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gasull
09-07-09, 06:32 PM
What's iTulip's take on Monetary Circuit Theory (aka Circuitism)?

http://en.wikipedia.org/wiki/Monetary_circuit_theory


Monetary circuit theory is a heterodox (http://en.wikipedia.org/wiki/Heterodox_economics) theory of monetary economics (http://en.wikipedia.org/wiki/Monetary_economics), particularly money creation (http://en.wikipedia.org/wiki/Money_creation), often associated with the post-Keynesian school (http://en.wikipedia.org/wiki/Post-Keynesian_economics).<sup class="reference" id="cite_ref-0">[1] (http://en.wikipedia.org/wiki/Monetary_circuit_theory#cite_note-0)</sup> It holds that money is created endogenously by the banking sector, rather than exogenously by central bank lending. It is also called circuitism and the circulation approach.

[...] circuitism rejects, inter alia, the money multiplier (http://en.wikipedia.org/wiki/Money_multiplier), arguing that money is created by banks lending, which only then pulls in reserves from the central bank, rather than by re-lending money pushed in by the central bank.My understanding is that iTulip follows the money multiplier model. Right?

FRED
09-07-09, 07:02 PM
What's iTulip's take on Monetary Circuit Theory (aka Circuitism)?

http://en.wikipedia.org/wiki/Monetary_circuit_theory

My understanding is that iTulip follows the money multiplier model. Right?

That is correct. We depict the system as follows.


http://www.itulip.com/images/moneyflows.gif


However, we disagree with post-Keynesians such as Steve Keen who do not believe that government through monetary and fiscal policy can in a private credit market crisis substitute government endogenous credit demand for endogenous private credit demand in sufficient levels to prevent asset price deflation from spilling over into the goods and services pricing complex. We forecast in 2006 that in fact the government can and will supply sufficient credit demand.


http://www.itulip.com/images/moneyflowsCreditBust.gif



We believe events that occurred since our forecast confirm our theory.


http://www.itulip.com/images/fed_all_short_stacked.png
Source: Nowandfutures.com (http://www.nowandfutures.com/)

gasull
09-07-09, 10:07 PM
Thank you, Fred.


However, we disagree with post-Keynesians such as Steve Keen who do not believe that government through monetary and fiscal policy can in a private credit market crisis substitute government endogenous credit demand for endogenous private credit demand in sufficient levels to prevent asset price deflation from spilling over into the goods and services pricing complex. We forecast in 2006 that in fact the government can and will supply sufficient credit demand.

Actually my question comes after I read this article by Steve Keen (http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/) (emphasis added):


http://www.debtdeflation.com/blogs/wp-content/uploads/2009/02/KeenDebtwatchNo31February2009_files/image014.gif
Bernanke’s expansion of M0 in the last four months of 2008 has merely reduced the debt to M0 ratio from 47:1 to 36:1 (the debt data is quarterly whole money stock data is monthly, so the fall in the ratio is more than shown here given the lag in reporting of debt).
http://www.debtdeflation.com/blogs/wp-content/uploads/2009/02/KeenDebtwatchNo31February2009_files/image016.gif
To make a serious dent in debt levels, and thus enable the increase in base money to affect the aggregate money stock and hence cause inflation, Bernanke would need to not merely double M0, but to increase it by a factor of, say, 25 from pre-intervention levels. That US$20 trillion truckload of greenbacks might enable Americans to repay, say, one quarter of outstanding debt with one half—thus reducing the debt to GDP ratio about 200% (roughly what it was during the DotCom bubble and, coincidentally, 1931)—and get back to some serious inflationary spending with the other (of course, in the context of a seriously depreciating currency). But with anything less than that, his attempts to reflate the American economy will sink in the ocean of debtI see that Steve Keen is very respected here and EJ has interviewed him. So iTulip position is...?:


That the Government will spend/borrow such $20 trillion truckload.
That Steve Keen is overestimating the so said truckload, and the amount needed is way less than $20 trillion (How much?).

Thanks again.

Diarmuid
09-07-09, 10:50 PM
That is correct. We depict the system as follows.


http://www.itulip.com/images/moneyflows.gif


However, we disagree with post-Keynesians such as Steve Keen who do not believe that government through monetary and fiscal policy can in a private credit market crisis substitute government endogenous credit demand for endogenous private credit demand in sufficient levels to prevent asset price deflation from spilling over into the goods and services pricing complex. We forecast in 2006 that in fact the government can and will supply sufficient credit demand.


http://www.itulip.com/images/moneyflowsCreditBust.gif



We believe events that occurred since our forecast confirm our theory.


http://www.itulip.com/images/fed_all_short_stacked.png
Source: Nowandfutures.com (http://www.nowandfutures.com/)



Hi Fred

Being studying Keens work lately and find it very compelling I must say

http://www.debunking-economics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf

However also looking at Itulip Now and the futures and John Williams work it is quite convincing, in that, at least in the present and near past, Bernacke, King and Co. have managed to fill the endogenous money creation hole with exogenous money via QE, TARP etc.., with the cost being the possibility of high (extreme?) inflation, higher taxes, less social services, possible currency crisis etc.. as the soverign debt interest payments increases and currency debasement continue, this possibility increases. Is this the point in the thesis where the fourth currency comes in

<cite>fourthcurrency.com

i.e. the greatest cost of these programs of exogenous money creation policies is not so much the debasement of the currency per se but the debasement of trust in government and all the social implication this implies?

Sorry if I am asking the obvious or if there are glaring holes in my understanding, trying to assimilate this stuff as quickly as possible (which is not very fast for my second rate brain).

Thanks

Diarmuid
</cite>

aaron
09-07-09, 10:51 PM
Thank you, Fred.



Actually my question comes after I read this article by Steve Keen (http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/) (emphasis added):

I see that Steve Keen is very respected here and EJ has interviewed him. So iTulip position is...?:


That the Government will spend/borrow such $20 trillion truckload.
That Steve Keen is overestimating the so said truckload, and the amount needed is way less than $20 trillion (How much?).

Thanks again.

I would love to understand this too.

thanks

metalman
09-07-09, 10:59 PM
Thank you, Fred.



Actually my question comes after I read this article by Steve Keen (http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/) (emphasis added):

I see that Steve Keen is very respected here and EJ has interviewed him. So iTulip position is...?:


That the Government will spend/borrow such $20 trillion truckload.
That Steve Keen is overestimating the so said truckload, and the amount needed is way less than $20 trillion (How much?).

Thanks again.

google site:itulip.com inflation deflation (http://www.google.com/search?client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&channel=s&hl=en&source=hp&q=site%3Aitulip.com+inflation+deflation&btnG=Google+Search)

xela
09-08-09, 05:52 AM
That the Government will spend/borrow such $20 trillion truckload.


My understantig is that the US will monetize most of whatever it takes over the next years.

*T*
09-08-09, 05:52 AM
Sorry metalman, I don't think that answer is specific enough...
gasull has asked a good question following a logical train of thought, & I'd also like to know the specific answer.

D-Mack
09-08-09, 05:58 AM
Thank you, Fred.



Actually my question comes after I read this article by Steve Keen (http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/) (emphasis added):

I see that Steve Keen is very respected here and EJ has interviewed him. So iTulip position is...?:


That the Government will spend/borrow such $20 trillion truckload.
That Steve Keen is overestimating the so said truckload, and the amount needed is way less than $20 trillion (How much?).

Thanks again.


What's up with the 23.7 trillions?


The 23.7 Trillion Question: Treasury Calls Figure ‘Inflated’ (http://blogs.wsj.com/marketbeat/2009/07/21/the-237-trillion-question-treasury-calls-figure-inflated/)

metalman
09-08-09, 10:25 AM
Sorry metalman, I don't think that answer is specific enough...
gasull has asked a good question following a logical train of thought, & I'd also like to know the specific answer.

sorry, this question has been asked and answered several times.

the gov't doesn't need to match every dollar of private credit money with gov't credit money. it's not like the private money market is 100% dead.

compare the debt/money base ratios to the cpi...

http://www.debtdeflation.com/blogs/wp-content/uploads/2009/02/KeenDebtwatchNo31February2009_files/image016.gif

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&id=CPIAUCNS,&transformation=pc1,&scale=Left,&range=Custom,&cosd=1960-01-01,&coed=2009-07-01,&line_color=%230000FF,&link_values=,&mark_type=NONE,&line_style=Solid,&vintage_date=2009-09-08,&revision_date=2009-09-08,&mma=0,&nd=,&ost=,&oet=,

a huge decline in the ratio 1990 - 1995 produced a small decline in cpi. the huge y-o-y cpi decline 2008 - 2009 is a result of the spike in inflation in mid 2008 due to high commodity prices.

inflation rising since mar 2009...

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&id=CPIAUCNS,&transformation=lin,&scale=Left,&range=Custom,&cosd=2007-01-01,&coed=2009-07-01,&line_color=%230000FF,&link_values=,&mark_type=NONE,&line_style=Solid,&vintage_date=2009-09-08,&revision_date=2009-09-08,&mma=0,&nd=,&ost=,&oet=,

keen's barking up the wrong tree here.

gasull
09-08-09, 02:26 PM
Thank you for your answer, Metalman.


the gov't doesn't need to match every dollar of private credit money with gov't credit money. it's not like the private money market is 100% dead.

compare the debt/money base ratios to the cpi...

http://www.debtdeflation.com/blogs/wp-content/uploads/2009/02/KeenDebtwatchNo31February2009_files/image016.gif

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&id=CPIAUCNS,&transformation=pc1,&scale=Left,&range=Custom,&cosd=1960-01-01,&coed=2009-07-01,&line_color=%230000FF,&link_values=,&mark_type=NONE,&line_style=Solid,&vintage_date=2009-09-08,&revision_date=2009-09-08,&mma=0,&nd=,&ost=,&oet=,

a huge decline in the ratio 1990 - 1995 produced a small decline in cpi. the huge y-o-y cpi decline 2008 - 2009 is a result of the spike in inflation in mid 2008 due to high commodity prices.

inflation rising since mar 2009...

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&id=CPIAUCNS,&transformation=lin,&scale=Left,&range=Custom,&cosd=2007-01-01,&coed=2009-07-01,&line_color=%230000FF,&link_values=,&mark_type=NONE,&line_style=Solid,&vintage_date=2009-09-08,&revision_date=2009-09-08,&mma=0,&nd=,&ost=,&oet=,


If I understand it right, you mean that a rise in CPI will force an increase in private debt, and that private debt added to Government debt will be enough to counter-inflate the debt deflation.

The problem here is that rent and housing aren't counted in the CPI, right? Therefore I don't see private debt rising any time soon if rent and housing are getting cheaper. And we probably agree that there's a commercial real estate collapse around the corner.


What's up with the 23.7 trillions?

The 23.7 Trillion Question: Treasury Calls Figure ‘Inflated’ (http://blogs.wsj.com/marketbeat/2009/07/21/the-237-trillion-question-treasury-calls-figure-inflated/)

Thank you, D-Mack.

My understanding is that most of that money is used to pay debt and also money is sitting in the banks' reserves (http://research.stlouisfed.org/fred2/series/EXCRESNS?cid=123):http://research.stlouisfed.org/fred2/data/EXCRESNS_Max_630_378.png (http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=EXCRESNS)

If the Fed prints money and then bury it, that isn't debt-inflationary or price-inflationary. If instead of burying it the money is sitting not being lent to anybody, that isn't debt-inflationary either.

On the other hand the several Government stimulus, like the cash for clunkers program, are price-inflationary. But so far it isn't counter-inflating at the same pace as the debt bubble is deflating.


My understantig is that the US will monetize most of whatever it takes over the next years.

Thanks, Xela. That's my understanding of Ka-Poom Theory too. I wondered if iTulip sees the $20T number as inaccurate.

As a side note, I'm asking questions honestly and humbly because I'm eager to know the answers. I do search the site before asking.