Hidden Secrets of Money - Currency vs Money

[Henry Rogue]

You Tube video by Mike Maloney called Hidden Secrets of Money - Currency vs Money. It's pretty good, but uses a lot of absolutes, (example at 44 seconds; "wealth is never destroyed, it is merely transferred." In IMHO wealth can be destroyed, essence of Broken window fallacy.) which will be ammunition for Zippy and the rest of the trolls.

 

[cjm]

Thanks for posting. It had sort of an "infomercial" feel to it, but still pretty good. I also enjoyed this one which was on the sidebar with related videos:

 

[Henry Rogue]

Thanks for posting. It had sort of an "infomercial" feel to it, but still pretty good. I also enjoyed this one which was on the sidebar with related videos:

Where was it posted? Is related videos a thread? I did a search and didn't find anything. Agree about the infomercial feel. Oh never mind I see you posted another video from you tube, sorry, duh.:o

 

[Acala]

Wealth can certainly be destroyed. House fire, car crash, swarm of locust eats crops, etc.

 

[Danke]

 

[Seraphim]

That's true, but in the sense he is speaking, he's right.

When a stock market crashes, for example, those valuations are not destroyed. They are transfered to the short position holders through credit/margin.

Wealth can certainly be destroyed. House fire, car crash, swarm of locust eats crops, etc.

 

[NoOneButPaul]

Both of these videos are great. I really like Mike Maloney.

This is an interview he just gave last week I thought was really great:

 

[Danke]

 

[Zippyjuan]

Currency is about ten percent of our money supply.

 

[Danke]

Currency is about ten percent of our money supply.

Currency =/= money.

 

[eric_cartman]

I like Mike Maloney... he's a good mix between Prechter and Schiff.

He's both a deflationist and a hyperinflationist.

 

[Zippyjuan]

Currency =/= money.

It is a form of money.

 

[Henry Rogue]

 

[Madison320]

I like Mike Maloney... he's a good mix between Prechter and Schiff.

He's both a deflationist and a hyperinflationist.

How can you be both?

I think the deflationists are making a huge logical error by equating currency and credit. Currency is a much more powerful force in determining prices than credit. In other words the upward pressure on prices from printing money is much stronger than any downward pressure from a loss of credit. The proof is in the fact that no fiat currency has ever significantly deflated.

 

[Madison320]

How are we going to experience a huge deflationary crash? All that paper is going to suddenly become incredibly valuable? Did he mean to say inflationary crash?

 

[Madison320]

Currency =/= money.

And credit <> currency. I think Zippy was referring to a measure of the money supply that includes credit. Which I think is a bad idea.

 

[Zippyjuan]

Money Measures in the US (generally broken down by liquidity- other countries may include different things in their "M"s but the principle is the same of higher M's having lower liquidities):
http://en.wikipedia.org/wiki/Money_supply

M0: The total of all physical currency including coinage. M0 = Federal Reserve Notes + US Notes + Coins. It is not relevant whether the currency is held inside or outside of the private banking system as reserves.

MB: The total of all physical currency plus Federal Reserve Deposits (special deposits that only banks can have at the Fed). MB = Coins + US Notes + Federal Reserve Notes + Federal Reserve Deposits

M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits

M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).

MZM: 'Money Zero Maturity' is one of the most popular aggregates in use by the Fed because its velocity has historically been the most accurate predictor of inflation. It is M2 – time deposits + money market funds

M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

M4-: M3 + Commercial Paper

M4: M4- + T-Bills (or M3 + Commercial Paper + T-Bills)

L: The broadest measure of liquidity that the Federal Reserve no longer tracks. Pretty much M4 + Bankers' Acceptance

Currency is physical money- notes and coins. That is about ten percent of the total money supply. The rest exists digitally.

 

[Madison320]

Currency is physical money- notes and coins. That is about ten percent of the total money supply. The rest exists digitally.

I don't what difference it makes whether it's digital. You can still go to your bank and get it converted to paper.

Anyway my point is that the best predictor of coming price increases is M0. Velocity of money, fractional reserve banking and all those other factors are much less important, in my opinion. Or maybe a better way to look at it is that M0 is a leading indicator of coming price increases. If a country starts printing money, eventually velocity will increase as people try to spend it before it loses value.

 

[heavenlyboy34]

It is a form of money.

There are specific criteria for "money". (see below) Paper and digits do not meet them sufficiently. Paper is "currency".

Acceptability(recognizability), divisibility, durability, limited supply, portability, uniformity.

 

[Zippyjuan]

I don't what difference it makes whether it's digital. You can still go to your bank and get it converted to paper.

Anyway my point is that the best predictor of coming price increases is M0. Velocity of money, fractional reserve banking and all those other factors are much less important, in my opinion. Or maybe a better way to look at it is that M0 is a leading indicator of coming price increases. If a country starts printing money, eventually velocity will increase as people try to spend it before it loses value.

M0 being cash only covers a small fraction (one tenth) of all money so its impact on price inflation is minimal. Velocity is much more important- that is how quickly money turns over. High velocity means lots of money chasing goods and services which is likely to lead to higher prices. Velocity right now is very low which is why we are seeing low price inflation. Cash is the basic unit but velocity is the multiplier- it has more power than the basic unit does by itself. In a hyperinflation, velocity aproaches infinity.

Meanwhile here is what M0 has been doing:
http://research.stlouisfed.org/fred2/series/CURRENCY