Little explanatory model of currency fluctuations This little explanatory model of currency fluctuations, speculation out ' can be seen as a complement, an annex to the previous post on the ups and downs monetary system and the false solutions taken during the G20 summit on April 2, 2009
Most books on the currency does not really care about the issue of output growth, nor the production itself. Their authors are content most often either stay at a very comprehensive, stating the quantity theory of money, or to show how changing the balance of the lending bank and the borrower's balance sheet corresponds to emissions or removals currency-money. Although almost
'comptablophobe, I've never doubted that the outcome should be balanced by the very nature of double entry bookkeeping, and the fact that assets and liabilities are equal does not really surprise me . Certainly it's very interesting that over the claims, brought to the assets of the bank, there is the deposit view corresponding to the liabilities of the bank, but the problem I want to raise is not there. It is at once more 'simple' and more fundamental.
The idea behind my question, and thus to the development of the model which follows, is
the need for additional money if output growth . I'll try to show that if the money does not grow at the same rate as production, it is that there are 'leaks', or that there are interesting changes in behavior analysis.
Borrowers borrow by 'necessity' (this may be to speculate, but even outside that, I will first assume that this loan is related to the 'real' economy, production, consumption, savings, investment) In case of output growth, we can already suspects that this is because there is growth: otherwise, additional production would lead to lower prices.
Moreover, as we will look at changes over time, both in production, trade, and money supply, it may seem logical to introduce time - we'll assume here discrete ( not continuous).
I said, moreover, two additional assumptions, to avoid running the visitor on the wrong track, focusing the question, I recall the problem wrong track to solve the problem of the potential increase in demands for money (and therefore the offer, because bankers are supposed to serve potential borrowers).
1)
The population is stable (as many deaths than births, if you prefer)
2)
We do not pay interest on borrowings (I know it's not true, but that the will perhaps one day ;-))
In fact, in most of the many discussions I had recently with various personalities and experts from the money issue, we basically traded on the desirable type of currency, even on the question of creation ex nihilo or not, the bank money. But I must admit that in doing so, we probably lost sight of another crucial issue - and no doubt a priority - one of the reasons for this
currency issue.
In fact, the few models that speak to both currency and growth are essentially static, or 'tangent' to static models. Let
therefore in our model, very simple and almost qualitative, arithmetic rudimentary.
3) economic agents are 10 in number (to facilitate calculations in decimal system)
4) These agents do trade (they sell, buy, consume) at the end of the production period .
Assume for the moment, that this period is 1 month, they each produce the equivalent of 1,000 units of account (to please the advocates of labor value, I assume they work the same same number of hours in the month).
The last day is devoted to the sale of their respective production, purchase of goods that are used for consumption (the so-called consumption can be made that day - not very credible - or throughout the next month, no matter here, assuming that goods are only consumer goods, taken from nature without investment, not to complicate : we could complicate it. The economist Solow, future Nobel Prize, it has tried with its generations of equipment).
Monthly GDP by accounting unit, is 10000. I will assume that an accountant philanthropist (another name for a banker) will issue 10,000 units of account, will lend for the day, one pack of 1000 by economic agents.
money creation (during day) is equal to 10000, the monetary destruction at the end of the day, is 10,000 (the amount being philanthropic, it demands nothing). So more money for the rest of the time. The currency has existed
the market time .
Now suppose there is a change in consumption patterns and exchange: the conditions of production remain the same, but now trade -
market - held twice a month .
GDP is now bi-monthly from 5000, the monetary needs (two days per month) will be 5000 (instead of 10000), even if they disappear at the end of each these 2 market days. The currency is still the market time.
For those who like real models, one might assume that each trader arrives in the morning with the currency-money (corresponding to the evaluation of its production) around the neck (it may even be a kind necklace ClubMed it has been tied the morning by our accountant, nice organizer if there ever was). It will make this book a nice necklace of the same value (but with beads from the 9 other producers) at the end of the day's market. The collars will be destroyed (if they are to serve only once), or keep in the trunk of the accounting if we are to avoid the mess.
course, everyone must see now where I'm coming.
Suppose, then, finally, that the exchanges take place 10 times per month (every 3 days: still to facilitate the calculation).
GDP, three-days' will be 1000, the money needed to trade itself will be 1000, it will be 'created' every 3 days at the beginning of each market day, and will be destroyed at the end of each day (yes, yes, I assumed that there was no Scrooge, that any issued currency was used, and then returned to the fold, or trunk, of our Accounting philanthropist).
What is the moral of this fable? Oh, it is simple. it means that at equal technological conditions, assumed constant,
a change in trading conditions (the number of market days in the month)
change currency needs. This necessarily influence either on the velocity of money, or the quantity of money itself
What is the moral of this fable? Oh, it is simple. It means that at equal technological conditions, assumed constant, a modification of terms of trade (The number of market days in the month) changes the currency needs.
This necessarily influence either on the velocity of money, or the quantity of money itself (and I have not even brought the issue of hoarding for that). It was obvious? ... Maybe, but overlooked my four basic questions of any monetary reform, which are written as follows:
1) Who issues,
2) How much is emitted
3) Why is emits
4) Who has control, my little fable
impact for the least points 2 and 3.
further complication: in addition to monetary needs - Met here by our accountant philanthropist - one could imagine that part of trade is 'out of money', by simple agreement among participants (some experts call it the 'Credit Mutuel' - you can also call it the 'credit provider' an entrepreneurial point of view: this is Switzerland, with experience WIR apparently).
If we assume that half of trade is 'outside accounting philanthropist' monetary needs will be halved.
Again, I stress probably heavily (this is probably by simplicity, or as a new initiate into the mysteries beginner currency), we see here that
new practices between firms also have an influence on monetary needs .
Again, this affects the issues 2) and 3) How and Why. Do not even mention the difficulty of adjustment and control.
The moral of morality? I do not really know, except that I think
monetary emission control remains a very delicate , at least in a world where the conditions of consumption, production and exchange can change very quickly, depending in particular the state of public opinion and trust that the community can have in the system in which it operates. And I did not even mention here the problems of export-import of toxic assets, technical progress, etc..
What can be said that certain trends should be addressed, like the ever-increasing weight, I even spoke to this effect
spoliation of the financial sphere with respect to the real economy, income, unearned '(and from speculation) towards the' earned income '.
Take, for insisting on this point a new model, simply, a growth model homothetic.
In this context, each sector, every industry, every company are growing at the same speed without technical progress, money supply would grow at the same speed, whether issued by private banks or the central bank. (Yes, I know, I guess here for the moment that the velocity of money is a constant, relatively credible alternative hypothesis, in that context, but again, this is not the problem).
Money, Money simple veil? Only if that happened here that the currency would be a simple veil money, no real importance on an economy that would only be monetized. We could almost without it, except in accounting.
But of course this is not what we see as growth is not homothetic. There is generally
:
a) the deformation of the weights of the sectors
b) the distortion of relative prices
c) deformation reported in b) is partly due to the different evolution of technical progress in different sectors.
It should be noted that:
d) assuming that there is no absolute technical regression in these areas (it could happen in the agricultural sector, due to poor harvests, but the weight of this sector is so weak that it really does not explain the extent of) the difference in technical progress can explain the change in relative prices, but not increase the money supply greater than the sum rate ( real) growth rate over inflation. My only explanation
truly 'innovative' are therefore based in what will be also be obvious to some, namely that new 'rents' were created (or annuities, or unearned income) because:
e) earnings (or pseudo-earnings) stock, indices, until the crisis of 2008, having believed in 25 years 2 times that the real economy (where a shift in the real money to the financial sphere
f) earnings, or an imbalance in the housing, again the real estate prices have thought, as if there had regression technique (in fact rents have reappeared)
g) imbalances, volatile and non-permanent, in the energy sector (oil and gas), although in constant euros, in the last 20 years I am not sure the relative price of oil has greatly evolved.
All this to say
non-productive sectors, or not directly related to production, are 'sucked' much monetary emissions .
Whether you call that currency-money play money, Mélanchon as it appears, or for real money, it is a major cause - I think - the current imbalance.
This is not the fact that financial transactions have become 1,000 times larger than the transactions related to the 'real' economy that I criticize here (even if a Tobin tax have slowed this phenomenon, it is not what's important, in my opinion), but the fact that
currency is not a 'monetary veil' , as speculated by Ricardo, Marx, and perhaps Milton Friedman, but it's a real comforter that has hidden the 'little people' - which I am - this real hold-up of the financial sector on the real economy.
solutions, if any, are therefore surely not remonetised the 'toxic assets' - ie validating the theft and the thieves - as seems to be the G20, increasing the weight of DSK our national real puppet more or less willing, to whom it is probably a royal gift, or presidential, 2012 (or so he thinks).
The only solution would be:
1) to declare
worthless toxic assets: zero
2) of
(re?) put the money to service the real economy in 'effectively nationalizing the currency'.
