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By cash I meant M1[1] which is the general usage (“let me check how much cash is in my account” &c). I’ll allow that I should have been more precise since you’r

by User23 3y ago

By cash I meant M1[1] which is the general usage (“let me check how much cash is in my account” &c). I’ll allow that I should have been more precise since you’re trying to nitpick your way out if answering the where does that money go question. That’s sitting at $20 trillion ish. Again, this is end of the day money, so vague hand waving about circulating money doesn’t cut it. The overwhelming amount of cash settles end of day. So whose accounts are that $20 trillion sitting in? To save you some trouble using the rough figure of 115 million “banked” households if you want to claim it’s spread around that would require the median household to have approximately $174,000 in demand deposits, so it’s certainly not there. Again, you said the ultra rich don’t hold that $20 trillion. Then who does? Frankly I think you’re just extrapolating incorrectly from your flawed understanding of the banking system and your own presumably HNWI savings allocations. I agree it can be a bit tough to understand there are folks out there for whom a million in notes and coins is a lesser percentage of their net worth than the change in your change jar is of yours. [1] https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL

WalterBright 3y ago
The thing is, "cash" in one's account is not cash at all and is not being hoarded. It gets loaned out. It's put to use such that it generates interest income. > there are folks out there for whom a million in notes and coins is a lesser percentage of their net worth than the change in your change jar is of yours. You argued before that they were hoarding most of their wealth. Now it's a tiny percentage. Bezos (and other billionaires) were in the paper recently for funding their cash needs by borrowing. Why would they borrow if they had a cash hoard? It doesn't make any sense.
- User23 3y ago
  > The thing is, "cash" in one's account is not cash at all and is not being hoarded. It gets loaned out. It's put to use such that it generates interest income. No, it doesn't. Banks don't loan out deposits; banks originating loans create deposits. It's basic double entry bookkeeping. Your deposit asset is the bank's liability. Here is a basic, simplified, but essentially correct model: 1) Credit worthy borrower Alice approaches a bank to borrow $1,000,000 to buy some real asset worth $1,000,000 from Bob. Maybe a house, maybe a business, whatever, doesn't really matter. 2) Bank performs underwriting and determines that Alice is in deed credit worthy. Now bank performs the following four operations simultaneously (This is where we simplify, we're assuming Alice and Bob use the same bank to avoid bringing interbank payments in, and other possible complications like an escrow party, but all those extra steps sum out to equivalent to the simple model). 3) Create a deposit in Bob's account with the bank for $1,000,000. 4) Create a corresponding liability on bank's account for $1,000,000, corresponding to Bob's deposit. 5) Create a liability on Alice's account with the bank for $1,000,000. 6) Create a corresponding asset on the bank's account for $1,000,000. This is the asset that banks sell when they sell a loan. 7) Bob transfers the real asset to Alice. At this point the bank has created $1,000,000 that Bob is going to spend as he pleases, but the bank's total net worth is unchanged, since the bank's new liability is equaled by its new asset. And the bank then expects to earn a return on that asset based on the terms of whatever the loan agreement are. Alice and Bob's respective net worth are also nominally unchanged, because Bob has the new deposit to offset his old real asset, and Alice has the new liability to offset her new real asset. Now at this point you're going to object about fractional reserve requirements. As it happens they actually never constrained loan origination because the Fed had to supply the exact amount of reserves after the fact, in aggregate, that the banking system required for the loans it originated, because if it didn't the interbank payment system would seize up. However that's quite complicated to demonstrate and I'm not up for it[1]. But fortunately we can ignore that, because there are no reserve requirements anymore[2]: As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. > You argued before that they were hoarding most of their wealth. Now it's a tiny percentage. Tiny percentage of notes and coins. Not M1 cash. And you still haven't answered, who is holding that $20 trillion in M1 cash? If the ultra high net worth individuals are all divesting themselves of all their M1 cash, someone has to be their counterparty. Who? [1] It is worth understanding though if you're interested. The shocking thing is that reserves and deposits (and coins too, but they're a tiny percentage of outstanding cash money) are entirely different "data types"! They just both happen to be denominated in the same unit of account. Naturally that's not a coincidence but a property of how the modern banking system has been constructed. Reserves mainly come into play for interbank payments and federal government spending. Incidentally coins are also a different type from paper money. That's not particularly relevant to the topic at hand, but the existence of that rabbit hole serves to show just how interesting and complex the money system actually is. [2] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
  - WalterBright 3y ago
    > Banks don't loan out deposits; Sorry, but that's what they do. You don't agree, so there's nothing further to talk about. > Bob transfers the real asset to Alice. I.e. the bank loaned out Bob's deposit to Alice. The rest is just accounting machinations. Yes, I understand double entry bookkeeping. I got an A on that course (!) and I've been doing the the accounting for my business ever since.
    - User23 3y ago
      > Sorry, but that's what they do. You don't agree, so there's nothing further to talk about. Agreed. One cannot educate the obstinate, and you are obstinately clinging to your ignorance here. Here[1] for example is another explanation and you can easily find more from sources as authoritative as the central banks themselves, who I think we can both agree have a better grasp on the operational mechanics of banking than either of us. I won’t bother to provide those additional links for obvious reasons. Nevertheless perhaps one day you’ll stop believing the fairy tale version of banking you learned as a boy, and when you do you can refer back. [1] https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b...

by User23 3y ago

WalterBright 3y ago

The thing is, "cash" in one's account is not cash at all and is not being hoarded. It gets loaned out. It's put to use such that it generates interest income. > there are folks out there for whom a million in notes and coins is a lesser percentage of their net worth than the change in your change jar is of yours. You argued before that they were hoarding most of their wealth. Now it's a tiny percentage. Bezos (and other billionaires) were in the paper recently for funding their cash needs by borrowing. Why would they borrow if they had a cash hoard? It doesn't make any sense.

User23 3y ago
> The thing is, "cash" in one's account is not cash at all and is not being hoarded. It gets loaned out. It's put to use such that it generates interest income. No, it doesn't. Banks don't loan out deposits; banks originating loans create deposits. It's basic double entry bookkeeping. Your deposit asset is the bank's liability. Here is a basic, simplified, but essentially correct model: 1) Credit worthy borrower Alice approaches a bank to borrow $1,000,000 to buy some real asset worth $1,000,000 from Bob. Maybe a house, maybe a business, whatever, doesn't really matter. 2) Bank performs underwriting and determines that Alice is in deed credit worthy. Now bank performs the following four operations simultaneously (This is where we simplify, we're assuming Alice and Bob use the same bank to avoid bringing interbank payments in, and other possible complications like an escrow party, but all those extra steps sum out to equivalent to the simple model). 3) Create a deposit in Bob's account with the bank for $1,000,000. 4) Create a corresponding liability on bank's account for $1,000,000, corresponding to Bob's deposit. 5) Create a liability on Alice's account with the bank for $1,000,000. 6) Create a corresponding asset on the bank's account for $1,000,000. This is the asset that banks sell when they sell a loan. 7) Bob transfers the real asset to Alice. At this point the bank has created $1,000,000 that Bob is going to spend as he pleases, but the bank's total net worth is unchanged, since the bank's new liability is equaled by its new asset. And the bank then expects to earn a return on that asset based on the terms of whatever the loan agreement are. Alice and Bob's respective net worth are also nominally unchanged, because Bob has the new deposit to offset his old real asset, and Alice has the new liability to offset her new real asset. Now at this point you're going to object about fractional reserve requirements. As it happens they actually never constrained loan origination because the Fed had to supply the exact amount of reserves after the fact, in aggregate, that the banking system required for the loans it originated, because if it didn't the interbank payment system would seize up. However that's quite complicated to demonstrate and I'm not up for it[1]. But fortunately we can ignore that, because there are no reserve requirements anymore[2]: As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. > You argued before that they were hoarding most of their wealth. Now it's a tiny percentage. Tiny percentage of notes and coins. Not M1 cash. And you still haven't answered, who is holding that $20 trillion in M1 cash? If the ultra high net worth individuals are all divesting themselves of all their M1 cash, someone has to be their counterparty. Who? [1] It is worth understanding though if you're interested. The shocking thing is that reserves and deposits (and coins too, but they're a tiny percentage of outstanding cash money) are entirely different "data types"! They just both happen to be denominated in the same unit of account. Naturally that's not a coincidence but a property of how the modern banking system has been constructed. Reserves mainly come into play for interbank payments and federal government spending. Incidentally coins are also a different type from paper money. That's not particularly relevant to the topic at hand, but the existence of that rabbit hole serves to show just how interesting and complex the money system actually is. [2] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- WalterBright 3y ago
  > Banks don't loan out deposits; Sorry, but that's what they do. You don't agree, so there's nothing further to talk about. > Bob transfers the real asset to Alice. I.e. the bank loaned out Bob's deposit to Alice. The rest is just accounting machinations. Yes, I understand double entry bookkeeping. I got an A on that course (!) and I've been doing the the accounting for my business ever since.
  - User23 3y ago
    > Sorry, but that's what they do. You don't agree, so there's nothing further to talk about. Agreed. One cannot educate the obstinate, and you are obstinately clinging to your ignorance here. Here[1] for example is another explanation and you can easily find more from sources as authoritative as the central banks themselves, who I think we can both agree have a better grasp on the operational mechanics of banking than either of us. I won’t bother to provide those additional links for obvious reasons. Nevertheless perhaps one day you’ll stop believing the fairy tale version of banking you learned as a boy, and when you do you can refer back. [1] https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b...