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2005-02-20 Home Front: Economy

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Posted by badanov 2005-02-20 5:57:55 AM|| || Front Page|| [11131 views since 2007-05-07] Top

#1 I'm convinced that, more and more, economics is less influenced by "real" dollars and is more in the purview of "imaginary money". By imaginary money, I mean the vast amounts of money based in *nothing*, of which far more exists than "real" money. For example, if you take out a loan of $10M, using a $1M building as collateral, you have created $9M of imaginary money. Now, that is an example of the creation of bad imaginary money; but far more imaginary money is created through "economic leverage." An example of this, good imaginary money, would be to say that you are paid $1, then you spend that dollar, and the person who gets it also spends it, and the next person does the same. However, the government demands 1 cent from *each* of you from each transaction. So, in traditional economics, after 100 transactions, the value of that dollar should be *zero*. Of course, intuitively you know that it is still worth $1. But the reality is the exact opposite from what traditional economics would say: in fact, that dollar is now "worth' $2! And these are just two examples of how imaginary money is created. "Real" money has probably less than a 20th the power of imaginary money in influencing economics. Last, but not least, imaginary money is the hidden driving force behind the Laffer curve, and *it* is what makes the Laffer curve so dramatic and pronounced in its effects.

Posted by Anonymoose 2005-02-20 11:32:28 AM|| 2005-02-20 11:32:28 AM|| Front Page Top

#2 No, I don't think he will.

But the likes of Reid and Pelosi probably will... loudly and confidently. Hopefully louder and louder come mid-term elections. That ought to go over well for Dem candidates.

Posted by eLarson 2005-02-20 12:27:48 PM|| 2005-02-20 12:27:48 PM|| Front Page Top

#3 For example, if you take out a loan of $10M, using a $1M building as collateral, you have created $9M of imaginary money.

I'm not sure how many financial institutions are going to loan, in effect, $9M to anyone without collateral. My guess is zero.

However, the government demands 1 cent from *each* of you from each transaction.

The Feds tax is income based, not transaction based. I believe this makes your example a bit shaky, unless I'm missing something.

Posted by Raj 2005-02-20 1:22:38 PM|| 2005-02-20 1:22:38 PM|| Front Page Top

#4 Raj: the first example was the cause of much of the S&L scandal, that is, "friendly" overinflating of the value of collateral. The $1M building would be assessed at $10M for the purposes of the loan, by a lender who was "friendly" with the lendee. Only afterwards, in default, would its true value become known. But even though a few people went to prison for that particular example, there are many others, of bad imaginary money creation that make such things as "market bubbles", where valuation, esp. stock valuation, is FAR above actual value. It is the very essense of speculation. The imaginary bill for the S&L imaginary money crisis was $500B that had to be paid in "real" money.
As to my second example, of good imaginary money creation, I was being simplistic, but the same holds true of income tax. If you earn $100,000, you are taxed on $100K. And this year, you spend $50,000, on whatever. But all the people who get your $50k in exchange for goods and services, in turn pay taxes on that same money that *you* already paid taxes on. But it is harder to envision the creation of good imaginary money with this model, though the principal is identical. The end result is the same: by the time a person who makes $100k's money gets through the system, it may be worth double or even 10 times as much, in good imaginary money.

Posted by Anonymoose 2005-02-20 2:04:11 PM|| 2005-02-20 2:04:11 PM|| Front Page Top

#5 Good points; Thaks for the follow-up, moose.

Posted by Raj 2005-02-20 2:45:12 PM|| 2005-02-20 2:45:12 PM|| Front Page Top

#6 hmmm I seem to remember a Senator McEgo (AZ) who was involved in the Keating scandal - that's why he's such a wself-righteous prick on campaign financing et al...trying to redeem himself

Posted by Frank G 2005-02-20 3:02:32 PM|| 2005-02-20 3:02:32 PM|| Front Page Top

#7 I thought his name was Senator McVain?

Posted by Raj 2005-02-20 3:26:36 PM|| 2005-02-20 3:26:36 PM|| Front Page Top

#8 I could support this in return for repealing all the income tax brackets above $90K.

In other words, I'll never support it.

Posted by jackal 2005-02-20 6:51:26 PM|| [http://home.earthlink.net/~sleepyjackal/index.html] 2005-02-20 6:51:26 PM|| Front Page Top

#9 Raj: The value of looking at imaginary money in economics is clarity. Many of today's flawed economic assumptions are based in the "gold standard" logic of real money, that being that money has no value beyond *something* physical to base it on, in the oldest case, gold or 'specie'. Now wealth based on specie at the national level was known as "mercantilism" (the country with the most specie is the strongest); and once currency was no longer backed by specie, the belief evolved that "mercantilism is dead". What was missed was that mercantilism was not dead, that it had in fact expanded to include things such as oil; then renewable resources such as food; then value added products, such as milled steel, and assembled goods; then services, especially financial services and military force projection; and finally imaginary money itself. Not ironically, the US is the world leader in both "real" money economics, but also in the realm of imaginary money. But old school economists are continually befuddled by the US "breaking the rules" of real money, again and again, yet not suffering the predicted consequences. The federal deficit, for one, "should have" destroyed our economy and our currency, long ago; as should any number of other "real" money factors, and the efforts by our foreign competitors. And yet it is very clear why not, when the imaginary money economy of the US is compared with the other major economic powers. To put it in real money terms would be to add a zero to the 3-6 Trillion dollars that exchange hands in the US economy every day. An imaginary economy that challenges in scale the entire rest of the world's economies put together.

Posted by Anonymoose 2005-02-20 7:36:27 PM|| 2005-02-20 7:36:27 PM|| Front Page Top

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