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I was under the impression that the money supply can contract since most of it is in the form of debts and asset valuations and not in cash. If my house is wort
by dougmwne 7y ago
I was under the impression that the money supply can contract since most of it is in the form of debts and asset valuations and not in cash. If my house is worth $1 million but then because of a recession, less people are interested in buying houses and its price goes down to $500k, where did that money go?
- inetknght 7y agoNaive answer: your money never left you. Its velocity was reduced and your home's buying power has been adjusted to reflect that.
- pan69 7y agoNot only that, the initial $1 million you lend from the bank was literally created out of nothing. I.e. it never existed before you lent it.
- whatshisface 7y ago>most of it is in the form of debts and asset valuations and not in cash There are several definitions of money supply, but I don't think asset valuations are included in most of them.