Money tree economics

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erol
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Money tree economics

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Post by erol »

Governments around the world are printing trillions of 'new money' in their attempts to stabilise the global economy in the face of the pandemic.

We have been told prior to this crisis that you can not do this, there is no 'magic money tree', yet this is what they are doing and actually did do after 2008 crash as well.

I am no economist but here are some of my thoughts on all this.

There is a difference between a single country printing vast amounts of new money and everyone doing so at the same time.

Money represents tokens of exchange. If you double the total number of tokens then it will take twice as many of them to exchange for a given thing.

If you double the total amount of tokens and then give the new tokens only or disproportionately to those most in need what this represents is a re-balancing between those who had vast numbers of tokens before the doubling and those that had very very few before it.

When governments started increasing the amount of tokens in response to the 2008 crisis, these new tokens were not given to those most in need.

The idea that 'there are no money tree solutions that can work' may be better expressed as 'there are no money tree solutions that can work that do not involve a re-balancing between those who have the most and those who have the least'.

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Re: Money tree economics

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Post by EnjoyingTheSun »

Creating money for the sake of it just causes inflation unless you stimulate your industry and now export more than you used to import. Otherwise all you have done is stimulate another country's economy.

Jobs created in the public sector are not growth. Whilst I understand the multiplier effect, if I earn £500 a week and give my son £100 from that £500 to keep the garden clean it is going to take a lot of convincing to make me imagine that our household income is now £600 a week or indeed that Britain now has £600 not £500 floating around it.
Actually I did used to pay my son to do odd jobs like tidying the garden to educate him as to the value of money. I then used to give half the money that I was going to pay him to the neighbour's kid who had been watching him but didn't get much pocket money to illustrate the wonders of socialism.

Britain spends around £1 billion a week servicing its current debt. More debt = more interest payments.
Let's be clear we are being forced to spend money we don't have, but we have no choice.
Some of those billions that we are paying people to survive would have been spent on free broadband.

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Re: Money tree economics

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Post by erol »

ETS you appear to have missed the comment
There is a difference between a single country printing vast amounts of new money and everyone doing so at the same time.
Any increase in the amount of tokens (money supply) is inflationary. There are two ways you can increase the amount of tokens that exist. The predominant way that has been used for the last 30 years but not so much before that, is to allow private banks, within certain limits, to create new money via loans. When a private bank loans someone £5000, they create that £5000 as new money that did not exists before the loan was given. As the money is paid back then the total amount of money that exists reduces. This however is not the only way to increase the total amount of money that exits. Central banks can themselves just create new money directly without it being a function of new debt in this way.

Central banks can and do create new money out of thin air that does not have to be 'repaid' as debt. They did this post 2008 and they are doing it again now. All such new money creation is ultimately inflationary.

We are in crisis. Hundreds of millions of people if not billions who have not faced such before are potentially facing not having sufficient means to meet basic human needs for survival like being able to obtain sufficient calories to maintain life. One thing that could be done would be to say that anyone who has more than x million in the bank, the state will 'sequester' 50% of it to use to help those who can not as a result of this pandemic get enough calories to survive. This will not happen. What could also be done is all central banks simply double the money supply , which would not be debt that has to be repaid, and use the new money to help those who can not meet the level of calories needed to sustain life. So those who do have enough to keep themselves alive would see their money in the bank devalue by 50%. It would represent a re balancing and printing new money would be a mechanism by which this re balancing could be achieved, that does not involve direct sequestering of peoples money.

This is not about 'economic growth'. This is about trying to keep enough people alive through the crisis so that economic growth can continue once again after the crisis has peaked.

I think this is the core of the battle that is going on in the US with the aid package there. Do we create new money to give to 'big business' or do we create new money to give to those at risk of dying from lack of food without that money.

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Re: Money tree economics

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Post by waz-24-7 »

Printing money as in paper money or crypto currency simply drives up inflation. This has happened in several notable instances for example in old Germany when a loaf of bread was 5000 deutschmarks as inflation escalated beyond control.
The world is entering a massive recession. Demand for foreign currency earning exports, in particular manufactured goods and services leads to unemployment , followed by financial stress, poverty, starvation and general turmoil amongst the masses. Strong government is essential,

Governments around the world are supporting their economies and there is some level of competition in this to attempt to maintain a "ready to go" out the other side readiness. The strong ,out the other side, economies will be quickest to capitalise and reap vast rewards. Economies with a high level of business failures and loss of confidence within the labour market will lose out massively. Large and small business alike are very susceptible to failure.

The UK is not on a good footing to competitively succeed given the clear obstacles concerning trade deals or the lack there of.

The IMF are doing strong work to facilitate global recovery and will be advising very strongly against printing money that could drive a hyper inflationary global economy. A difficult task indeed. Currency markets remain relatively stable considering. Commodity market are in somewhat turmoil. Oil and gold are indicators of recent drastic movements.

One glimmer is that many lock down economies will have populations that now in fact have a high level of disposable income . After all no one has gone out to spend any significant money. The possibility is that soon this "saved up" money will be put to use on capital purchases such as cars, white goods and other luxury items that could drive a recovery in manufacturing and retail. Not enough, I fear, to save many many jobs.

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Re: Money tree economics

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Post by Groucho »

The other question I would pose is, who owns all this debt? Who have all the nations been obliged to borrow from?

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Groucho wrote:
Wed 27 May 2020 4:49 am
The other question I would pose is, who owns all this debt? Who have all the nations been obliged to borrow from?
If central banks print new money there is no debt. That is the point. What there is is inflation. Inflation will negatively affect everyone and those with more of that currency more. If the new money is disbursed to those most in need then the system is just a means of redistributing from those with less need to those with more. Post 2008 economic crisis this system was used to redistribute from everyone to financial institutions.

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waz-24-7 wrote:
Tue 26 May 2020 10:58 pm
Printing money as in paper money or crypto currency simply drives up inflation.
I think you mean "Printing money as in paper money or electronically" ? Crypto currency is some thing else entirely, is not the same as 'fiat' or 'normal' money - the clue being in the name. No central bank in the world yet has produced it's own crypto currency. I think it is inevitable that some will down the road. What this thread is about is about how governments and central banks can use the creation of normal / fiat money as a means of redistribution to deal with crisis. This has nothing to do with crypto currency.

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Re: Money tree economics

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Post by Groucho »

erol wrote:
Wed 27 May 2020 6:33 am
Groucho wrote:
Wed 27 May 2020 4:49 am
The other question I would pose is, who owns all this debt? Who have all the nations been obliged to borrow from?
If central banks print new money there is no debt. That is the point. What there is is inflation. Inflation will negatively affect everyone and those with more of that currency more. If the new money is disbursed to those most in need then the system is just a means of redistributing from those with less need to those with more. Post 2008 economic crisis this system was used to redistribute from everyone to financial institutions.
So it's what is euphemistically called 'quantitative easing'.... if done by all nations it may work but it will be painful for those least able to cope with the inflation that ensues... it's sad but it was ever thus.

Donald will be cacking his pants...

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Post by erol »

Groucho wrote:
Wed 27 May 2020 7:37 am
erol wrote:
Wed 27 May 2020 6:33 am
Groucho wrote:
Wed 27 May 2020 4:49 am
The other question I would pose is, who owns all this debt? Who have all the nations been obliged to borrow from?
If central banks print new money there is no debt. That is the point. What there is is inflation. Inflation will negatively affect everyone and those with more of that currency more. If the new money is disbursed to those most in need then the system is just a means of redistributing from those with less need to those with more. Post 2008 economic crisis this system was used to redistribute from everyone to financial institutions.
So it's what is euphemistically called 'quantitative easing'.... if done by all nations it may work but it will be painful for those least able to cope with the inflation that ensues... it's sad but it was ever thus.

Donald will be cacking his pants...
In effect this was what was done following the economic crash of 2008. The point I am trying to make is what is called 'magic money tree' economics is not 'fantasy' as it is often portrayed. It is just a mechanism for redistribution. The redistribution can be to banks as was the case in essence with QE following that crisis but there is no economic / mechanical reason why the redistribution could not / can not be to 'those with most need as a result of the virus'. There is only political limits on doing that.

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Post by Groucho »

The point I'm making is Donald Trump's power base will bear the brunt... low wage, if any, middle America will not like taxes or inflation.

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Re: Money tree economics

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Post by EnjoyingTheSun »

Theoretically it could work but it gets over used and always blows up in your face. For a country like Britain who has a consistent balance of payments problem its chances of working are minimal.
You print money that buys imports thus exasperating your balance of payments problem. If confidence in your currency goes down then you pay even more for your imports thus exasperating your balance of payments problem.

Its like taking a payday loan for £100 which you are going to put on a red hot tip in a race at the weekend.

1. If it comes in at 20 to 1 then you give the loan company their £125 (loan plus one weeks interest) out of your winnings and life is sweet.
2. When it inevitably doesn't, you've dug yourself into an even bigger mess but you were a big shot at the bookies for ten minutes.
3. The best trick is when it does come off say 1 in 50 times, to not repay the original loan and spend all the winnings on a holiday.

Option 1 is pretty much a miracle. Option 2 is Socialism. Option 3 is Corbynism at it's most successful.

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Re: Money tree economics

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Post by EnjoyingTheSun »

erol wrote:
Wed 27 May 2020 7:54 am

In effect this was what was done following the economic crash of 2008. The point I am trying to make is what is called 'magic money tree' economics is not 'fantasy' as it is often portrayed. It is just a mechanism for redistribution. The redistribution can be to banks as was the case in essence with QE following that crisis but there is no economic / mechanical reason why the redistribution could not / can not be to 'those with most need as a result of the virus'. There is only political limits on doing that.
Pretty much apples and oranges.

The worry in 2008 is that the banks would go bust if there was a bank run. Bank runs are caused by a lack of confidence, eg if I don't get my money out today then it will be gone. If that happens every bank in the world at any time will go under.
So you have to show confidence, we the government will guarantee that your money will be safe; look here oodles of money. So the public relax, no bank run and crisis aborted.

Or you can print up loads of money, say look you youngsters to reward you for your vote have some free internet. Government takes on a monopoly they can't run and burns through billions of pounds. Successful companies can't compete with free so they go skint and their workers have no jobs.
Eventually the free internet is very expensive internet because the government can't keep supporting the failing industry and its a monopoly so what can you do but pay?

BTW I think the fashionable thing is we will print government bonds now. Like they don't have to be repaid!

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