Re: Aggregate debt

From: Michael Vilkin (mikevilkin_at_mail.com)
Date: 06/17/04 

Date: 17 Jun 2004 16:23:59 -0700

William F Hummel <wfhummel@comcast.net> wrote in message news:<i4f3d0pnoq79bub40airp14stmlhmsv3hl@4ax.com>...

> On 16 Jun 2004 19:18:26 -0700, mikevilkin@mail.com (Michael Vilkin)
> wrote:
>
> >William F Hummel <wfhummel@comcast.net> wrote:
> >
> >> You are trying to use the equation of exchange as a functional
> >> relation, with M as the independent variable and P as the dependent
> >> variable, whereas the equation is merely an identity. It only
> >> implies: Money flow rate (MV) = Average price (P) x Number of
> >> transactions per unit time (T). True by definition, but saying
> >> nothing about cause and effect. Since M is endogenous, there is no
> >> meaningful measure of M for the equation of exchange. The only thing
> >> we can know is MV because we have a measure of PT = Y.
> >>
> >> Consider a credit card, which is just as good as the notes in one's
> >> wallet for buying goods and services. Any time a credit card is used
> >> in payment, that transaction increases the total of bank deposits
> >> (credit money) until the debt is paid off. Currently credit card debt
> >> totals about sixty billion dollars, but the line of credit available
> >> totals about one trillion dollars. That line is the equivalent of
> >> MONEY, which can used at a moment's notice. So I ask you how you
> >> would measure M.
   
> >William, I'd measure new money created with new debt, not the amount
> >people could have spent had they decided to do so.
  
> Use of a credit card is the digital equivalent of going to your bank,
> acquiring a loan for the amount of the purchase against the line of
> credit the bank has offered, and writing a check for that amount.
> When the seller deposits the check, he receives a new deposit of
> credit money which adds to the total of M1 until you pay off your
> credit card loan.
  
> If you carried enough cash in your wallet, you could do the same thing
> with cash. What is the difference in terms of economic impact between
> a line of credit that behaves like a checking account and cash in the
> wallet?

William, I agree that a line of credit which equals $100,000 has a
bigger purchasing power than a line of credit which equals 0.

OK, so where are we now?
Have we decided that making loans to build and to buy 1,000,000 _new_
homes will not drive equilibrium price as high as making loans to buy
1,000,000 _resale_ homes?

--Michael Vilkin

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