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aa3

Taxes And The Velocity Of Money

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Country 1, Hightax has a 50% tax on income. Country 2 Lowtax has a 15% tax on income.

A Hightax citizen gets £10,000 in money say newly created debt money. He then spends £10,000 on carpentry. The carpenter has to pay 50% in taxes, so he is left with £5,000, he then spends it all on clothing.. the taylor pays £2,500 in tax. And you get the point. So calculate it out and the ten thousand in hightax money, generates ~£20,000 in income for hightax citizens.

A Lowtax citizen gets £10,000, which he spends on carpentry. The carpenter pays 1,500 in taxes, and has £8,500 to spend. He spends it on clothing, the Taylor pays his taxes and is left with £7,225. In Lowtax, the ten thousand generates ~£70,000 in income for lowtax citizens.

In both cases £10,000 in taxes goes to the government. Of course the next question becomes how fast the government spends the money, versus how quickly private actors spend the money.

In the inflation/deflation debates we rarely talk about the velocity of money. The more I think about it, the more it seems velocity of money is an extremely important factor. I believe the velocity of money has fallen by more than half since the 70's. So to keep prices the same, it woudl seem the monetary authroties would ahve to double the amount of money out there. And that has to have an impact on equity prices. And especially the insane equity prices versus the cost of goods in the economy, and against wages.

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In the inflation/deflation debates we rarely talk about the velocity of money. The more I think about it, the more it seems velocity of money is an extremely important factor. I believe the velocity of money has fallen by more than half since the 70's. So to keep prices the same, it woudl seem the monetary authroties would ahve to double the amount of money out there. And that has to have an impact on equity prices. And especially the insane equity prices versus the cost of goods in the economy, and against wages.

Still on your demented quest to justify stealing via QE?

Neither of your hypothetical countries just went through the biggest credit binge in history, nor are they now as a result mired in exponentially increasing debt. Nor is there any account of who would buy this debt, and at what price, and what would happen to the currency, import prices and international trade if the debt was simply monetized by the 'monetary authroties'

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It's not just tax that destroys the velocity of money. Large companies who make massive profits do.

Take your example in the 70's it was carpenter, taylor, baker etc. They spend ther money with other people in the area, this money may pass through 10 hands before it is taxed away.

Today the carpenter will go to Tesco and *poof* it's gone.

The whole system has been broken for years, Velocity of money dosn't exsist. More like some giant vacuum cleaner hovering it up as fast as possible. The powers that be saw that a rising HPI gave some of this money back, albeit by a loan you would have to take out against your property, or by the government giving benefits out to most people. This kept them happy..... :blink: untill now. :D

I can't see any way out of it, we are all slaves. :o

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What happens when the govt. handing out the £10k (from whence, you don't say) is in the UK, and the carpenter and tailor live in China?

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What happens when the govt. handing out the £10k (from whence, you don't say) is in the UK, and the carpenter and tailor live in China?

the chinese carpenter comes to the uk to work for a much higher wage and then sends his earnings back to china for his family/future? It doesn't get spent in the uk and generates nothing?

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Guest DissipatedYouthIsValuable
What happens when the govt. handing out the £10k (from whence, you don't say) is in the UK, and the carpenter and tailor live in China?

Velocity.

Speed AND direction.

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So calculate it out and the ten thousand in hightax money, generates ~£20,000 in income for hightax citizens.

snip

In Lowtax, the ten thousand generates ~£70,000 in income for lowtax citizens.

Only because Tailors are so expensive in Lowtax land...

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Country 1, Hightax has a 50% tax on income. Country 2 Lowtax has a 15% tax on income.

A Hightax citizen gets £10,000 in money say newly created debt money. He then spends £10,000 on carpentry. The carpenter has to pay 50% in taxes, so he is left with £5,000, he then spends it all on clothing.. the taylor pays £2,500 in tax. And you get the point. So calculate it out and the ten thousand in hightax money, generates ~£20,000 in income for hightax citizens.

A Lowtax citizen gets £10,000, which he spends on carpentry. The carpenter pays 1,500 in taxes, and has £8,500 to spend. He spends it on clothing, the Taylor pays his taxes and is left with £7,225. In Lowtax, the ten thousand generates ~£70,000 in income for lowtax citizens.

In both cases £10,000 in taxes goes to the government. Of course the next question becomes how fast the government spends the money, versus how quickly private actors spend the money.

In the inflation/deflation debates we rarely talk about the velocity of money. The more I think about it, the more it seems velocity of money is an extremely important factor. I believe the velocity of money has fallen by more than half since the 70's. So to keep prices the same, it woudl seem the monetary authroties would ahve to double the amount of money out there. And that has to have an impact on equity prices. And especially the insane equity prices versus the cost of goods in the economy, and against wages.

The only thing you are missing is all those people who are waiting in the wings to snap up distressed sales will never get a chance to do so in aa3's world of never let anything collapse idiocy.

I guess you must have bought into the high assett prices forever mantra and are not trying to get everyone else to pay for your mistakes.

You are on a printing bender no doubt about that - as I've said before the 'printing' lot will look for any excuse to carry on printing - there ain't no problem that printing will not solve for them.

My advise to you is this - do something you are good at - and stay away from anything to do with economics.

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