Comments on Economics and Politics: The True Money Supply

Hi meambobbo,thanks much for your feedback. I am d...

2008-12-11T14:37:00.000-08:00

Hi meambobbo,

thanks much for your feedback. I am discussing some of your arguments in my article http://www.economicsjunkie.com/the-dispute-about-the-true-money-supply/

The disagreement, I believe, is neglegible, but in principle I stand by my composition.

The crucial factor is not the USAGE as money by someone but rather the ACCEPTANCE. My main point is that as a rule, a seller does not accept a credit to his other checkable deposit account as a means of payment, he only accepts a credit to his actual checking account or outright cash.

Mish himself actually agreed with me in an email that OCD should not be included:

"and if "other checkable" deposits is actually savings accounts then I should not have them."

Best,
Nima

Nima, great job, but I do have a few objections.If...

2008-12-11T10:38:00.000-08:00

Nima, great job, but I do have a few objections.

If OCD accounts can be automatically swept into checking accounts to cover checks written greater than checking account balances, OCD deposits ARE BEING used as payments, and should be included in the money supply.

Also, savings deposits can have checks written against them (cashier's check for instance), although it is more burdensome than checking accounts. Savings accounts should therefore be partially included as a medium of exchange. If you can find any kind of estimate of payments via savings accounts, I think a certain % of savings accounts should be included in the money supply. It would probably be small enough to be negligible, but it's worth mentioning.

Sweeps MUST be included in any estimate of demand deposits. Good job on that. Yet, there are others than the one the FED reports starting in '94. These go back all the way to the 60's and 70's, and use MMMF's rather than MMDA's.

Overall, I agree with your analysis. This is similar to Mish's M', and AMS, which I think are the best measures.

One final point: MMMF's, savings deposits, and other similar items are virtually money. They can be converted into money readily, on demand, and have virtually zero de facto risk of nominal loss. As such, M(t) and M(') seem to be the best measures of circulating money and best compare to general price movements, whereas MZM and TMS and even M2 are better measures of total money supply. Without any policy change of the FED, many non-circulating forms of money can be quickly converted to a circulatory form and create tremendous price inflation.

Your links have helped. Thank you.

2008-11-11T13:03:00.000-08:00

Your links have helped. Thank you.

You write very well.

2008-11-11T03:06:00.000-08:00

You write very well.

My graphs are based on the monthly reports publish...

2008-06-25T18:05:00.000-07:00

My graphs are based on the monthly reports published by the Federal Reserve. All data can be found at http://www.federalreserve.gov/releases/h6/hist/

Retail sweep data can be obtained at http://research.stlouisfed.org/swdata

The items I include in the true money supply are the ones I elaborated on in this article:

True Money Supply = Currency + Private Demand Deposits + Demand Deposits Due to Foreign Banks and Institutions + Government Demand Deposits + Government Federal Reserve Deposits + Retail Sweeps

Please let me know if this helps

If your graph's true then the #-supply has more'n ...

2008-06-25T14:37:00.000-07:00

If your graph's true then the #-supply has more'n doubled in the past decade. W/the corresponding periods adjustment in production inflation could be measured. Whose reports are your graph's numbers taken from? Please link to your original sources so your conclusion may be checked.