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