7 ms·

Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way

Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.

Retric 6y ago
It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.
- eecc 6y ago
  But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.
  - Retric 6y ago
    That’s one side of the equation, but as always there are diminishing returns. Therefore, borrowing money should be mildly discouraged as ultra low interest rates results in a huge misallocation of resources. That said, consistent low levels of inflation have minimal impact on borrowing as the future cash paying for the loan is discounted. In effect it simply forces a minimum annual loan repayment rate.
throwaway316943 6y ago
Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money. A better solution in my mind would have been to directly force the original wealth back into the system.
- Robotbeat 6y ago
  To the degree that printing money by reducing interest rates and perhaps causing a bit of inflation, it basically punishes hoarding of cash by taxing it at the inflation rate (plus the opportunity cost of having near zero nominal return in savings accounts). So that does force the original wealth into circulation. But it’s true that the Fed’s monetary stimulus is likely to be less effective at providing liquidity to individuals than direct fiscal stimulus like the stimulus checks people are getting. (Although it’s not all stimulating because many are using the money to pay off debts.)
  - lumost 6y ago
    Alternately, those who have already built a mechanism for capturing a portion of the printed money as profit can simply purchase non-productive assets and benefit from the rising prices. https://advisor.morganstanley.com/liberty-group/articles/insights-and-outcomes/investing-in-wine--the-market-for-illiquid-liquids https://advisor.morganstanley.com/liberty-group/articles/ins...
    - imtringued 6y ago
      This is why we need to put the money into the right hands. It reminds me of trickle down economics. Instead of flooding one plant and hoping that you are pouring enough water to reach the entire farm field it would be more effective to just water every plant a little. It would require much less water overall.
- TheColorYellow 6y ago
  I actually think liquidity issues arise mostly from entities failing to have cash on hand for the settling of debts that are due. Not due to hoarding wealth or refusing to invest it. Those things are systemic issues related to other aspects of the machinery, particularly the incentives or mechanism of wealth distribution outside of money markets.
  - Robotbeat 6y ago

Retric 6y ago

It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.

eecc 6y ago
But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.
- Retric 6y ago
  That’s one side of the equation, but as always there are diminishing returns. Therefore, borrowing money should be mildly discouraged as ultra low interest rates results in a huge misallocation of resources. That said, consistent low levels of inflation have minimal impact on borrowing as the future cash paying for the loan is discounted. In effect it simply forces a minimum annual loan repayment rate.

throwaway316943 6y ago

Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money. A better solution in my mind would have been to directly force the original wealth back into the system.

Robotbeat 6y ago
To the degree that printing money by reducing interest rates and perhaps causing a bit of inflation, it basically punishes hoarding of cash by taxing it at the inflation rate (plus the opportunity cost of having near zero nominal return in savings accounts). So that does force the original wealth into circulation. But it’s true that the Fed’s monetary stimulus is likely to be less effective at providing liquidity to individuals than direct fiscal stimulus like the stimulus checks people are getting. (Although it’s not all stimulating because many are using the money to pay off debts.)
- lumost 6y ago
  Alternately, those who have already built a mechanism for capturing a portion of the printed money as profit can simply purchase non-productive assets and benefit from the rising prices. https://advisor.morganstanley.com/liberty-group/articles/insights-and-outcomes/investing-in-wine--the-market-for-illiquid-liquids https://advisor.morganstanley.com/liberty-group/articles/ins...
  - imtringued 6y ago
    This is why we need to put the money into the right hands. It reminds me of trickle down economics. Instead of flooding one plant and hoping that you are pouring enough water to reach the entire farm field it would be more effective to just water every plant a little. It would require much less water overall.
TheColorYellow 6y ago
I actually think liquidity issues arise mostly from entities failing to have cash on hand for the settling of debts that are due. Not due to hoarding wealth or refusing to invest it. Those things are systemic issues related to other aspects of the machinery, particularly the incentives or mechanism of wealth distribution outside of money markets.
- Robotbeat 6y ago