[evilgenius]

My question no one answers is, if all money is debt, and debt defaults and repayments destroy the money created, what prevents the money supply from going to zero when all debt defaults and/or all debts are paid?

I used to ask myself that same question. Then I realized that the government, not unlike many businesses, borrows not just to cover long-term spending, but short-term as well. Because both business and government do this what you are asking has such a low probability of happening that you could say it won't.

I'm assuming when you say zero, btw, that you mean it would fall to the level of all cash.

[Pops]

Further, since all bank loans have corresponding deposits that offset, if all were zeroed out, your contention is all of today's reserves would disappear somewhere?

Where would they go?

The reserves are not part of the money supply.

Only as long as they are "counted" as reserves.
Vault cash is counted as reserves, until I withdraw some.

Excess reserve (above that required) are not differentiated from required reserves, but can be converted to hard money on notice.

[Pops]

M0 is narrow or base money,

The question is, is it an asset or a not?

You have said over and over that all money is debt.

Is the 20 in your pocket a debt or an asset?

[MonteQuest]

Once you grasp that all money is created via loans, you must look to see under what mechanisms can the money supply be increased.

The Federal Reserve’s three tools to affect the “money supply” are open market operations, the discount rate and reserve requirements. Open market operations involve the buying and selling of government securities held by the banks purchased with customer deposits. Liquidity swaps of cash reserves for bonds. Bonds are already part of the money supply, so this doesn’t increase the money supply, it just makes those assets liquid and available for lending or other investment—like shale oil drilling companies.

The discount rate is the interest rate charged by Federal Reserve Banks to banks on short-term loans to increase their cash reserves. This rate is set by the FED and not the market. It affects the ebb and flow of new loans. Reserve requirements are the portions of deposits that banks must maintain either in their vaults or on deposit at a Federal Reserve Bank. This affects how much money they have for lending into the “money supply.”

Now, in a no growth environment post peak, how is new money going to get into the “money supply” to offset the defaults and debt repayments that will destroy the money supply? If it doesn’t, the debt-based “money supply” goes to zero. Forget about physical dollars. Not relevant to the conversation.

[MonteQuest]

My question no one answers is, if all money is debt, and debt defaults and repayments destroy the money created, what prevents the money supply from going to zero when all debt defaults and/or all debts are paid?

I used to ask myself that same question. Then I realized that the government, not unlike many businesses, borrows not just to cover long-term spending, but short-term as well. Because both business and government do this what you are asking has such a low probability of happening that you could say it won't.

I'm assuming when you say zero, btw, that you mean it would fall to the level of all cash.

Borrow? From whom? Sell bonds? To who?

Who would buy govt bonds with no prospect of a return in a no growth environment?

Cash $1.34 trillion is only a tiny segment of the "money supply." $15 trillion. And an even smaller segment of the debt at $60 trillion. If the "money supply" goes to zero cash is worthless,

[MonteQuest]

Only as long as they are "counted" as reserves.
Vault cash is counted as reserves, until I withdraw some.

Excess reserve (above that required) are not differentiated from required reserves, but can be converted to hard money on notice.

For lending to other banks, not the public. This is accomplished by making short-term (usually overnight) loans on the federal funds market to banks who may be short of their reserve requirements.

[MonteQuest]

The question is, is it an asset or a not?

You have said over and over that all money is debt.

Is the 20 in your pocket a debt or an asset?

To you it is an asset, subject to the actions of the person who holds the debt that created it. If he defaults, the value of "any dollar" held by anyone, goes down. If enough loans default, the value can go to zero.

[Pops]

If it doesn’t, the debt-based “money supply” goes to zero.

Spend it.

[Pops]

If enough loans default, the value can go to zero.

What a great world!

No money required!

[MonteQuest]

Spend it.

Buying bonds with reserves does not increase the money supply. It is a liquidity swap. Money supply is only increased via bank fractional reserve lending.

[MonteQuest]

If it doesn’t, the debt-based “money supply” goes to zero.

Spend it.

Agree - but on what ?

Or should I say what is a safe investment these days, other than food, shelter, clothes (and for Cog - guns !!) ?

Serious question.

Gas

No, he is saying to spend money (bank reserves) into existence to offset the declining money supply. Doesn't work that way as I just posted.

[MonteQuest]

Here is what spending money via liquidity swaps has done to the FED's balance sheet.

[onlooker]

Monte how do you see this whole worldwide debt saturation finally unwinding? What will be the trigger? Will it happen very soon? How bad will it be? Sorry just curious.

[Pops]

Agree - but on what ?

Or should I say what is a safe investment these days, other than food, shelter, clothes (and for Cog - guns !!) ?

Serious question.

Gas

I meant the government could simply spend it into existence.

The US Treasury prints actual dollars.
It also collects taxes and pays the bills.

Doesn't take a lot of imagination to see the Treasury could simply pay the bills with dollars.

It would only work in a very deflationary environment where dollars are in high demand, otherwise it would be inflationary.

.

[MonteQuest]

Monte how do you see this whole worldwide debt saturation finally unwinding? What will be the trigger? Will it happen very soon? How bad will it be? Sorry just curious.

Well, the FED's ultra-loose monetary policy has helped unleash unsustainable credit booms in many emerging market economies. While a rise in US interest rates may be justified by conditions in the domestic economy, it will have consequences for many emerging market economies.

Rising interest rates and low oil price are triggering an unwinding as further debt isn't growing GDP. China devaluing it's currency coupled with massive capital flight is tanking the market.

Soon? Bad? Don't know. It has the potential for currency devaluation and massive insolvency worse than the Crash of 1929.

[Pops]

Here is what spending money via liquidity swaps has done to the FED's balance sheet.

And here are how much of that is "excess".
Excess reserves are cash above reserve requirements (not banks deposits, cash)
The Fed began paying interest on excess reserves with the bailouts.
Excess is not counted in M0, but in MB along with required reserves, but it is available on demand to the bank



https://www.clevelandfed.org/newsroom-a ... -cash.aspx

[MonteQuest]

I meant the government could simply spend it into existence.

You mean just print dollars and spend them? Sorry. The federal government cannot spend money without first taking that money from someone at interest via a bond or govt security.

[MonteQuest]

Excess is not counted in M0, but in MB along with required reserves, but it is available on demand to the bank

To lend to other banks, not to increase the money supply.

[MonteQuest]

Excess reserves are cash above reserve requirements (not banks deposits, cash)

Physical cash is not relevant to the discussion. Inside money deposited to loan recipients accounts is. That''s where the "money supply" is increased. Forget about dollar bills. You can have an increase in M0 without an increase in the "money supply."