>> What's the total amount of money in the whole world ? >> Charles > > That depends on what the definition of "money" is, isn't it? > -raghu.
Money is debt and at the same time credit, since debt and credit are the same thing: in other words, if you are the lender, what you give is credit, and if you are the borrower, what you give is debt, a promise to make future payments. One is "asset", the other is "liability", yet credit=debt. When banks borrow, they give their debt to lenders and get their credit. They can then give a portion of that credit to a borrower and get their debt. Then the borrower gives that credit some other bank and get the banks debt. And it can go on like this forever. This is how money is created. Every financial transaction creates a debtor and a creditor, so every financial transaction creates money. How fast money is created depends on what portion of the credit you get can be given to a borrower or, alternatively, on what portion of the credit you received must be kept in your reserves. If there are no reserve requirements, money can grow indefinitely. So, it is very difficult to know what the total amount of money in the whole world is in these days, since reserve requirements were miniscule. By the way, whenever a debt is paid back or defaulted, money is destroyed. Nowadays, money is contracting fast because banks (real or shadow) of this financial system are not willing to lend so not much new money is being created, and the defaults and debts paid are destroying money. I like this Ambrose Evans-Pritchard whose article below may be useful. She is very sharp. Best, Sabri +++++++ Sharp US money supply contraction points to Wall Street crunch ahead By Ambrose Evans-Pritchard Financial Times, Last Updated: 12:01AM BST 23 Aug 2008 The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months. Data compiled by Lombard Street Research shows that the M3 ''broad money" aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959. "Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist. On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms. The growth in bank loans has turned negative to a halt since March. "It's obviously worrying. People either can't borrow, or don't want to borrow even if they can," said Mr Stein. Monetarists say it is the sharpness of the drop that is most disturbing, rather than the absolute level. Moves of this speed are extremely rare. The overall debt burden in the US economy is currently at record levels, raising concerns that a recession - if it occurs - could set off a sharp downward spiral. Household debt is now 131pc of disposable income, compared with 93pc at the top the dotcom bubble, 79pc in the property boom of the late-1980s, and 62pc at the end of the 1970s. The M3 data measures both cash and a wide range of bank instruments. It tends to provide an early warning signal of major shifts in the economy, although the US Federal Reserve took the controversial decision to stop reporting the statistics in 2005 on the grounds that the modern financial system had rendered the data obsolete. Monetarists insist that shifts in M3 are a lead indicator of asset prices moves, typically six months or so ahead. If so, the latest collapse points to a grim autumn for Wall Street and for the American property market. As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation. "There are always short-term blips but over the long run M3 has repeatedly shown itself good leading indicator," said Mr Stein. He cautioned that the three-month shifts in M3 can be highly volatile. M3 surged after the onset of the credit crunch, but this was chiefly a distortion caused by the near total paralysis in parts of the American commercial paper market. Borrowers were forced to take out bank loans instead. The commercial paper market has yet to recover. The University of Michigan's index of consumer sentiment has fallen to the lowest level since the 1980s recession. The US economy is without doubt facing severe headwinds going into the autumn. Richard Fisher, the ultra-hawkish head of the Dallas Federal Reserve, warned over the weekend that growth would be near "zero" in the second half of the year. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
