M1 money multiplier below 1

Coins are debt too, they don't say "Note", but nonethless they are derivative of a 1 Dollar"Note",...you know, .01, .1, .25, .5, 1, all derivative fractions of a debt note that bears no interest.

The paper says "Note" on it because that is what it is. It says what it is right on the paper, it tells you that it is a debt note issued by the Federal Reserve of the United States. This is not a trick question or is it an attempt to decieve. Its really kind of like, "Who's buried in Grant's Tomb?" Why is this so hard to understand.

Using debt money is the basis of the whole yield curve. It should be no surprise that the 10 yr Treasury bill is also "money." The 10 year bills are traded and saved by central banks, individuals and institutions. The difference between a $50 dollar note and the 10yr Bill is not that one is money and that the other is debt, its simply the difference in interest rate...the $50 note bears 0 interest and the 10 yr bears about 3.69% last I looked.

The Fed manages the money supply of debt by buying and selling 10 bills (among other debt instruments) through its open market window operations. When the Fed sells a 10 year Treasury it increases the amount of interest bearing debt in circulation and it reduces the amount of base money. Its all debt, its all money. We use debt as money.
 
"The difference between a $50 dollar note and the 10yr Bill is not that one is money and that the other is debt, its simply the difference in interest rate...the $50 note bears 0 interest and the 10 yr bears about 3.69% last I looked.

The Fed manages the money supply of debt by buying and selling 10 bills (among other debt instruments) through its open market window operations. When the Fed sells a 10 year Treasury it increases the amount of interest bearing debt in circulation and it reduces the amount of base money. Its all debt, its all money. We use debt as money."
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Oh man !...i want to keep my front row seat in this class, Mr Breen.
i may have a question or two later. Just execellent exposition.
Very clear.
 
Quote from Martinghoul:

This argument never made any sense to me... So what if it says 'Note' on it? A quarter doesn't say 'Note' on it. Does that imply that that the debt-like qualities of a quarter are different to those of a dollar bill?

Currency is a medium of exchange. What makes a dollar bill so different to a gold/silver coin or a tulip bulb or a seashell, making it into debt in the process?
More...
Here's my take.
The money you have in your wallet is merely a tangible manifestation of debt. As to coins, it could be argued that being made of metal, they have an intrinsic value. An extreme example is the gold eagle, which can have a denomination of $50, but it is worth gold spot + a premium. Nonetheless, coins are merely a fractional representation of a dollar.

Money is born of debt, wether it's thru the relationship between the Treasury and Federal Reserve or thru fractional reserve lending in the private sector - its origins are the same - debt.

And debt has to continually grow. Say you get a $200,000 30yr mortgage @ 6% . Where are you going to find the money in the economy to pay the principal + interest total of $431,676.00 over a thirty year period? And you're not the only one chasing money to make payments on a current debt.

Someone else has to go into debt just like you... and another person after that... so more money is created in the economy to handle the ever growing interest payments of current and future debts.

The government does this too, as well as companies, etc... eventually, due to compounding, there isn't enough money in the economy to handle the interest payments, salaries don't keep up, and you have a period of deflation or later, a system "reset" due to a government fighting off deflation thru monetization.

Exponential growth in a finite world is overlooked unfortunately .
 
Quote from Martinghoul:

This argument never made any sense to me... So what if it says 'Note' on it? A quarter doesn't say 'Note' on it. Does that imply that that the debt-like qualities of a quarter are different to those of a dollar bill?

Currency is a medium of exchange. What makes a dollar bill so different to a gold/silver coin or a tulip bulb or a seashell, making it into debt in the process?
More...

The difference is that the FRN was created as debt (as Ed has explained).
 
thanks Ed, good thread

Quote from Ed Breen:

Those would be pretty dry books...I think you might rather skim papers. NY Fed has good paper on money supply and excess reserves written last August...Regional Fed sites are good places to look for papers. Google, Japan academnic papers on Money Supply as they have been on forefront of deflation money supply phenomena. I like Mundel always, have been recently reading Wilmeth and Rutledge. Just finished book, 'Econoclasts' by Dimitrov. Now reading Rogoff and Rhienhard, 'This time its different.' Recommend former ML economist David Rosenberg, I follow Malpass, David Goldman at First Things...Alan Reynold, Wanniski's, 'The Way the World Works.' Is a classic for a non aggregated demand persepctive. Check out posters at www.supplysideforum.com Chek out Micheal Rulle's blog, 'The law of the bad premis' for links to cutting edge economic thought, austrians and others... although Mikes comments tend to be cultural.
More...
 
Quote from Ed Breen:

Coins are debt too, they don't say "Note", but nonethless they are derivative of a 1 Dollar"Note",...you know, .01, .1, .25, .5, 1, all derivative fractions of a debt note that bears no interest.

The paper says "Note" on it because that is what it is. It says what it is right on the paper, it tells you that it is a debt note issued by the Federal Reserve of the United States. This is not a trick question or is it an attempt to decieve. Its really kind of like, "Who's buried in Grant's Tomb?" Why is this so hard to understand.

Using debt money is the basis of the whole yield curve. It should be no surprise that the 10 yr Treasury bill is also "money." The 10 year bills are traded and saved by central banks, individuals and institutions. The difference between a $50 dollar note and the 10yr Bill is not that one is money and that the other is debt, its simply the difference in interest rate...the $50 note bears 0 interest and the 10 yr bears about 3.69% last I looked.

The Fed manages the money supply of debt by buying and selling 10 bills (among other debt instruments) through its open market window operations. When the Fed sells a 10 year Treasury it increases the amount of interest bearing debt in circulation and it reduces the amount of base money. Its all debt, its all money. We use debt as money.
More...
With all due respect, Ed, this is incorrect in a variety of ways...

I'd be happy to respond to you, Misthos et al later today, as I'm a bit snowed at the mom.
 
We really shouldn't take the money debt thing too far into philosphy. It is important to remember that the paper money we use is government debt. In the past private debt (Bank Notes) were often used as money, along with metal coins, primarily gold and silver. During the time of Wild West the primary money was Mexican Coins! The issue between the use of a paper note and a some tangible metal like gold and silver is an issue of trust. The paper note is promissory note, an I.O.U., if you prefer. The value of that note is the promise of the government (in the past bank) to maintain the trade value of the note...to guarantee that the note will be redeamable or exchangeable under the same terms that it was earned. Its important to remember that there are two sides to the debt contract, the 'note.' On the one side there is the consideration of work or trade for value and on the other side there is the promise to maintain that value of work or trade in commerce. That is why inflation is a breach of contract between the issuing government and its people...or where there is a world reserve currency system, between the reserve currency government and the world. Inflation is a breach of contract, a broken promise. The use of gold to back paper money or to substitute for paper money is best understood as collateral for the 'note.' Redeaming paper money for gold is simply a default proceedure to take the collateral in payment of the debt.

Whether the promise of value of money is any good or not, do not forget that the purpose of money is as a unit of account. Its like an inch is to a ruler...its a function of measure. That is why it is problematic when it changes all the time...for producers it makes it hard to build something when the length of the ruler keeps changing.

This brings up one more issue, the amount of money or debt if you will does not always have to expand. It should only expand with real growth, real increase in productivity, in ballance with real work and increased creation of fixed and intellectual capital. If the creation of debt is increasing beyond the real growth of production then it is a maifestation of inflation, when as now, the real existing debt is decreasing faster than new debt is being created, and, relatedly, where the amount and value of the underlying fixed and intellectual capital has declined, it is a manifestation of deflation.
 
Ed, thanks a lot for your excellent posts - it just helps to put an order in all things I see around. If you don't mind, I wanted ask you a question - you all the time tell about missing/discouraged growth, excecced debts, etc. - but you limit all this in US, while USD$ is actually world's reserve currency. So, if you look at the planet, particulary Asia, it might be overall there is a growth in realm of USD$ , so, the problem might be solved if overall growth is enough to overcome global debts servicing. And considering a lot of finacial blood vessels tied to US, it might somehow help US to overcome the problem too ? Or you think 'no growth in US - no problem solution in US' ?
 
Perhaps the intent is to provide a long slow ramp into a new economy during which time there will be plenty of opportunity to spread blame and hopefully forget the people who caused the problem in the first place.

Americans now have effectively no representation at a Fed level and so any sense of accountability has been removed and the gov. (on both sides) resemble flocks of free range chickens.

Not an ideal situation I grant you.
 
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