LISTSERV mailing list manager LISTSERV 16.5

Help for AFEEMAIL Archives


AFEEMAIL Archives

AFEEMAIL Archives


AFEEMAIL@LISTSERV.UNL.EDU


View:

Message:

[

First

|

Previous

|

Next

|

Last

]

By Topic:

[

First

|

Previous

|

Next

|

Last

]

By Author:

[

First

|

Previous

|

Next

|

Last

]

Font:

Proportional Font

LISTSERV Archives

LISTSERV Archives

AFEEMAIL Home

AFEEMAIL Home

AFEEMAIL  July 2016

AFEEMAIL July 2016

Subject:

Re: Stock market money creation?

From:

"Wray, Randall" <[log in to unmask]>

Reply-To:

AFEEMAIL Discussion List <[log in to unmask]>

Date:

Sat, 16 Jul 2016 13:50:47 +0000

Content-Type:

text/plain

Parts/Attachments:

Parts/Attachments

text/plain (162 lines)

On Money and Tattoos
I'm practicing my retirement (that begins officially Aug 1) while camping in what must be one of the few remaining campgrounds w/o wifi, and contemplating things other than money creation and tattoos on Bill's Bum. Timothy wonders about the relation between the stock mkt and money creation and more generally about money and inflation. There already was reference to Minsky's dictum that "anyone can create money", however "the problem is to get it accepted". That seemed to confuse more than clarify. So let me try to simplify. Seems to me that it is not money creation but rather clearing that has motivated most of this discussion. 

If my word is good, the transaction occurs--my "money" is accepted. Chalk upon slate and the deal is done.  The transaction takes place at the agreed upon price. If the going price for a Chicago Artiste's ink upon bum is $1000, but Bill bids $10,000 for a Mona Lisa smile on his butt, Auctioneer Peach strikes the price and Bill has inflated upward the Chicago tattoo mkt. 

On timothy's definition, there has been no money creation, yet transactions and inflation, and Bill has got his rear end improved. 

Bill's a debtor and the Artiste is a creditor. At some point Bill will clear his debt.

Let us Define a Bank as an institution with a deposit acct at the central bank. Banks clear with reserves. Before QE, all the dollar banking business in the world could be cleared with about $50 Billion of reserves (stock). That is billion with a B. Daily transactions that were cleared with those $50B were in the Trillions. With a T. (Scott Fullwiler can tell you the exact amount). So only $50B was needed to clear $X Trillions EVERY DAY OF THE YEAR). 

Let us Define a Shadow Bank as an institution that clears using Bank deposits. That means you, me, Bill, and Bill's Tattoo Artiste. We are all Shadow Banks. As are all NonBank financial institutions. Total dollar transactions are Hundreds of Trillions (who knows, maybe Quadrillions) that clear  daily on the basis of dollar Bank deposits in the very low Trillions (that themselves can clear on the basis of Reserves of low Billions). You can ink a lot of bums and drive up the price of inking bums without needing to increase the reserves and bank deposits used for the clearing. 

On the stock mkt. Remember that it is a negative source of funding (at least since 1980) in the USA, with corporate buy-backs to push up stock prices. The net result could even be to reduce the "money supply" as Timothy defines it as corporations reduce "cash", and stockholders sell stock and retire mortgage debt (or whatever). Who knows? 

Focus on the transactions (flow), the prices, and the clearing. Forget the stocks. Well, don't forget them entirely--make sure you are stock-flow consistent. But don't worry about "money supply". Whatever that is. It is a Monetarist preoccupation.

L. Randall Wray
Senior Scholar, Levy Economics Institute
Papers: www.levyinstitute.org/publications/?auth=287

Co-editor Journal of Post Keynesian Economics
ISSN 0160-3477 (Print), 1557-7821 (Online)
www.tandfonline.com/toc/mpke20/current
http://www.tandfonline.com/toc/mpke20/current

New Book: Why Minsky Matters: An Introduction to the work of a maverick economist, Princeton University Press http://press.princeton.edu/titles/10575.html

New Book: Modern Money Theory: a primer on macroeconomics for sovereign monetary systems, Palgrave Macmillan http://www.palgrave.com/page/detail/modern-money-theory-l-randall-wray/?isb=9781137539908

Please make note of my new email address as I will be transitioning all email to:
[log in to unmask]

________________________________________
From: AFEEMAIL Discussion List [[log in to unmask]] on behalf of Wunder, Tim [[log in to unmask]]
Sent: Thursday, July 14, 2016 7:58 AM
To: [log in to unmask]
Subject: Re: [AFEEMAIL] Stock market money creation?

So I have been thinking on this topic more and Eric Tygmone's response is the correct one, IPO's would be equity finance and would NOT be money creating.  You can think about it this way: the stock buy might pull the deposit out of the banking system for a short time forcing the Fed to cover the lost deposit while the process works itself out, however when the IPO issuing company spends the money on goods and services as investment, the recipient once again redeposits back into the bank system.  Upon the redeposit the Fed can remove the coverage and nothing changes accept who owns the deposit.  If we assume the transaction happens quickly there would be no need for fed action...

That leads to an  issue I remembered from Schumpeter who wrote about the fact that bank finance is money creation NOT merely savings arbitrage.  In it he argued something very important; if we assume that there is at any time a stock of goods in a system, and all investment requires the entrepreneur to pull from that current stock of goods to pay for current worker services PRIOR to the entrepreneur selling anything, THEN investment through bank lending will  be inflationary.  if there is excess capacity in the system companies could up production and there would be limits on the inflation...  Yet even in a Post-Keynesian/Institutional framework, bank investment is money creating and therefore can create asset inflation if that new money is chasing after too few goods.  If on the other hand equity finance is NOT money creating THEN it would not be able to create asset bubbles since equity financing IS merely savings arbitrage.

So in essence there are two types of finance in the system; one money creating and potentially inflationary and a second one that would not be.  Yet as Erik Hake points out the second one, IPO and equity finance, is well documented to be at the center of MANY economic bubbles.  What then is the mechanism by which equity finance can create bubbles if it is not money creation?  Is equity finance somehow fundamentally backed up somewhere in the system by credit finance that is unseen?  Or is it that equity finance plays such a small role in the system that it is practically irrelevant to the economy?  I can't believe this last option is realistic, but it could be.

Erik Dean, I have read the Minsky you write about but I don't see it as addressing this issue.  Commercial paper is essentially credit finance so it falls under the normal money creation process, but maybe that is where some of the answer lies.

Dugger if ever I think about tattoos on your Buttocks again it will be too soon, plus shouldn't it be Hillary on your left buttocks since she will be the Republican light nominee?

tim

Timothy A Wunder PhD
Clinical Associate Professor
Graduate Student Advisor
Department of Economics University of Texas at Arlington
817.272.3257
________________________________________
From: AFEEMAIL Discussion List [[log in to unmask]] on behalf of erik dean [[log in to unmask]]
Sent: Thursday, July 14, 2016 12:36 AM
To: [log in to unmask]
Subject: Re: Stock market money creation?

Tim, you might check out Minsky's Stabilizing an Unstable Economy - esp. chs. 3 and 4, in which he discussed extension of lender of last resort operations over additional markets in financial instruments (e.g. commercial paper).  Along the lines of Eric Hake's response, the interesting thing about the question maybe isn't so much the proper definition of money as it is about the creation of liquidity and purchasing power.  The evolution of this hierarchy of lenders of last resort seems pertinent as well.

As for Bill and Jim's tattoos, I'm for it.

Erik



On Wed, Jul 13, 2016 at 6:02 PM, Scott McConnell <[log in to unmask]<mailto:[log in to unmask]>> wrote:
Thank you all for this interesting exchange. To the best of my knowledge: If debt is created in order to purchase the IPO shares, then yes, money has been created and monetary expansion has occurred through the banking system. In this case it would be the debt/credit contract between those that lent the money and those that want to purchase some stock. But the IPO is not money creation in and of itself. The IPO purchase is an asset exchange: money for stock. The money had to be created first.

Scott

On Wed, Jul 13, 2016 at 1:37 PM, BILL and PAULY DUGGER <[log in to unmask]<mailto:[log in to unmask]>> wrote:
Dear AFEEFOLX:

Whether I borrow money from my bank to have Donald Trump's likeness tattooed on my right buttocks or to buy stock in an IPO of the tattoo corporation makes no difference. Both increase the money stock as defined as currency plus bank deposits. However, if it involves a tattoo on my left buttocks of Bernie Sanders, I think that might be different. Jim Peach might agree but I am not sure. Perhaps Randy Wray could help out on this fine point of high theory.

Smile, friends. It's good medicine for these troubled times.


--Bill
William M. Dugger
Professor of Economics


________________________________
From: James Forder <[log in to unmask]<mailto:[log in to unmask]>>
To: [log in to unmask]<mailto:[log in to unmask]>
Sent: Wednesday, July 13, 2016 12:49 PM
Subject: Re: Stock market money creation?

What about these two related thoughts - It might be that the fact of the IPO leads to some people acquiring bank credit so as to buy the shares, so that, all things considered the result is an increase in the quantity of deposits. Isn’t there also the thought that in the aggregate a privately held company has become a publicly listed one, so that the same real assets are made generally more saleable. So on the whole, assets have become more liquid and for that reason more ‘money like’. I suppose, now that I think of it, if the proceeds of the IPO are partly used to repay bank loans, as they may well be, all-in there might be a reduction in the quantity of money.

best wishes

James



On 13 Jul 2016, at 18:23, Scott McConnell <[log in to unmask]<mailto:[log in to unmask]>> wrote:

Tim,

I think it is fundamentally different in the sense that loans are credit creation and an IPO is not new credit or debt, but the selling of ownership in the firm.

Scott

On Wednesday, July 13, 2016, Wunder, Tim <[log in to unmask]<mailto:[log in to unmask]>> wrote:
So banks create money through loan creation, that is now commonly agreed upon by at least most people on this list.  My question is this; does the stock market create money through IPO's?  So for example I am a company looking to make heavy investments in plant and equipment, and I fund that through an IPO, is the process of money creation the same as the process of loan money creation done in a bank system?

I understand the premise that anything can be money based upon how acceptable it is in exchange, but is there a fundamental difference between and IPO and bank created loans?

Also are there papers on this out there?

Thanks in advance to all who will pipe in.

Timothy A Wunder PhD
Clinical Associate Professor
Graduate Student Advisor
Department of Economics University of Texas at Arlington
817.272.3257<tel:817.272.3257>


--
Scott McConnell, PhD.
Assistant Professor of Economics
College of Business
210 Zabel Hall
Eastern Oregon University
One University Boulevard
La Grande, OR 97850
Tel.: (541) 962-3340<tel:%28541%29%20962-3340>
Fax: (541) 962-3898<tel:%28541%29%20962-3898>







--
Scott McConnell, PhD.
Assistant Professor of Economics
College of Business
210 Zabel Hall
Eastern Oregon University
One University Boulevard
La Grande, OR 97850
Tel.: (541) 962-3340<tel:%28541%29%20962-3340>
Fax: (541) 962-3898<tel:%28541%29%20962-3898>



--
Erik Dean, Ph. D.
Instructor of Economics, Portland Community College<http://www.pcc.edu>
Research Scholar, Binzagr Institute fo<http://www.binzagr-institute.org/>r Sustainable Prosperity<http://www.binzagr-institute.org/>
Portland, OR 97203

Top of Message | Previous Page | Permalink

Advanced Options


Options

Log In

Log In

Get Password

Get Password


Search Archives

Search Archives


Subscribe or Unsubscribe

Subscribe or Unsubscribe


Archives

May 2021
April 2021
March 2021
February 2021
January 2021
December 2020
November 2020
October 2020
September 2020
August 2020
July 2020
June 2020
May 2020
April 2020
March 2020
February 2020
January 2020
December 2019
November 2019
October 2019
September 2019
August 2019
July 2019
June 2019
May 2019
April 2019
March 2019
February 2019
January 2019
December 2018
November 2018
October 2018
September 2018
August 2018
July 2018
June 2018
May 2018
April 2018
March 2018
February 2018
January 2018
December 2017
November 2017
October 2017
September 2017
August 2017
July 2017
May 2017
April 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
September 2016
August 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010
December 2009
November 2009
October 2009
September 2009
August 2009
July 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004
September 2004
August 2004
July 2004
June 2004
May 2004
April 2004
March 2004
February 2004
January 2004
December 2003
November 2003
October 2003
September 2003
August 2003
July 2003
June 2003
May 2003
April 2003
March 2003
February 2003
January 2003
December 2002
November 2002
October 2002
September 2002
August 2002
July 2002
June 2002
May 2002
April 2002
March 2002
February 2002
January 2002
December 2001
November 2001
October 2001
September 2001
August 2001
July 2001
June 2001
May 2001
April 2001
March 2001
February 2001
January 2001
December 2000
November 2000
October 2000
September 2000
August 2000
July 2000
June 2000
May 2000
April 2000
March 2000
February 2000
January 2000
December 1999
November 1999
October 1999
September 1999
August 1999
July 1999
June 1999
May 1999
April 1999
March 1999
February 1999
January 1999
December 1998
November 1998
October 1998
September 1998
August 1998
July 1998
June 1998
May 1998
April 1998
March 1998
February 1998
January 1998
December 1997
November 1997
October 1997
September 1997
August 1997
July 1997
June 1997
May 1997
April 1997
March 1997
February 1997
January 1997
December 1996
November 1996
October 1996
September 1996
August 1996
July 1996
June 1996
May 1996
April 1996
March 1996
February 1996
January 1996
December 1995
November 1995
October 1995
September 1995
August 1995
July 1995
June 1995
May 1995
April 1995
March 1995
February 1995
January 1995
December 1994
November 1994
October 1994

ATOM RSS1 RSS2



LISTSERV.UNL.EDU

CataList Email List Search Powered by the LISTSERV Email List Manager