What are your thoughts? Housing going UP or DOWN?

[cyphire]

[quote=DWCAP]You are confusing value with money. Alice doesnt have 3million, she has something that someone will give her 3million for. She has to sell the asset to get the money. If the bad earnings come in, and no one will give her 3 million anymore, then nothing happened to the total amount of money, her asset VALUE decreased.

Value isnt money. Value is how much money someone will give you for the object.

Or in the original example, there is 3 million dollars and 1 million $3 shares. If the bad earnings come in, then there is $3 million dollars and 1 million $2 shares. The values changed, not the money. If alice sells, then there is $3 million (2m alice, 1m bob) and 1 million shares (bob) worth $2 each. Nothing was destroyed, Alice prob feels poorer, bob may feel richer, but nothing except ownership has changed. There is still $3million and 1 million shares.[/quote]

Got you DWCAP and Rich….

Sorry – on my phone I couldn’t read all the threads (and was tired from being in an all day Android Programming seminar). You guys are correct. The money supply stays constant, as there is a specific amount of money. As credit isn’t being granted, it’s a non-issue. But the value of the actual asset (the stock) has decreased in value. Thus when assets devalue, the existing actual money supply (especially in this instance where credit gets contracted due to fear by lenders) becomes more valuable. As those with ASSETS have lost the value of those assets, and those with cash (dollars lets say) can purchase assets at a lower value (presumably which will have a more rapid chance to appreciate (vs. their original over-inflated values) cash will become king.

Rich you seem to think that the gov will print as much as necessary to stimulate the economy, and/or make more money available to help prop up asset prices (or I think that is the case you are making) – would this be possible in a spiraling asset devaluation situation?

[carlsbadworker]

I think there are just two confusions between Rich and cyphire. To Rich’s point, the price decline does not destroy wealth. There will still be as many houses in US and as much ownerships of corporations (and their long-term profitability remain the same, if everyone is as optimistic about the long-term future as I am). But to cyphire’s point, although the overall wealth remains the same, the distribution of the wealth will be greatly changed. So cash is king in a deflationary environment. Bob will end up richer.

The only thing against Rich’s argument is that the wealth shift could create wars and destroy the wealth. People can kill each other with guns because of poverty and human being has enough capability to nuke the world. Then the wealth is truly destroyed and we go back to the stone age. In a less dramatic version, someone could be too poor to get the needed health care and we lost productivity (and future wealth) due to that.

[carlsbadworker]

I think there are just two confusions between Rich and cyphire. To Rich’s point, the price decline does not destroy wealth. There will still be as many houses in US and as much ownerships of corporations (and their long-term profitability remain the same, if everyone is as optimistic about the long-term future as I am). But to cyphire’s point, although the overall wealth remains the same, the distribution of the wealth will be greatly changed. So cash is king in a deflationary environment. Bob will end up richer.

The only thing against Rich’s argument is that the wealth shift could create wars and destroy the wealth. People can kill each other with guns because of poverty and human being has enough capability to nuke the world. Then the wealth is truly destroyed and we go back to the stone age. In a less dramatic version, someone could be too poor to get the needed health care and we lost productivity (and future wealth) due to that.

[carlsbadworker]

I think there are just two confusions between Rich and cyphire. To Rich’s point, the price decline does not destroy wealth. There will still be as many houses in US and as much ownerships of corporations (and their long-term profitability remain the same, if everyone is as optimistic about the long-term future as I am). But to cyphire’s point, although the overall wealth remains the same, the distribution of the wealth will be greatly changed. So cash is king in a deflationary environment. Bob will end up richer.

The only thing against Rich’s argument is that the wealth shift could create wars and destroy the wealth. People can kill each other with guns because of poverty and human being has enough capability to nuke the world. Then the wealth is truly destroyed and we go back to the stone age. In a less dramatic version, someone could be too poor to get the needed health care and we lost productivity (and future wealth) due to that.

[carlsbadworker]

I think there are just two confusions between Rich and cyphire. To Rich’s point, the price decline does not destroy wealth. There will still be as many houses in US and as much ownerships of corporations (and their long-term profitability remain the same, if everyone is as optimistic about the long-term future as I am). But to cyphire’s point, although the overall wealth remains the same, the distribution of the wealth will be greatly changed. So cash is king in a deflationary environment. Bob will end up richer.

The only thing against Rich’s argument is that the wealth shift could create wars and destroy the wealth. People can kill each other with guns because of poverty and human being has enough capability to nuke the world. Then the wealth is truly destroyed and we go back to the stone age. In a less dramatic version, someone could be too poor to get the needed health care and we lost productivity (and future wealth) due to that.

[carlsbadworker]

I think there are just two confusions between Rich and cyphire. To Rich’s point, the price decline does not destroy wealth. There will still be as many houses in US and as much ownerships of corporations (and their long-term profitability remain the same, if everyone is as optimistic about the long-term future as I am). But to cyphire’s point, although the overall wealth remains the same, the distribution of the wealth will be greatly changed. So cash is king in a deflationary environment. Bob will end up richer.

The only thing against Rich’s argument is that the wealth shift could create wars and destroy the wealth. People can kill each other with guns because of poverty and human being has enough capability to nuke the world. Then the wealth is truly destroyed and we go back to the stone age. In a less dramatic version, someone could be too poor to get the needed health care and we lost productivity (and future wealth) due to that.

[scaredyclassic]

Why the heck can’t I seem to get any of this flood of money that is supposedly raining down upon us?

[scaredyclassic]

Why the heck can’t I seem to get any of this flood of money that is supposedly raining down upon us?

[scaredyclassic]

Why the heck can’t I seem to get any of this flood of money that is supposedly raining down upon us?

[scaredyclassic]

Why the heck can’t I seem to get any of this flood of money that is supposedly raining down upon us?

[scaredyclassic]

Why the heck can’t I seem to get any of this flood of money that is supposedly raining down upon us?

[Arraya]

[quote=jpinpb]I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.[/quote]

Rich’s example leaves out the money multiplier, possibly for simplicity

http://en.wikipedia.org/wiki/Money_multiplier

Here is another example of fractional reserve lending.

Steve Keen’s DebtWatch No 31 February 2009: “The Roving Cavaliers of Credit”

Every macroeconomics textbook has an explanation of how credit money is created by the system of fractional banking that goes something like this:

Banks are required to retain a certain percentage of any deposit as a reserve, known as the “reserve requirement”; for simplicity, let’s say this fraction is 10%.
When customer Sue deposits say 100 newly printed government $10 notes at her bank, it is then obliged to hang on to ten of them—or $100—but it is allowed to lend out the rest.
The bank then lends $900 to its customer Fred, who then deposits it in his bank—which is now required to hang on to 9 of the bills—or $90—and can lend out the rest. It then lends $810 to its customer Kim.
Kim then deposits this $810 in her bank. It keeps $81 of the deposit, and lends the remaining $729 to its customer Kevin.
And on this iterative process goes.
Over time, a total of $10,000 in money is created—consisting of the original $1,000 injection of government money plus $9,000 in credit money—as well as $9,000 in total debts. The following table illustrates this, on the assumption that the time lag between a bank receiving a new deposit, making a loan, and the recipient of the loan depositing them in other banks is a mere one week.

Money “printing” such as the Fed’s MBS purchases of a trillion or so is a separate process from the standard operating procedure of the system.

[Arraya]

[quote=jpinpb]I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.[/quote]

Rich’s example leaves out the money multiplier, possibly for simplicity

http://en.wikipedia.org/wiki/Money_multiplier

Here is another example of fractional reserve lending.

Steve Keen’s DebtWatch No 31 February 2009: “The Roving Cavaliers of Credit”

Every macroeconomics textbook has an explanation of how credit money is created by the system of fractional banking that goes something like this:

Banks are required to retain a certain percentage of any deposit as a reserve, known as the “reserve requirement”; for simplicity, let’s say this fraction is 10%.
When customer Sue deposits say 100 newly printed government $10 notes at her bank, it is then obliged to hang on to ten of them—or $100—but it is allowed to lend out the rest.
The bank then lends $900 to its customer Fred, who then deposits it in his bank—which is now required to hang on to 9 of the bills—or $90—and can lend out the rest. It then lends $810 to its customer Kim.
Kim then deposits this $810 in her bank. It keeps $81 of the deposit, and lends the remaining $729 to its customer Kevin.
And on this iterative process goes.
Over time, a total of $10,000 in money is created—consisting of the original $1,000 injection of government money plus $9,000 in credit money—as well as $9,000 in total debts. The following table illustrates this, on the assumption that the time lag between a bank receiving a new deposit, making a loan, and the recipient of the loan depositing them in other banks is a mere one week.

Money “printing” such as the Fed’s MBS purchases of a trillion or so is a separate process from the standard operating procedure of the system.

[Arraya]

[quote=jpinpb]I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.[/quote]

Rich’s example leaves out the money multiplier, possibly for simplicity

http://en.wikipedia.org/wiki/Money_multiplier

Here is another example of fractional reserve lending.

Steve Keen’s DebtWatch No 31 February 2009: “The Roving Cavaliers of Credit”

Every macroeconomics textbook has an explanation of how credit money is created by the system of fractional banking that goes something like this:

Banks are required to retain a certain percentage of any deposit as a reserve, known as the “reserve requirement”; for simplicity, let’s say this fraction is 10%.
When customer Sue deposits say 100 newly printed government $10 notes at her bank, it is then obliged to hang on to ten of them—or $100—but it is allowed to lend out the rest.
The bank then lends $900 to its customer Fred, who then deposits it in his bank—which is now required to hang on to 9 of the bills—or $90—and can lend out the rest. It then lends $810 to its customer Kim.
Kim then deposits this $810 in her bank. It keeps $81 of the deposit, and lends the remaining $729 to its customer Kevin.
And on this iterative process goes.
Over time, a total of $10,000 in money is created—consisting of the original $1,000 injection of government money plus $9,000 in credit money—as well as $9,000 in total debts. The following table illustrates this, on the assumption that the time lag between a bank receiving a new deposit, making a loan, and the recipient of the loan depositing them in other banks is a mere one week.

Money “printing” such as the Fed’s MBS purchases of a trillion or so is a separate process from the standard operating procedure of the system.

[Arraya]

[quote=jpinpb]I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.[/quote]

Rich’s example leaves out the money multiplier, possibly for simplicity

http://en.wikipedia.org/wiki/Money_multiplier

Here is another example of fractional reserve lending.

Steve Keen’s DebtWatch No 31 February 2009: “The Roving Cavaliers of Credit”

Every macroeconomics textbook has an explanation of how credit money is created by the system of fractional banking that goes something like this:

Banks are required to retain a certain percentage of any deposit as a reserve, known as the “reserve requirement”; for simplicity, let’s say this fraction is 10%.
When customer Sue deposits say 100 newly printed government $10 notes at her bank, it is then obliged to hang on to ten of them—or $100—but it is allowed to lend out the rest.
The bank then lends $900 to its customer Fred, who then deposits it in his bank—which is now required to hang on to 9 of the bills—or $90—and can lend out the rest. It then lends $810 to its customer Kim.
Kim then deposits this $810 in her bank. It keeps $81 of the deposit, and lends the remaining $729 to its customer Kevin.
And on this iterative process goes.
Over time, a total of $10,000 in money is created—consisting of the original $1,000 injection of government money plus $9,000 in credit money—as well as $9,000 in total debts. The following table illustrates this, on the assumption that the time lag between a bank receiving a new deposit, making a loan, and the recipient of the loan depositing them in other banks is a mere one week.

Money “printing” such as the Fed’s MBS purchases of a trillion or so is a separate process from the standard operating procedure of the system.

[Author]

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