This page has been archived and commenting is disabled.
The Difference Between Money and Wealth and Why You Can Easily Print One But Must Actually Create The Other
Many lay persons are misled by terms such as money printing. This misdirection is easily understood and stems from a basic misunderstanding of what money is, versus actual economic value. Let's assume we have a pie called the EU (or US?), with a 1 trillion euros of economic value. This is the European economic pie. The EU get's in trouble and the banks start to run out of money. Now, the fact of the matter is that those same banks failed to make incremental gains to their actual economic value (true profit) and everyone who's paying attention knows it, hence they faced a problem getting funding. So, they go crying to the central bank, who basically printed euros through various mechanisms in order to push new and additional little pieces of digital paper throughout the system. This is what the layperson sees as money appearing out of nowhere at the behest of the financial bailout gods of the governmental powers that be.
The problem with this viewpoint is that the money appeared out of nowhere, but said money was not backed by actual economic capital. Hence more euros (or dollars) are available in the system, but each of those euros/dollars are simply worth that much less.
This is not economic progress boys and girls. What we need to move forward is to bake bigger pies, not cut the existing and steadily shrinking economic pies into more pieces!!!
Latest BoomBustBlog Subscription Content
Observations_BNP_June 18
(Commercial & Investment Banks)- JPM June 20 2012 Observations
(Commercial & Investment Banks) - MS 2Q12 qualitative review
(Commercial & Investment Banks) - BBVA Update 6-2012
(Commercial & Investment Banks) - GS Revenue Analysis_Q2 12
(Commercial & Investment Banks) 
armageddon puts
(Global Macro, Trades & Strategy)
- advertisements -
How about this. Like money? Sell me your car for a million? OK have a million Zimbabwe dollars, a million Castro pesos, a million Moldavian roubles, your choice.
Oh why not? Because you can't spend them, they aren't worth anything?
Bingo, now you get it.
WHAT?! Money is not wealth?! Inspired revelation! Someone phone the Bernank immediately!!!
Freezing of Black Economy transfers to Public
This from the grape vine, anonymous source, do with it what you may. No more vapor cash pumped into the Public Economy until ???
Might be a battle going on for the control of the Black Screens.
* You May Publish*****
* Extremely Unusual Banking Procedures.
* I'm very sorry to be writing you concerning this subject, however I feel I have to under these circumstances.
* I am not a light weight in this matter.
* I have confirmed contacts within BIS, ABN, Credit Swiss, UBS, HSBC, Bank Of London, and other high level Banks Worldwide to confirm my findings.
* The blocking of the current Rv Status is as follows.
* The Powers that Be (Powers That Were) are currently blocking the transfer of the revaluation of world currencies for the reasons to stop the transition of funds to the public.
* It is understood within this group, that if power (financing) were to be transferred to a private group, or individuals, would in fact be detrimental to it's effects. Thus effective to our outcome.
* In essence. "This cannot be allowed". (Quote from upper level Banking individual)
* End of Line. -- From a Source
Thanks Reggie your writing style is much clearer!
Fiat is not money, it is currency.
Only gold is money, nothing else.
Only gold is money, nothing else.
Money does not exist in nature. It exists only by definition. Therefore, money can be whatever we define it to be. Currently, we define money as 1. a medium of exchange; 2. a unit of account, and; 3. a store of value. Again, these three conditions do not exist in nature; they are true only by definition, by common acclaim. As the crowd changes the definitions, the items used as money change. A case in point is the fact that cigarettes have, in various circumstances, been used as a medium of exchange, a unit of account, and a store of value. So have sea shells.
Rally confirmed.
As mentioned earlier, further equity strength and USDX weakness expected this year according to my analysis.
http://www.zerohedge.com/news/2012-12-24/market-analysis
This simplistic article ssumes away the question of the day. It says printing money makes the currency worth less, which is to say inflation results, which is usually true. But the question now is whether other forces are pushing towards a deflationary recession that would cancel out that inflation. To put this in context, we had roughly $14 trillion of liquid net worth incinerated between 2008 and 2009, against which the Fed later printed roughly $2 trillion. No inflation resulted, and falling commodity prices seem to say we are OK for now. IF inflation stays contained, printing DID create wealth. One class of recipients was mortgage bond holders who had their bonds bid up by the Fed. I am not sure that inflation will stay contained, but there is no basis for assuming away the question as this article did.
Hey moron...the US dollar is "worth less"...damn near plucking zero actually. No fear tho! Wall Street is complaining we need MORE QE not less. We see no ... "inflation" ...because of the truly AWESOME productive capacity both in energy and industrials AND the fact that the US dollar is still the world's reserve currency...hence "creating internal demand" when devalued...to a point of course.
We've already had the inflation, over the last thirty odd years of monetary debasement. There is not enough electronic money or otherwise to plug the holes any longer. Deflation will rule as they have killed off demand by pulling it so far foreward that now only time can fix things. How much time depends on how much more meddling we will stand for before we adorn the lamposts with the entire lot of banksters along with their bribed henchmen.
This simplistic article ssumes away the question of the day. It says printing money makes the currency worth less, which is to say inflation results, which is usually true.
That's not what this rather simplistic article assumes or stated. It is quite simple, actually. 10/2 is the same amount as 5/1. Simple as that. Creating more slices of pie, or dollars or euros to represent a constant pool of economic capital does not equate to said pool of economic capital increasing. Actually, this rather simplistic article even goes farther in stating that the pie - or pool of economic capital - is actually shrinking as more slices of the pie are being created.
Reggie, you certainly did say that printing money makes the currency worth less. You said "each of those euros/dollars are simply worth that much less." That is inflation. There is more money going around for the same pie. Yes, I understand your 10/2::5/1 point. That is what inflation means. When a currency is diluted that is inflation, and I think you should acknowledge that inflation is the evil that you are describing. And inflation is indeed the normal result of pringing. But why can't you acknowledge that there may be circumstances in which other forces are causing deflation, so that the inflationary effect of printing might be diluted or avoided?
Because more currency does not necessarily result in inflation, at least not price inflation. Yes, the pieces are worth less yet bonds and real assets can still be purchased for less and less of those slices of pie that are dropping in value. The reason is beyond the reach of this simplified explanation though, and you know that.
Reggie-
Now you are saying that QE causes deflation! You say that assets can be purchased for less and less even while the slices of the pie are dropping in value. That is deflation, and I have not come across anybody who says QE causes deflation yet. BTW, I am no fan of QE and am not certain about the end result on some of these issues, but I certainly am keeping my view that the subject is not as simple as your article indicates. At this point, I don't even know what you think results from QE.
Exactly, Reggie.
The fact is, those dollars represented in the first pie would be worth that much more in the current deflationary environment brought on by the bursting of housing/financial bubble.
That's what "money" does in deflation: it's purchasing power increases. (That's why gold has tripled in nominal terms since the beginning of the financial crisis; gold IS money). The fed's 'printing' has simply robbed savers of that value by offsetting the appreciation of their 'money' in this deflationary environment. They have denied responsible savers the ability to take advantage of their austere ways by stealing the value of their currency.
The fed has simply offset what would (and should) have been the natural result of the bursting of a credit bubble: a deflationary environment where money (not credit) is king.
I certainly agree that QE makes prices higher than they would be without QE, regardless of whether we are otherwise in inflationary or deflationary times. If that is what Reggie meant, I agree. Still, you are saying that QE has robbed us of the goodness of deflation. Whether deflation is good is highly debatable, to put it mildly. Borrowers get hammered, lenders get a windfall, homeowners get slammed, etc.
An economist friend of mine tells of visiting the Federal Reserve in Washington and finding hmself in line at the cafeteria behind Ben Bernanke who is buying a pizza for lunch.
The server asks him how many pieces he would like his pizza cut into. Bernanke tell her that he is really hungry so please cut it into ten slices instead of the usual six.
I chuckled a bit at that
Who cares how you slice it, it's one big cow pie now.
it's not that simple Reg ...because in addition to the new counterfeit wealth being injected into a declining economy (declining productivity as a result of the amount Govt taxes/sucks out of peoples pockets) there's also a vast amount of money literally going up in smoke
from bad debts imploding to assets being re-priced/deflating and to businesses going tits up and disappearing altogether
check the figures and you'll see despite this orgy of counterfeit money production (inflation) by the central banks they're still not keeping pace wth the volume of money destruction (deflation)
Exactly right. You realize that this is the Fed's argument too, I assume. Saying anything like this on this site that is marginally sympathetic to anything the Fed does will usually get you slammed as a MMT nutjob Lib Keynsian whatever.
I'll take pie number 1 please.
9 x 8 = 72
11 x 6 = 66
Methinks the author meant for 12 slices in the second, but who's counting?
This question can't be THAT easy?
;)
The questions was THAT easy. You see, economic value has decreased (hence the first pie is bigger than the second pie) despite the rampant printing that has created more slices in the second pie. Thus, despite the fact that we have printed more money, we have less wealth. Get it?
Reggie, it just CAN'T be that simple.....or we wouldn't need Paul Krugman to explain it all for us. :-)
My father once told me, "You can't put 10 pounds of shit in a 5 pound bag".
Well, maybe he was wrong.
Nah, he was not always right but he was never wrong.
I think such a thing is called a " blivet"
http://en.wikipedia.org/wiki/Blivet
It's conceptually the same as a corporate stock split. You take the same size economic entity (a company or country) and split the number of outstanding shares from, say, 1,000 shares into 100,000 shares and you get the same effect. Each share simply represents less economic value, while the size of the pie doesn't change. As we print money in excess of economic growth of the pie, we don't get traction and instead dilute the value of each unit of currency. The only question is how much of that money gets into circulation (versus behing hoarded by banks) and how quickly it's spent (velocity). The answer to those questions gives you the inflation rate, in which reality catches up to the stock of money in circulation. Since human nature is prone to a primitive "flight" response, it doesn't take much to spook the herd into runaway inflation. Seems like Bernanke wants a little bit of a spooked market, to stimulate velocity, but not too much. Good luck trying to regulate human emotion. From almost any analysis perspective, this is headed off a cliff. As a result, I just took advantage of the (artificial) dip in PM prices by adding more gold and silver to my stack....
second one?
The central wankers know they're not creating wealth. If they stop printing, their fraudulent financial con collapses & trade ceases. If they continue printing, their financial con eventually collapses worse & trade ceases. The latter is preferable to them.
This is along the same lines :
http://www.zerohedge.com/news/observations-engineer
Thats a good metaphor to explain to the sheeple why printing is not a solution
Much as I admire Reggie for his in depth analysis of banks, I must point out to him that central banks do not print money. THEY PRINT DEBT and that is why the problems we face are worsening.
He's trying to break it down so even the most dense can understand it. DebtMoney is clearly ZH-econ201, not 101.
It appears that the pie is also a lie.