GDR.

SUPPLY AND DEMAND OF LOANABLE FUNDS.

Under this system if you take your money to the bank and deposit it ON-CALL then you will have to pay a warehousing fee on it. So that therefore a country that practices this has people keeping a lot of cash at home.

You cannot have a serious supply and demand for loanable funds without something akin to this system. And you cannot have a rationally functioning interest rate or PRICE for interest rates without 100%-backed-money.

So we all hold most of the on-call money at home but some in the bank under this system. These are pretty equivalent and taking all your money out of the bank creates no monetary crunch under this system.

But supposing there is a sudden massive demand for investment funds under this situation? A sudden explosion of really good investment opportunities?

Well what we can say is that it won’t be because of some sort of bubble. What happens is because the banks don’t have everyone’s low-interest on-call money to turn to they somehow have to convince people to lend them all this money that people have at home. They have to advertise term loans and the various banks will get into a bidding war to try and get people to get this money out of their home safe and loan it to them for awhile.

In this way the interest rate will be a real and viable price signal. And a pick-up in investment will cause an almost immediate reduction in consumption since we tend to consume less when our cash balances are lower.

Here we see that regardless of what we wish to do with Gold we ought to be as well going for 100% backing while we still have this fiat. Because by moving towards 100% backing we are improving our investment markets. Also 100% backing puts fiat and commodity money on a more equal footing and leaves only the legal tender laws as a barrier to commodity money out-competing the government paper.

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Responses

  1. What I mean is whether its fiat or metallic is this. That a bank cannot make an on-call committment to supply cash that isn’t backed 100% with cash that stays on its premises. An absence of fractional reserve banking. A reserve asset ratio of 100%. These all amount to the same thing.

    The first step is to get to 100% backed fiat. Then throw the provision of currencies open to competition.

  2. “All you’re doing is raising the cost of liquidity via regulation. YES, you are reducing liquidity, because cash is taken out of circulation and placed under mattresses, and at-call deposits are now useless as a source of funding for lenders, so the deposit multiplier falls.”

    No no you have it wrong because you are an idiot. There is cash-building deflation. That is part of the process of getting to growth deflation. But it is not growth deflation.

    And having huge amounts of liquidity is the same is having huge amounts of cash hoarded everywhere. which is the same as having huge amounts of liquidity. Which is the same as having huge amounts of cash hoarded which is liquidity you moron.

    Now however in the cash-building phase what happens is that people are desperate for cash, since there has been a shortage of it. And it becomes the preffered thing to hold over real estate and shares and so forth. When that happens of course it is the wealthier who will be able to get it. The velocity will drop and the tight money conditions will feed on themselves.

    But that is not growth deflation. Growth deflation is the resolution of all that. And people have high cash balances and high cash balances is called hoarding if its outside the banking system. And this is the same as having a great deal of liquidity. And if you cannot get THAT right you are mentally defficient.

    Now before you make a complete cunt of yourself even further just ask yourself this:

    1. Are you talking about cash-building deflation or

    2. Growth deflation after the cash-building is complete…….

    Now we must go through your screed since it reveals you are such an idiot that you have everything entirely wrong. And remember we are NOT talking about cash-building deflation. We are talking about Growth deflation once the cash-building is done.

    Since you are such a dumb cunt I’ll have to repeat this:

    Remember. We are NOT talking about cash-building deflation. We are talking about Growth deflation once the cash-building is done.

    Got that yet. No I don’t think so. You are really a very stupid cunt.

    Remember We Are NOT Talking About Cash-Building Deflation. We Are Talking About Growth Deflation Once The Cash-Building Is Done.

    Have you got that yet? Well you can nod your head with an open mouth and dead eyes like you are some migrant just off the boat but in fact I don’t think you’ve got that yet.

    REMEMBER WE ARE NOT TALKING ABOUT CASH-BUILDING DEFLATION. WE ARE TALKING ABOUT GROWTH DEFLATION ONCE THE CASH-BUILDING IS DONE.

    One more time since you are so fucking stupid.

    REMEMBER WE ARE NOT TALKING ABOUT CASH-BUILDING DEFLATION. WE ARE TALKING ABOUT GROWTH DEFLATION ONCE THE CASH-BUILDING IS DONE.

    Did I say one more time. I fucking lied:

    REMEMBER WE ARE NOT TALKING ABOUT CASH-BUILDING DEFLATION. WE ARE TALKING ABOUT GROWTH DEFLATION ONCE THE CASH-BUILDING IS DONE!!!!!!!!!!!!!

    Right now lets move on. Since we will go through your stuff and find that EVERYTHING you say here is in error. And I fucking warned you. I said it was paradoxical so you were supposed to look out for a paradox. There are two other worlds with a liquidity trap vortex in between. And Australia City is on the other side of that Vortex whereas we ourselves are in Poo-Town.

    “The result is higher cost of banking….”

    The result is less dependence on the banks. In the seventies before cash cards and so forth in South America it was said that if you got a flat tire on the way to the bank you go broke. The immense amount of resources that the financial sector takes up. That would fall away to a very great degree.

    Milton Friedman’s “Optimal Supply Of Money” was a theory where he discovered that if prices were falling at 4 or 5% per year we’d spend less resources on the financial sector.

    But with GROWTH DEFLATION and 100% backing we spend far less AGAIN. Far less even beyond Milton Friedmans theory. Since the banks charge us for warehousing the money so we bring most of the money home. Put it in the mattress, down the back of the couch , in the safe and we have awesome liquidity and barely need the banks at all.

    “……. and a fall in the volume of loanable funds…..”

    This is MACROMANCY. Since the amount of investment SPEAKING IN TERMS OF REAL RESOURCES THAT IS is dependent on what proportion of resources is saved and what is spent. Or to put it another way what is spent on current consumption and what is spent on planned future consumption.

    It ought to be noted that if the government is providing cash at just that level which will keep constant nominal GDP.When the government is doing this the link between PUTTING OFF SPENDING and NEW INVESTMENT becomes a ONE TO ONE AND IMMEDIATE LINK.

    “……. and a fall in the volume of loanable funds…..”

    This is Macromancy, monetary occultism and monetary crankery worthy of the Great Cranks like Keynes or Gesel since you are looking at short-term money amounts as opposed to real resources. But when you try this occultism on all that happens is you create Poo-Town. A place where investment assets are priced out of the range of normal people. Where the ground under our feet becomes so expensive we feel like we are floating and in alien land. And where there is no chance of rocking into town on the bus and being in your own business within the year.

    “Thus the cost of debt finance increases materially….”

    Yeah actually I’ll agree with that. There is a higher real interest rate. But there are more resources devoted to investment. A paradox but not if you look at it from the reverse perspective. Under monetary occultism the real interest rates are lower yet less real resources are devoted towards investment. And what the hell would you expect from counterfeiting and monetary occultism.

    “Higher cost of capital means reduced investment…”

    MACROMANCY. The statement would be true if it was isolated from your Geselian MACROMANCY. But the counterfeiting you propose and support does not bring new resources into existence. You look at the short-term numbers and say to yourself I AM A MAGICIAN. I CAN CREATE CASH WITH THE PRINTING PRESS AND FLUSH IT THROUGH THE INVESTMENT SECTOR.

    Bravo. 2 Billions (lets say) more is created in this years tally of total investment. You are now well on your way to creating the low-yield world of Poo-Town.

    A world that favours the already rich since they will be given the cheap loans, they will be the only ones who can now afford the overblown investment assets, they will be the only ones who can hold and trade these assets being as a poor person would need the yield to survive on.

    “….reduced economic growth, reduced wealth etc.”

    Wrong.

    “And for what? What advantages are you claiming for this system?”

    No greater benefit could be conferred on the human race then to convince the humans to save more and for the resource so made available to be channelled in a more rational way. Its the end to world poverty if we do it right.

    “It doesn’t improve the supply of loanable funds; quite the reverse.”

    It increases the resources devoted to improving productive output. It increases the amount of these resources and improves how they will be allocated.

    ” It doesn’t make interest rates any more rational.”

    It sure does. In spades.

    ” It doesn’t really protect you from bank runs..”

    Right. Now you are just being a fucking idiot.

    Under a regime of 100% backing there would NEVER be any bank runs.

    There would never be any bank runs but just supposing there was. Just for one instance imagine that there was a bank run due to some sort of weird mass hysteria under this regime.

    Were there a bank run demand would be unaffected or increased just a tad since the money would be closer to hand and so therefore more readily spent. In other words the velocity of money would pick up just a tad. But then no bank runs would ever happen in the first place. There are national security implications here.

    “… as bank creditors will still bear credit risk, but without the mitigation of central bank liquidity.”

    As we have discussed. There is such an abundance of liquidity that no MITIGATION of statist bank cartelisation is necessary. Now to be fair under fractional reserve the case for such cartelisation had some plausiblility to it.

    Because you are such a dumb cunt we will now pause for a reminder:

    REMEMBER WE ARE NOT TALKING ABOUT CASH-BUILDING DEFLATION. WE ARE TALKING ABOUT GROWTH DEFLATION ONCE THE CASH-BUILDING IS DONE!!!!!!!!!!!!!

    ” It doesn’t prevent investment bubbles.”

    You fucking idiot. Of course it will prevent investment bubbles.

    “It doesn’t mean a reduction in consumption when investment increases (savers merely shuffle assets from cash to investments – there’s no necessary consumption effect).”

    No that’s wrong. Since in this situation velocity will be low and stable. So that the relationship between Money supply and total demand will be a pretty good and stable one. And furthermore I’m assuming that the government is keeping nominal GDP rock solid. So they are compensating for any new variability you might expect from us having all this extra liquidity.

    ” And it certainly doesn’t improve our financial markets.”

    It will improve our financial markets beyond all recognition. And reduce there costs. Sorry Joe but you would have to find a new line of business. Since a single dollar would be like having a share in a hedge fund.

    “There’s no basis for arguing that whatsoever.”

    Well that surprises me. Since my forearms are getting tired from arguing it.

    You know you are doing me a favour fella. Since your learning curves are so flat that anyone reading this will now be able to get a real understanding of what is going on in this apparently esoteric subject.

  3. Hi,
    I found your blog via google by accident and have to admit that youve a really interesting blog 🙂
    Just saved your feed in my reader, have a nice day 🙂

  4. I’m glad this discussion floated to the top of your comment queue even if it was spam that got it there. It reveals an aspect of your argument that I have not seen you articulate before. Specifically this point:-

    That a bank cannot make an on-call committment to supply cash that isn’t backed 100% with cash that stays on its premises.

    In other words you would allow fractional reserve banking so long as all deposits were time deposits rather than on demand. That is an incredibly important qualification. It is not a ban on fractional reserve banking you advocate so much as regulation of the rules of operation. You would have far more success in convincing people with this line of argument than your blanket remarks about wanting to ban fractional reserve banking. You do yourself a major discredit by not speaking plainly about this qualification when you talk about your concerns over fractional reserve banking.

    However I would still say that I agree with the following counter point by Fyodor:-

    All you’re doing is raising the cost of liquidity via regulation.

    And in any case my own bank already elects to heavily qualifies the “on demand” aspect of deposit accounts to cover itself to a large extent against any run. There are daily withdrawal limits (ie not 100% of the larger accounts is on demand) and they have other qualifications on withdrawals as well.

    You seem to assume that banks have less interest in protecting their reputaion than the regulators would. For somebody that claims a libertarian inclination I find this position quite odd.

    A few facts about Australia since federation:-

    1. Australia has never banned fractional reserve banking.
    2. Banks in Australia are responsible for managing their own reserve requirements (unlike the USA where it is regulated).
    3. Taxpayers do not quarantee the money in deposit accounts in Australia (unlike the USA)
    4. There has not been a bank failure in Australia that saw deposit holders lose money since 1931.
    5. Australian taxpayers have never bailed out bank deposit holders so deposit holders have always worn the risk of dealing with banks that don’t operate a 100% reserve for on demand accounts.
    6. Very few deposit holders are under the delusion that there money is kept in a vault for them. Most know that it is leant out to other people.

    The only real aspect to which there is some socialisation of risk is that banks can borrow cash short term directly from the reserve bank to cover a cashflow crisis. However none of them ever do because it would suggest to the markets that they had a crisis on their hands and also because the RBA charges an interest rate that is always above the market rate in the overnight cash markets.

  5. Out of interest I visited the local branch of the St.George bank and picked up the publication called “Banking Services – Terms and Conditions and General Information” dated 29 January 2007. This document outlines the basic contract terms for a demand deposit account with St.George. On page 22 of the document under the heading “Withdrawals” we have the following clause:-

    19.2 Sometimes, a branch may not have enough cash to pay a large cash withdrawal. Please give the branch at least 2 Business Days’ notice if you wish to make a large cash withdrawal from the branch.

    No definition of “large” is given but the contract is essentially stating that there is no promise to pay on demand. The clause then continues as follows.

    In the event of a large cash withdrawal exceeding $100,000, we shall have the discretion to pay you by bank notes in large denominations or by Bank Cheque.

    In Australia the “Bank Notes act of 1910” imposes a punitive tax on the issue of “bank notes” and they are effectively prohibited. It may be that the phrase here is actually intended to refer to Australian legal tender currency (ie the stuff the RBA issues). Either way it is clear that the bank has operating terms that work to ensure that it is extremely unlikely to default in it’s obligations to the deposit holder.

    If banks were forced to synchronise their long and short term obligations and financial assets an arbitrage opportunity would open up for third parties to borrow short term from banks and lend long term. Whilst this might in turn be criminalised it would be exceedingly difficult to police (especially given foreign operators). Banks would in essence be outsourcing the management of liquidy synchronisation risks to a black market and would then import some of the risk back in again through higher default rates.

    In short regulating fractional reserve banking in the manner implied by Graeme is unnecessary, a pointless waste of effort and of no net practical benefit. It is also the antithesis of freedom of choice.

    Regards,
    Terje.

  6. Right.

    You either follow one path or another. And the whole society ends up mitigating that which at first started off as fraud and embezzlement.

    We always choose the wrong path and so deny ourselves a free enterprise money and a free enterprise financial system that would leave the others for dead.

  7. You cannot seriously tell me that fractional reserve would work on an even keel in the compurer age if the government stepped out of it?

    Consult with Humphreys.

    He’ll tell you thats implausible.

  8. I have spoken to John on this topic and he has no inclination at all towards a ban on fractional reserve banking or towards enforced time synchronisation of banks liabilities and financial assets. So I think you need to defend your own position on your own.

    I note that you have completely ignored the substance of my comments above and have now reverted back to your voodoo mantra about fraud. If your claims ever had any substance you have failed to articulate any of it.

  9. as I recall you did some other long comment on catallaxy on monetary policy which I thought was pretty well written and is also worth reproducing on your blog

    Jason,

    I have yet to see any evidence that Graeme has anything of merit to say on monetary policy.

    Regards,
    Terje.

  10. “I have spoken to John on this topic and he has no inclination at all towards a ban on fractional reserve banking or towards enforced time synchronisation of banks liabilities and financial assets.”

    Thats not what I asked you.

    Lets go again.

    “You cannot seriously tell me that fractional reserve would work on an even keel in the compurer age if the government stepped out of it?”

    Consult Humphreys again.

    And this time try and get him to focus.

    And you focus too.

  11. What does “work on an even keel” actually mean?

  12. With 100% backing the metal is the money.

    So the growth of money becomes equal to the increase of that metal not used in jewellery or for industrial processes.

    To be more precise the growth of money becomes equal to the growth of the supply of the metal for monetary purposes. But while that IS more precise is tells us less.

    Metals are mined and the result can be refined and warehoused but that which leaves the warehouse will be used for these three things.

    A monetary metal is usually a metal that has been mined for millenium.

    So ask yourself? If this metal has been mined for three thousand years or more is the expansion of it in any GIVEN year going to be a large or small proportion of the total of these metals that have already has been mined?

    Well it will tend to be a SMALL proportion.

    Lately for Gold its been somewhat high. Its been maybe as much as 7 per cent.

    But thats something of a special case to do with the targeting of consumer goods inflation leading to excessive expansion in fiat money since the mid-90’s.

    Usually it will be more in the range 1-5%

    Now it ought to be seen that these monetary metals have a natural stabiliser to them.

    Since a monetary metal is in itself a commodity it has a supply and demand curve.

    The supply of the monetary metal increases when the price increases (under 100% backing)……But what is the price of a monetary metal? What does this mean?

    Well the fact is that it is the INVERSE of the prices of all other goods and services. Not just consumer goods and services but all other goods and services.

    So when the prices of non-monetary things increases the ‘price of money’ decreases so that the supply will decrease.

    And when the price of other things drop…. then this represents an increase in price for the monetary metal and so the supply will be higher.

    What about the demand side?

    Well the demand-for-money-for-holding is a paradoxical thing and understanding all aspects of it is the key to understanding monetary policy.

    Its at that point where all Keynesian bullshit must be forgotten and a good faith attempt to learn about the demand-for-money-for-holding and therefore monetary policy itself must be attempted.

    But we won’t get into the demand curve for money (for holding) here.

    What I will note instead is the natural stabilisers inherent in the two alternative uses of monetary metals.

    Jewellery will be a natural stabiliser to some degree that I cannot really get a mental handle on. But industrial uses is clearly a sensational natural stabiliser.

    Since monetary metals will always be absolutely essential to industy.

    You see that the industrial metals are the LEAST REACTIVE METALS.

    You must use a monetary metal for salt-testing just for one example. Since if you use any other metals they will corrode with the salt and oxygen.

    You need them for Ph testing and for semi-conductors and so forth.

    They are absolutely critical. And their monetary character would keep them at the upper level of what would have otherwise been their normal range of price. So their elasticity of demand would be very high. That is to say if there is a drop in their price (an increase in the prices of other goods and services) there will be this immediate extra industrial demand.

    So under 100% backing what we see is that the supply of money will tend to be very sound and about how you’d want it.

    If the actual supply mined (when these metals are monetised) are between .5 and 8% of all of that metal that has ever been mined in human history then we find that when the natural stabilisers are thrown in then the money supply will likely increase at (lets say) between 1 and 4% and with other factors involved we would see NOMINAL GROSS DOMESTIC SPENDING increasing at perhaps between 1.5 and 3.5% (collectively in the countries that were using monetary metals for monetary purposes)

    This is about as good as it gets.

    But once you stray from 100% backing you set up an oscillating factor.

    And this is unacceptable.

    Because (as our greatest living economist Georgy Reisman emphasises) ONCE GOLD IS IN EXISTENCE IT STAYS IN EXISTENCE….

    Elsewhere Reisman shows that if the total volume of spending drops this will cause problems. We don’t want any recessions (can we vote on that?) and if you have economic freedom and the total growth in spending grows only slowly then you will never have a recession.

    I can go into this further.

    But it will take too long.

    But all of this is thrown out of the window with fractrional reserve.

    It sets up a random oscillation with the SUPPLY OF MONEY which is magnified by how this oscillation affects the DEMAND FOR MONEY FOR HOLDING.

    So instead of a slowly rising PLACID-LAKE you have yourself a RAGING-SURF-BEACH.

    But you see our Greatest Living Economist (Reisman) has shown that each ANTI-WAVE causes unnecessary business stress and disruption (my interpretation of what he’s saying only).

    We want the total volume of spending to increase at all time and never fall. But we want it to increase AS GLACIALLY AS IS POSSIBLE.

    And monetary metals under 100% backing (after interim difficulties and if the transition is handled with skill) will deliver such a scenario with flying colours as I think I have demonstrated.

    But fractional reserve is always hurting us. If everything appears alright in the big city yet still a country town will experience a DOWN OSCILLATION of spending for reasons unnconnected with the the benevolent hidden hands true wishes.

    If I had the consolation of faith I would say that: (The effect of) Fractional Reserve Is Against Gods Order.

    And that fractional reserve confuses everyone including the HIDDEN HAND that Adam Smith thought he saw.

    Fractional Reserve doesn’t only confust us.

    IT CONFUSES THE HIDDEN HAND ITSELF.

  13. Graeme,

    I am all on board with restoring the role of commodities (eg gold) as the money that we use. However you confuse the role of money proper with the creation of credit.

    Money proper differs from credit in so far as it can function as a “unit of account”. When the bank creates credit it depends on a unit of account but does not create more of the market substance that acts as a unit of account. So whilst you deposit account might say IOU $100 or IOU 1 gram of gold it creates neither dollars nor gold. What it does create is a market substitute for dollars or gold that will dampen the demand side of the equation that determines the inflation dynamics of our currency. So yes it is inflationary in the first instance but you can’t stop the analysis at that point.

    Commodity currencies are insulated against inflation even when commodity denominated substitutes (eg demand accounts and promisory notes) emerge because the supply side of the equation for monetary commodities contains the process.

    If gold is our unit of account and for some reason we get inflation in our economy then by definition we will see a rise in the nominal price of labour and machinery. If you are a coal miner you will pass on this nominal costs by raising the nominal cost of coal. However if you are a gold producer you are by simple definition unable to raise the nominal price of your product. A gram of gold can not be sold for 1.05 grams. As such you will have to absorb the increased price of labour and machinery through a decrease in your profit margin. This profit squeeze will do two things. It will remove the incentive to become a gold miner or to expand gold mining operations. And it will also cause the most marginal gold minors to go broke. The entire gold mining industry will in essence contract.

    As the output of gold contracts we will see an effect on bank reserves and the credit multiplier. In a relatively open economy we will also see gold move abroad and foreign goods enter the country. All of these will dampen inflation.

    In practice these automatic stabalisers act constantly at the margin to trim the sails and keep inflation near zero. Regulating the creation of money substitutes (such as credit) is unnecessary and counter productive in other ways, not to mention being anti-freedom.

    We don’t need to speculate about how this works either. We have historical precident. Britain allowed fractional reserve banking throughout the 1800s whilst using gold as the unit of account. The price level ebbed and flowed gently with inflation peaking around 3% when easy gold was found in California and Australia. However across that century the net effect was a slight deflation with the price level in 1900 being about half what it was a hundred years prior.

    The idea that the market needs a regulator that will ban certain money substitutes is not supported by the facts. The logic has some basis but only because it fails to follow through in it’s analysis and because it fails to correctly observe history.

    The thinking that you peddle also promotes the notion that private banks create inflation. This offers a terrible propaganda win for governments. One that was actually used by governments to assume responsibility for the creation of our currencies, to displace gold, to errect fiat systems and to usury in one of the worst eras of inflation in world history.

    The market place does not need your type of assistance. What it needs is less government and not more.

    Regards,
    Terje.

  14. Brain fart. I ment “usher” not “usury” in the third last sentence.

  15. No I’m not confusing money and credit.

    You are. As did Mark before you and Andrew Reynelds.

    Go sort it out and get back to me.

  16. “I’m right, you’re wrong” seems to be the extent of your response. A disappointing effort Graeme.

  17. Well what the fuck else can I do?

    People are just nuts when it comes to the subject. And I don’t understand why. Its pretty clear already that you are a monetary crank.

    If you are simply going to be unashamedly ignorant like Reynolds and Mark were I’ve got no patience to go through this agian.

    Now go and find the fuck out what money supply is. It is not cash and you are wrong if you think that.

    So go find out and then come back and retract.

    I AM right. And YOU ARE wrong.

    This is not controversial.

    Neither Mark nor Reynolds has confessed as to who their oddball guru in these matters was either.

    MONEY SUPPLY IS NOT SUPPLY OF CASH.

    Now have you got that yet?

    Or like Mark and Reynolds are you simply going to bullshit about this?

    I want to know. Because we had a thread-of-doom on this subject and none of them would admit their wrongness on this matter.

  18. Money supply is not generally regarded as being the supply of cash. However the term “broad money supply” as generally used is based on a loose definition of money that includes credit. Money has three essential characteristics and credit only satisfies two of them. M0 is the only part of the money supply that is specifically “money proper” with all three characteristics. However even M0 is ambiguous in some contexts. If your point is that this topic is complicated by poor syntax then I agree entirely and I’d be happy to reinvent this part of the English language for the purposes of clarity if that was possible. It is these issues of syntax that ensure that the topic can only be dealt with by careful explaination.

    If we are at an “I’m right, you’re wrong” impass then so be it. It is disappointing but not that uncommon.

  19. Right.

    But have we got it sorted that money is not just cash?

    And that the money supply cannot be defined as CASH ONLY.

    Have we got that sorted because if we have we will be doing a great deal better then Fyodor, ABL and Reynolds did.

    Reynolds would just dissapear rather then get it straight that the money supply meant more then just the printed cash notes and coins in existence.

    This is not something in dispute in economics. Its just a matter of looking it up.

    Reynolds et al never did confess who their guru was who was making them confident in their relentless stupidity either.

    I still don’t know who the guru is.

  20. Do you now admit or do you not that I was NOT confusing money with credit?

  21. This is obviously some sort of weird ideology I’m coming up against here.

    Because it was you and ABL and Reynolds and even Soon seemed to have this highly bizzare line of reasoning where money was concerned.

    Is this some sort of ISM? that dare not speak its name?

  22. maybe, just maybe, everyone else is right and you’re wrong.

  23. So after all this time you stupid fucking idiot…..

    You are claiming that the money supply is cash and coins only?????

    YOu see what i”m saying and what a bunch of evasive cocks you are being?

    WHY DON’T ALL YOU IDIOTS JUST PICK UP A BEGINNING TEXT-BOOK?

    “maybe, just maybe, everyone else is right and you’re wrong.”

    No no. Its 100% clear that you and Reynolds and Mark all acted like stupid dishonest fuckheads.

    So I was going to come down on Terje before this idiocy got going.

    Now I can PROVE that its you guys being idiots.

    1. MONEY SUPPLY IS NOT SUPPLY OF CASH?

    Do you agree or not.

    So no it was YOU Jason Soon being an idiot.

    You didn’t answer that question and define money through-out the entire thread-of doom.

    YOu made a complete fuckhead of yourself.

    So answer the question now.

  24. 1. MONEY SUPPLY IS NOT SUPPLY OF CASH?

    Do you agree or not.

  25. Its just incredible what a stupid bunch of idiotic ideological cockheads you guys have been.

    And its not as if you are Mark of Reynolds have admitted your obvious stupidity, evasiveness or illogicality.

    For fucksakes you haven’t even revealed your guru?

    You didn’t make this stupidity up yourself.

  26. 1. MONEY SUPPLY IS NOT SUPPLY OF CASH?

    Graeme,

    I agree. The term “Money supply” as generally used does not mean just cash. Typically it also includes deposit accounts and many forms of credit. In the extreme it includes the IOU I wrote my brother last week. Even though any strict definiton of Money must exclude credit because credit only has two of the three characteristics of money. So yes I agree that the english language contains irrational ambiguities and conceptual stuff ups.

    However I try to be more specific when I explain myself on this topic. I general refer to things such as “M0”, “currency” and “credit” specifically because I like to avoid terminology that is littered with basic contradictions and I like the precision of using terms that are not weighed down with contradictions.

    In some ways it is like the way that “weight” and “mass” get used interchangably in physics discussions. Even though we can take a more strict view of things in which we acknowledge that mass and weight are in fact different things. If you want precision in your concepts then you need to let go of terminology that lacks precision or festers with ambiguous contradictions. “Money supply” is such a phrase and it is best avoided or at the very least it should be heavily qualified.

    Now two question for you:-

    Q1. Do you accept that within what we call the “Money supply” there are entities with different qualities?

    Q2. Do you accept that that part that we might call credit lacks one of the three essential characteristics of money proper?

    Regards,
    Terje.

  27. maybe, just maybe, everyone else is right and you’re wrong.

    Jason,

    All of us should accept the hypothetical proposition that we are going to be wrong on some things. However I thing Graeme would not do anybody any favours (least of all himself) by submitting to such a proposition in any specific instance if he can’t actually see where he is wrong. So even though I believe he is wrong I respect him for refusing to embrase an argument that he does not understand. Graeme should be open to new revelations but should not fake a revelation just to keep the majority happy.

    Regards,
    Terje.

  28. See look at the two of you. Running and scrambling from the actual issue.

    I have not been able to corner or shame you guys into admitting that I DIDN’T MIX UP CREDIT AND MONEY and that MONEY SUPPLY IS NOT JUST CASH AND COINS.

    So it appears that you are both monetary cranks.

    Its a funny thing monetary crankery. Because it doesn’t appear to hurt the cranks thinking skills too much in other areas.

    Like ABL is good and incisive in most things.

    I think religion is all horseshit myself. But this phenomenon of being able to section off the craziness to one area.

    That sort of reminds me of Christian males over 40 who appear to me to be the most evenhanded rational people around so long as you are not actually talking about religion.

  29. “All of us should accept the hypothetical proposition that we are going to be wrong on some things.”

    But thats where you two are getting it wrong and I’m getting it right.

    Note my fast backdown to Humphreys on the topic of MONOPSONY.

    He was right and I was wrong and I made it clear on the first available opportunity.

    This is my whole secret. Back down quickly before you get too much skin invested in it.

    I do it so quickly and so often that no-one seems to notice and I figure I’m one of the few people in Ozblogistan that I’ve seen that does.

  30. Graeme, I am totally neutral in this matter and treat money as any other commodity, only that whatever becomes money is, as Mises said, the most sought after commodity.

    You are insinuating business cycles can start from people voluntarily and honestly exchanging goods. What school of economics actually advocates this as truth? What political ideologies?

    Go and look at the “Principles Of Creative Public Policy Development.” What do you think of a wholesale ending of welfare?

  31. “You are insinuating business cycles can start from people voluntarily and honestly exchanging goods. ”

    Business cycles start with fractional reserve. But it doesn’t START honestly. It starts dishonestly but thats how it starts and there is just no fucking doubt about it.

    Whats more it is obvious and will be obvious to all of you the minute you stop playing silly buggers and just treat it as a technical matter.

  32. It starts as dishonesty, fraud and embezzlement. It ends as socialism… ie theft and compulsion.

    But either way this is the cause of the business cycle.

    Don’t be an ideological twit about this Mark.

    Its an easy to understand technical matter.

    Its embarrassing to have people working backwards from the ideology to technical matters.

  33. This always seems to go back to:

    1. You have a strange definition of fraud no one else accepts.

    2. Your insistence that M3 can be continually created without deposits being made from productive activity, which no one else accepts.

  34. No.

    Thats just you lying ion both cases.

    Now we’ve gone over this so many fucking times and you are still being an idiot.

    Why?

  35. Define fraud Graeme.

    Tell us how M3 can be made over a long period.

  36. No no Mark

    You have to just stop……….. fucking…….lying you ca ca ca ca.

    I don’t think thats too much to ask.

    This is not about me using strange definitions.

    This is about you being a lying moronic c…… and you should stop it.

    Now you define fraud. And define lying while you are at it.

  37. Just stop fucking lying Mark.

    You made an accusation and that accusation was a fucking lie.

    And you are being an idiot.

    And you had absolutely no basis for this lie.

    What a fucking fuckhead.

    Now tell me your guru.

    And tell me whether or not you regard CASH ALONE as the money supply.

    You’re a fuckhead.

    And an embarressment to free enterprise.

  38. You have to just stop……….. fucking…….lying you c……

    This is about you being a lying moronic c…. and you should stop it.

    You’re a fuckhead.

    Do you suffer from tourette’s syndrome? I do actually think you should seek help. You must get lonely with verbal habits like that.

  39. No Marks got to stop lying.

    Since this is what the thread-of-doom was about and its not like we haven’t gone over this 100 times.

    He got overconfident because of both your evasiveness and Jasons stupidity.

    But I may go back and get rid of the c-word.

    What’s remarkable is that you’ve repeated the same dishonesty and evasiiveness that Reynolds and Mark were right into on the TOD.

    Mark must have begun to think that this was all normal and according to Hoyles but this stupidity is getting in the way of us having free enterprise money which none of you are in favour of.

    All of you being essentially Macromancers.

  40. you’re not very convincing when you’re upset, Graeme

  41. Just show me where I am lying Graeme:

    Re comments 2986 and 2989.

  42. let us grant your obsessive fetish with defining money supply. where does that get us? how does it refute Mark’s and Terje’s argument?

  43. Fuck off Mark.

    You know you lied.

    Stop being a fuckhead.

    “1. You have a strange definition of fraud no one else accepts.”

    Thats a lie. And there is no excuse for it since we have already been through the thread of doom and you know damn well that you are lying and only playing to an ignorant hypothetical third party.

    “ow does it refute Mark’s and Terje’s argument?”

    What argument he doesn’t have one.

    Don’t put it onto me you fucking cultist wankers.

    You are the cult nutballs who want to play fast and loose with monetary definitions.

    Most of these posts are going to be wiped because you are just all lying.

    NOW.

    ARE YOU CLAIMING THAT CASH REPRESENTS THE ENTIRE MONEY SUPPLY.

    AND IF NOT ARE YOU WILLING TO ADMIT THAT TERJE MADE A FALSE ACCUSATION AND SHOULD RETRACT?

    AND IF NEITHER WHY ARE YOU GUYS BEING STUPID CUNTS.

  44. Third parties this is actually very important.

    Monetary cranks like Jason, Terje and Mark are getting in the way of us having a just society and a free enterprise monetary system, independent of government and superior to any financial system in the world today.

  45. Right.

    I get it. Not one of you will admit that the Money Supply is NOT just cash and coins thought this proposition is Economics 101 and more of less obvious anyhow.

    So my job MY JOB is just to push this agenda PAST you obstructionist nutballs.

    Imagine that. After all this time you guys won’t admit that the Money Supply isn’t just cash and you won’t own up to your guru.

    Fucking hell.

    Well the project to a better world will simply have to go on without your incompetent involvement on this particular issue.

  46. Graeme,

    On February 2nd at 12:13pm I wrote that I agree with you that “money supply” is not just cash and coin.

    Regards,
    Terje.

  47. Right.

    So lets hear the retraction then!!!!

  48. If you are feeling offended by something I said then I’m not terribly sympathetic given that your general aim in life seems to be to give offence to others. You happily trample on other peoples faces by denigrating them with verbal abuse (calling them communists, maxists , fuckheads, liars etc) but then you carry on like a baby if somebody characterises you or your worldview slightly inaccurately. If you were behaving like an adult rather than a child you would deal with any miss characterisation through intelligent discussion.

    However if you will directly quote the specific phrase that you think requires a retraction then I will give it appropriate consideration.

  49. “So lets hear the retraction then!!!!”

    Of what Graeme?

  50. I’m not the least bit offended.

    I’m trying to get you to work methodically towards the truth.

    Ergo we cannot let you get away with that horseshit accusation that Mark tried on a number of times on those various threads-of-doom.

    So now that you’ve made it clear that Money Supply is not just cash if you were fair dinkum and not playing left-winger-for-a-day (as people do tend to when the topic turns to money)…..

    …. If you were not doing this and really wanted to find the truth of it you’d do the following things….

    1. You’d make sure Jason and Mark stopped fucking around. And you’d say “What are you macromancers doing? Why not just admit that the money supply is not the same as cash?

    2. You’d admit that I didn’t even once confuse credit with the money supply.

    3. You would have come up with a DEFINITION OF THE MONEY SUPPLY and you would have asked if I had a better one.

    You see you get your methodology together and you practise it in all scenarios.

    So you don’t be a scientist when it comes to tax policy and a dumb-left-winger when it comes to money.

    I could have taught the entirety of monetary policy to 14 year olds with an aptitude for maths by now.

    But with you guys filibustering on all points and being blatantly evasive and dishonest the whole time you are never going to learn in 100 years.

    In science you get used to looking at various parallel models.

    So in the old days it was no problem learning both Newtons and Einsteins simplified model at the same time.

    If you had a working model that wasn’t obvious bullshit you could have presented it.

    I could have presented my model…. Which works in layers. And it wouldn’t be a problem. But Mark and Jason and Reynolds chose to not be scientists where this subject was concerned.

    They instead went the way of the irrational left-winger or the cultist.

    And since I’ve written hundreds of thousands of words going round in circles on this one my attitude is to stomp this macromancy and irrationality whenever it pops up its ugly head.

    I’d be most interested if you have some well-worked-out alternate model of monetary economics….. or a simplified version of such a thing.

    But you don’t. Or else you wouldn’t be acting this way.

  51. what’s there to retract Graeme? so what does it matter how you define money? how does that lead to the argument that we should prohibit non-fraudulent fractional reserve contracts?

  52. Graeme,

    I take it that you don’t know how to use the quotation feature in wordpress or else you don’t have a clear idea what it was you want retracted. If you quote the remarks I made that you think need retracting then I will give it due consideration. Otherwise you can spend your time hurling insults in somebody elses company.

    Regards,
    Terje.

    p.s. I personally find your mode of discourse offensive. You are behaving like a spoilt brat. However we can gloss over that for the moment whilst we deal with the issue at hand.

  53. You should know what you have to retract fella.

    Look how pathetic you people are.

    None the wiser about monetary economics then you were yesterday because your bizzare one-topic left-winger impersonations have brought all learning on your part to a grinding halt.

    Just be scientific.

    Just sort out what the best definition of the money supply is?

    Is it merely cash?

    What advantages are their to defining it that way.

    Sooner or later I’m going to get sick of you guys being dumb cunts but.

    In the end having a free-enterprise monetary system is something we have to get done.

    I can see you morons are determined to get in the way of that with your constant bouncing from one foot to the other. Your relentless determination to go around in cirles and your base-level supidity.

    How many time have you completely fucked up, for example, by saying something like…… “fractional reserve is not fraud”

    I mean I must have gone over that ground about fifty fucking times each with John Z, Mark, Jason, and Reynolds.

    And already five times with you even though I clarifed the issue right at the start.

    So now it gets down to WHO IS YOUR GURU?

    Its just basic stupidity when it comes to money.

    And so many people seem to be afflicted that I guess its just in the way of things.

    “what’s there to retract Graeme? so what does it matter how you define money? ”

    It doesn’t matter as much to me as it does to you on account of your relative stupidity….

    Do you remember how you ran and hid the last time you tried that line on.

    I asked you would there then be no crash if I ended fractional reserve overnight without altering the amount of cash and coins….

    And you did a runner.

    Then I’d ask again and you’d do a runner again.

    And I’d ask again and you Jason you gutless punk would do a runner yet again.

    So I’ll ask you now.

    And I know that you’ll do a runner yet again.

    Because you guys are just prepared to be completely rude brainless mindless bastards when it comes to money.

    And you can fucking best believe I’m not happy about it since its no different the Lambert getting in the way of energy production.

    Its unethical. Its moronic. This behaviour is rude. And its getting in the way of a just and fair free-enterprise society.

  54. I want all three of you to notice the other two peoples stupidty and evasiveness.

    This is something that you all share. A sort of impromptu brotherhood of stupidity and evasiveness.

    Notice how Terje hasn’t defined money yet nor has he retracted.

    Jason hasn’t told us how he thinks money ought to be defined.

    And he hasn’t even admitted the money supply isn’t just cash and coins.

    I mean you guys are fucking religious jerks.

    So who is your guru.

    You’re irrational both of you.

    And this conversation will stand as a sort of case study as to the moronism of the opposition to free enterprise money.

  55. yeah, whateva …

  56. This will be a new thread on evasiveness going on the Gold Is Money forum.

  57. I can see you morons …

    Graeme,

    I trust that you will enjoy your blog.

    Regards,
    Terje.

  58. Doing a runner hey?

    The ultimate evasion.

    I myself have only taken on board the significance of 100% backing since 2003. So you bet I’m going to be derisive of people who refuse to understand such a good idea when it is brought to them.

  59. RRIIIIIIIIIIIIIIIGHTTTTTT
    [says Dr Evil]

    we’re all doing a runner because we feel so threatened by your intellectual prowess

    …(vain vainglorious Bird)

  60. When I talk about MONEY…..

    Jason is running.

    Thats how its always been.

    Thats part of the architecture for the reason behind some of the longest threads in world blog history.

    Do you know about ZEN Jason?

    Zen out those brainy careerists that you so admire in the Chicago-school.

    Zen out the in-crowd of the economics world more generally.

    Zen out any Nobel prize-winners since thats just Scandinavian bankers giving awards for the application of quantitative methods and we would hardly expect them to endorse anyone who advocated policies that would destroy their exalted and protected station in life.

    And it must be said that seriously ambitious careerists, no matter how smart, would be affected by the possibility of being ruled out for the Nobel from some Scandinavian bankers. And though that VIBE might affect any one of them just a little if you got a group of these hyper-competitive guys in the one prestigious University it would affect the gestalt of the place.

    But what I’m saying is put all that aside.

    This PUNDITTI is getting in the way of your honest appraisal of the situation.

    Remove all these influences by Zen thought control techniques.

    And then go and Zen out on METHODOLOGY.

    METHODOLOGY AND PRACTICAL-EPISTEMOLOGY which is more or less the same thing.

    And when you reach that white-dot-moment why not just ask me questions offline.

    This is the thing that I’m in the least doubt about.

    Because I had been thinking about monetary matters for a quarter century trying tot see how you’d get it right.

    And never once did I think about 100% backing.

    You can see this in great embarrassing detail over at Strike-The-Root.

    But then my epistemology says that the 25 years of induction…. even though I was chasing up the wrong path….. my epistemology says that this induction was not wasted.

    And when I found out about 100% backing it was like the scales fell from my eyes.

    And all this time trying to solve this riddle with that mental block in the way… Well I don’t think its wasted because I actually think I understand these matters better then anyone else in this country with perhaps only Gerrard Jackson excepted.

    I would be the best Reserve Bank Governor we could possibly have I suggest.
    >>>>>>>>

    But anyway.

    Stop this never-ending running…. If if its more a sort of prancing on the spot with your fingers in your ears…..

    And try and look at this thing with fresh eyes.

    And a fresh mind.

  61. I’ve managed to isolate the two single arguments commonly used but in endless variation against 100% backing.

    They go like this:

    I’VE SUDDENLY, OUT OF THE BLUE BECOME AN ANARCHO-CAPITALIST AND THIS REPRESENTS AN INITIATION OF FORCE.

    The sudden transformation taken by the dishonest bastard who puts this one forward never lasts more then a few seconds at a time.

    If your protangonist is NOT AUTHENTICALLY AN ANARCHO-CAPITALIST this must be greeted with powerful abuse and derision.

    The other argument is really just a lie and a distraction/filibuster.

    It goes like this: YOU ARE CONFUSING CREDIT WITH MONEY.

    This is said when you have never done any such thing once.

  62. You’re lying Graeme, stop lying.

  63. Right.

    Thats it.

    You get to be a feature in a new thread.

  64. Well this constant lying by monetary cranks has real effects. It helps give cover for the bankers cocking things up and ruining the economy. One wonders if these people have yet sorted out the difference between ponzi-money and cash-money, and the role this difference made in the current crisis.

  65. And it must be said that seriously ambitious careerists, no matter how smart, would be affected by the possibility of being ruled out for the Nobel from some Scandinavian bankers. And though that VIBE might affect any one of them just a little if you got a group of these hyper-competitive guys in the one prestigious University it would affect the gestalt of the place.

    That Graeme, is almost equivalent to what Lee Smolin says happened in regard to String Theory, it became almost mandatory for young physicists to be studying some aspect of it otherwise out the door. An old friend of mine also touched on this: when he was working in academia, he said it was the most politicised environment he ever worked in. My sister, who spent 20 years at UQ as a research chemist, said the same thing and started her own business consultancy company which is now one of the best in the country.

    In my view, one of the biggest problems with academia is that it stops people taking chances. Careerists are terrified of making mistakes. My belief is that if you are not making mistakes you are not trying hard enough and are too scared to have a go, too busy protecting your precious reputation rather than advancing the discipline.

    Now you are guilty of understatement! This problem is much worse than you imagine.

  66. Exactly so. People just do not realise how badly Post WWI academia was affected. You coming from the left ought to start thinking about our fractional reserve system and how much it distorts capitalism. Its this distortion that is at the base of all legitimate leftist objections to capitalism…. but note that once your sister gets out of the academy and is solving problems for business she leaves a good deal of the bullshit behind.

    You see I think that dishonest money distorts all things. As much even as the dead hand of stolen money financing. But the thing is from World War I onwards politically WE HAVE HAD BOTH.

    Plus the war was a disaster for straight thinking itself. When people came back they were looking for paradoxical thought. Anything goes as Cole Porter said. So in 1919 when the expedition by Eddington went ahead, frittering wartime and civilian resources…. the news of the experiment, and experiment that produced nothing at all and merely failed to falsify, was greeted as if it were a raptourous new beginning. And I don’t think we’ve ever recovered from that war or even from the propaganda which came out of the nothing eclipse-viewing.

    Monetary inflation seems to debase not only monetary values. But all human values. Even the species tenuous grasp on reality.

    We have seen how slow money growth works under fractional reserve. And its a killer for us liquidity-junkies. It pummels economies like New Zealand when they try it on. Partly because its tried on without looking at the right economic metrics. But its really because as liquidity-junkies its like taking all the endorphines out of the economy.

    Getting off the junk would be entirely different. Growth-deflation under 100% backing would be akin to a healthy endorphine level. Paradoxically it is a situation of massive liquidity yet with almost no monetary growth. Then you would see all the problems ascribed to capitalism, with various degrees of plausibility, fade right down and away.

  67. I just noticed this thread where we had all these morons persecuting me, and refusing to understand the first thing about the most basic monetary theory. It hasn’t ended. Cambria went to work lying about monetary creation just yesterday.

    Why would Jason Soon go out of his way to not understand the money multiplier? Why would he not just simply correct Andrew Reynolds and Mark when they simply had it wrong.

    Its a fucking mystery. No-one was this ignorant of what the money supply was when I went through university.

  68. HAHAHAHAHAHAHAHAHA

    “Graeme Bird said:

    Thank you Ken. I’ve always appreciated your views on my views.”

    A gifted comedian uses my name.

    Posted on 12-Oct-11 at 12:25 pm | Permalink


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