Is the $4T balance sheet captured in any of the money supply estimates or is it separate?

Thank you in advance for your consideration and response.

closed as off-topic by Dheer, Rupert Morrish, JoeTaxpayer Oct 19 '18 at 2:29

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I don't think that is a good representation of the money supply. As far as I can tell the only net credit to the base money supply is through treasury bonds and specifically the coupon payement on the treasury which has been extremely flat for 2 decades compare to the mid 80s under the vulcan and Reagan administration. Also considering that if the coupon is the only net credit to the money supply, it takes roughly 30 years from the date of issuance to net credit as well as short term debits the supply.

Let's look into this a bit more. First we consider that there exists a base money supply at any point. What ever that actually is- is irrelevant when we consider the supply of it. What matters then is what will effect it from then on. Two major influences, one the cardnality or size of it, the other is the velocity of transactions or speed of money. We are primarily concerned with the size of it in u.s. dollars. I have spent a considerable amount of time considering this and to this day the only clean net credit i can find is the treasury yield (coupon payment). This is new money and the only true way the treasury prints. As far as I can tell this coupon played to bond holders is never to be recouped. Thus there is no deficit stemming from this. Similar is the way a stock typically is never bought back, the gov can temporarily remove money with open market operations however the effect on currency supply size isn't permanent. As far as I can tell there is no purposefully way to remove base money permanently outside of negative interest treasuries (Germany/EU.).

Gov debt then is actually special inter gov agency bonds. Which arent sold on open markets. This represents the n trillion dollar deficit.This is different then the treasuries discussed above.

So if we look at the treasury historical rate we can see it has been below 3% and at times 1% or less sense roughly the 80s as for mentioned. Thus given the above assumptions we have to conclude the net contribution to base money has been virtually zero for the last two decades or earlier, with the the exception that indeed the Reagan era rates over 10% would take up to 30 years to finish crediting the supply.

Outside of base money there is what I call debt money or secondary money or non government generated money. This is currency created through bank loaned deposits. The fed sets the reserve requirement which essentially is the percentage of a depository institutions (bank) net over night deposited cash, which must be liable for. Lately this rate has reached all time low, dropping from a typical 90% to 10%. This means a bank is only required to hold 10% of all customers money deposited at its banks. The rest may be loaned out which introduces new money.

From time to time govs need to oil the money supply so to speak. If you look at factors like global use of the dollar, increased globalization. There are always new players entering that require temporary possession of a proportion of the net supply, to do trade. As the supply of dollars lessens proportionally, it means persons with real goods and services have to wait longer to introduce them to the market, as they wait on cash to become available so that they can make trade available.

It is in my opinion that this is a major way to effect long term monetary and fiscal policy by controlling the supply. If goods are plentiful one could force stock piling by restricting trade with a tight dollar. As things become difficult sue to natural recession in say production, changing work force demographics etc. The gov can increase the supply making it easier and letting out what it has saved metaphorically speaking.

Alternatively it could be effects of a mismanaged fed, that essentially makes no changes and continues the status quoe. I believe this to be the case due to one other reason, which I will explain next.

The gov adjusts it's tax plan to meet its expected costs and ability to collect revenue. The deficit is simply evidence to a failure to adequately maintained the money supply, or predict how to tax or both. We see the Clinton era tax plan most likely a Reagan era tax plan in bulk but used after the 15% bond coupon printing rate and associated monitary/fiscal policy intended with that rate. As result the tax plan very easily succeeded and arguably collected too much, hence the surplus.

Now I believe we are experiencing the opposite. A very weak tax plan, with very sparse money supply. Thus we year after year completely fail to get the target of a zerod budget. Or if we do it is through tighter and tighter taxes, and an economy, literally being choked to death. The primary reason is not fiscal/monitary policy but simple ignorance of how things work in basic principle, instead relying on ever greater complicated models and computer simulations, such that heads of state grow routine in not understanding anything about the department they head.

Most of this can be argued speculative however the ending summary and point id like to make and stress is this. Your article does not effect the real working money supply. You haven't considered global growth say in gdp of dollar trading nations, additionally you haven't considered liquidity traps such ad large revenue, large margin companies which take in much more then they spend. Also the most wealthy may control even more a percent, meaning fewer is available for regular use.

I did mention the 10% depository reserve requirement, part of the reason for this is banks are holding more then 100% and not making economic decision to lend and generate interest. There is no way to force banks to lend. This is a large liquidity trap. All of this would need to be accounted for in my opinion.

This is not financial advice. I am not an expert or trained in economics or finance. This is simply the result of private analysis done so by myself.

  • vulcan and Reagan i think should be Paul Volcker and Reagan – Morrison Chang Oct 18 '18 at 17:33

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