The amount of Money in Circulation Has Not Been Reduced Since the 2008 Downturn, Where Is It?

[Blackhatjack]

I hear lots of so-called economic experts say that 'people are not spending' and that is fueling the failure of the economy to recover.

However, when people have lost their jobs or inundated with bills they can't pay, they are not hoarding cash.

So who has the cash, and where is it? And if spending would help us recover, why is there not a patriot public service announcement asking those people to put those dollars back in circulation so the economy can 'turn the corner?"

[lazarus]

1. The banks have it

They had 20 billion dollars in reserve in 2008. They have over 800 billion in reserve right now.

If they would loan it out, that would create a bunch of jobs. But they're sitting on it.

[Warpy]

2. People carrying debt have gotten the message

and are paying it off instead of adding to it. People without large debt loads are saving whatever they get, knowing their jobs are not safe.

[flyingfysh]

3. read an introductory economics text about how money is created

For example, suppose I have $1000. I deposit it in the bank, but still have $1000. The bank lends it to someone else, and they now have $1000 - but so do I! So routine economic transactions can "increase" the amount of money. If I gained my $1000 by direct deposit from an employer, there may be no actual paper bills involved at all! And the borrower sees it as a credit in an account he maintains.

"Money" is much more that whatever cash happens to have been printed.

[TheBigotBasher]

8. It develops on from that.

The bank assumes that you will not withdraw all of your $1000. You will only withdraw maybe 10% ($100) of it. They are therefore able to lend out $10000 on the basis that you will not withdraw your $1000. The problem is that the fractional reserve got less and less, it was reduced to an 100th of 1%.

[Blackhatjack]

11. I understand how bank lending and reserves work. I am asking about who is 'hoarding' money...

... not putting money to work, and therefore keeping it from being available to move through the economy.

[Blackhatjack]

9. My introductory economic textbook many years ago referred to M3 as indicating money in circulation

... and if I recall, a couple of years ago under George W. Bush the Govt decided to stop reporting on the M3 money supply.

I understand the point about debits and credits. But supposedly a major problem is the failure to 'spend' and allow those transactions to reverberate throughout the economy.

If the majority of the 'money on the sidelines' is being hoarded by corporate entities and the richest 1/10 of 1%, then Congress has a duty to act in ways that protect the country from financial ruin by encouraging those entities to stop hoarding money.

As a country we 'encourage' taxpayers to act in certain ways through tax policy every day. Why not in this case?

[TheBigotBasher]

15. M3 was a monetarist economic target for inflation control.

Even using monetarist economic theory Bush was a failure, which is why they stopped reporting on it.

The problem with the banks at the moment is not that the cash is hoarded, there is no longer any significant lending. The credit crunch remains in force. No one is hoarding money, it is just not being regenerated as lending.

Just to add, in addition to lack of understanding about the money supply, the Republicans never quite understood that the much maligned back of a hanky Laffer curve was about an optimum level of taxation and not an argument for ever reducing rates of tax.

[damyank913]

4. How bout China and India?

What do you suppose happens during times of huge trade imbalances?

[NNN0LHI]

5. I forget how many pallets of shrink wrapped bundles of $100 dollar bills Bush sent to Iraq?

But it was a lot.

Don

[karynnj]

6. cash is a very small part of "money"

Consider that most of your biggest payments never involve cash. In fact, I think that the portion of things paid in cash has likely declined from a decade ago. There was a time where credit cards weren't used at grocery stores.

[Foo Fighter]

7. Google maps is your friend.

http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&z=7&iwloc=A&q=+85+Broad+St.+New+York,+NY

(That's a link to Goldman Sachs in NY in case anyone is wondering.)

[Octafish]

10. Offshore, Baby.

Know your BFEE: Phil Gramm, the Meyer Lansky of the War Party, Set-Up the Biggest Bank Heist Ever.

[Blackhatjack]

13. I did read where the AIG bailout was aimed at France payoffs as well as Goldman Sachs...

... and that offshore entities that wanted to remain anonymous were pressuring the US to do the deal that resulted in 100 cents on the dollar payments.

[Catshrink]

12. Letterman once said

"Oprah has all the money." Maybe it's true.

[TomCADem]

14. Here is Paul Krugman Explaining The Concept Of Money Supply and Liquidity Trap

A bit wonky, but Krugman explains why we are not having hyper inflation despite the fiscal stimulus:

http://krugman.blogs.nytimes.com/2009/01/26/whats-in-a-name/

I keep seeing economics articles and blog posts that insist that we’re NOT in a liquidity trap (and, of course, that yours truly is all wrong) because the situation doesn’t meet the author’s definition of such a trap. E.g., the interest rates at which businesses can borrow aren’t zero; or there are still things the Fed could do, like buying long-term bonds or corporate debt, or something.

Well, my definition of a liquidity trap is, purely and simply, a situation in which conventional monetary policy — open-market purchases of short-term government debt — has lost effectiveness. Period. End of story.

Now, if you prefer a different definition of a liquidity trap, OK; call our current situation a banana, instead. But changing the name does not change the essential fact — namely, conventional monetary policy has lost effectiveness.

Yes, there are other things the Fed could do — and it’s doing them, on an awesome scale. But they’re controversial, precisely because, unlike conventional monetary policy, they involve picking and choosing among potentially risky investments. And there’s a much stronger case for fiscal policy than in normal times, because we don’t know how well these unconventional measures will work.

[jberryhill]

16. I think some of it is under the agitator in my washing machine

Sorry.

[Blackhatjack]

17. So Tell Me This -- Are Banks Holding $$ in Reserve Because of Undisclosed Problems?

It does not take an economics degree to understand the looming commercial real estate catastrophe.

But the commercial real estate loan market is approximately 1/2 the size of the residential loan market.

So does it go back to the trillions of dollars owed on derivative contracts that has frozen the credit markets? Are the bailed out too big to fail banks really insolvent?

[cascadiance]

18. "Virtual money", aka "available" debt spending has been reduced.

Every person that has had their credit card limits reduced, and has paid more of their credit cards down, in effect takes down our spending power that much more. Theoretically, the amount of credit you have should be backed up with currency out of circulation somewhere, but I think we all know that's not likely the case. So the more the debt gets paid down instead of being used to buy things, that takes more spending power out of circulation. And the less people can borrow more (with reduced credit limits) also reduces spending too.

The bottom line is that until people see a stable job again that pays them a real living wage with room to spend more money, we're not going to see spending go back to what it was any time soon. And probably we'll have to wait for a while once that threshold has been crossed too, as people have a lot of debt to crawl out from under before they can start spending with any regularity again.

These banksters who have gotten an infusion of cash supposedly to make available as credit to spike spending again, are instead raising interest rates on people arbitrarily, which just makes the above problem that much worse, instead of giving people more cash and ability to get "unburied" any time soon.

[unblock]

19. the velocity of money has decreased.

each individual dollar that might have been involved in 6 transactions per month as it passed from employer to employee to store to supplier, etc. might now be involved in only 5 transactions per month as everyone tries to serve their own interests by delaying payments as much as they can get away with. (note i'm just guessing at the numbers, the point is simply the decline.)

employers can't delay paychecks of existing employees, but they can delay hiring or replacing workers or opening up new plants. employees/consumers can delay big purchases, and stores can delay paying their suppliers and so on.

that means less money in the entire system.

[Blackhatjack]

20. I believe the Too Big To Fail Banks Already Decided The Middle Class Is NOT Coming Back...

They are 'harvesting' the financial living 'dead' to get every penny they can today because they do not expect the middle class under so much personal debt will ever be in a position to serve as a source of future wealth for them.

It sure looks like their business model will be looking at oversees 'bets' and the profits they seek are intended to rise on the backs of emerging economies --not the United States.

They know they have killed off the 'hosts' and are now looking for new victims, using the taxpayers' dime to fund any losses and corraling all the profits.

The only thing that stands in their way is a Congress that can write laws that interfere with their plans. And that is why they are sending hundreds of lobbyists to Capitol Hill every day to make sure that does not happen.

[unblock]

21. i'm not so inclined to blame the banks for this. this is the inevitable result of globalization

one of the major motivations for globalization was for companies to gain access to cheap labor overseas. rather than seeing helping americans as being something demanded by patriotism, or just as a good business idea (the way henry ford did) so that americans could afford to buy their products, the corporations decided to rail on this as protectionism.

and as we workers here have been forced to compete with cheap overseas labor, it's been inevitable that overseas workers' incomes would rise as ours would fall.

the banks provide the oil for the car, but the ceo's are the ones driving the car.

[Festivito]

22. My guess comes from here. And, it's hidden in the Fed.

The Federal Reserve suddenly went up in reserves after stopping the report of the M3. Private reporting went pay-per-view.

Check out credit derivatives from the link in the DU page.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=7837593&mesg_id=7837593