M4 Money Supply July

[Traktion]

The offical inflation figure is arbitrary though, everyones experiences inflation differently and no amount of well intentioned work by the BofE will remedy this. The resources that are currently used amassing this data could be used more productively elsewhere, the free market will dicatate inflation, that's as much as we need to know.

I agree that past correlation doesn't mean it will remain so in the future. I'd also agree that sentiment is a huge driver for borrowing, RPI and CPI. Personally, I think looking at the M4 figures is more important over a longer period, but then perhaps this is what the BoE looks at, even if there remit is to keep CPI within a range?

I think it matters. There's a tendency on this forum to assume that all inflation is a result of demand pull, so the money supply increases (because of those evil banksters) and prices go up as a result. Cost push inflation is almost always ignored, despite it being treated equally in conventional economic theory. Higher rental costs/taxes/wage demands all feed into the pricing mechanism and may dicate that more money may be needed to faciltate exchange, thus driving M4.

It's a mistake imo to ignore a whole chunk of theory, because of a predispostion to assume that 99% of our economic problems are a direct result of the actions of bankers.

If CPI/RPI are representative of a broad range of prices, how can all prices go up at the same time, unless there is more money to spend?

I suppose high energy costs could create cost push inflation across the board, but otherwise, you would expect some prices to go up and others to come down. Have energy prices been going up at a similar rate as CPI for the last few decades? Does it correlate better than CPI to M4?

This highlights the dangers of using to arbitrary and archaic measures as a tool for guiding the economy. The BofE are working blind -and everyone knows it- because they have no idea about the economics of the land market.

I'd agree that the BoE are working blind, but were central banks blind to the economics of the stock market before it crashed in the Great Depression too? How about the insuring the chance of credit defaults?

I agree that the securing loans on land has caused problems, but I find it strange that you only see the problems here. We have debated this before though, so I won't cover old ground here.

As long as people pay back what they owe RPI in theory should have little impact on the banks balance sheets, mortage interest payments will still reflect the interest payable on the amount borrowed. The underlying value of the asset doesn't affect this payment.

True, but perhaps that (not being able to meet repayments) would be why they would be more concerned with keeping RPI high, even if it meant giving banks uber cheap money to lend out?

[Authoritarian]

The rules you just followed to be able to post on the forum.

Not sure what you mean by this.

The presence of "facts" doesn't dictate our actions, if I choose to smoke and have an idea that smoking may cause cancer it doesn't necessarily follow that I'm going to give up smoking.

We can choose social rules that lead to negative outcomes, but that doesn't mean that we'll remedy our processes. We can just live with the fallout instead.

The way you're using facts is similar to the way environmentalists use the MMGW argument. Because X leads to Y we have to change our behaviour accordingly, well no we don't actually. We have a choice.

[Injin]

Not sure what you mean by this.

The presence of "facts" doesn't dictate our actions, if I choose to smoke and have an idea that smoking may cause cancer it doesn't necessarily follow that I'm going to give up smoking.

And I never said you would.

You can choose your actions.

You cannot choose the coutomes of those actions.

We can choose social rules that lead to negative outcomes, but that doesn't mean that we'll remedy our processes. We can just live with the fallout instead.

Sure. But you have to give over saying that the rules "work" when the evidence says they don't.

The way you're using facts is similar to the way environmentalists use the MMGW argument. Because X leads to Y we have to change our behaviour accordingly, well no we don't actually. We have a choice.

Not at all.

I'm saying that if you want a productive economy, peace, increases in living standards and so forth there are some things you have to do.

You can't aim for those outcomes and use the wrong methods. That choice is not on the table. You can't use violence backed delusion and be happy.

[Authoritarian]

And I never said you would.

You can choose your actions.

You cannot choose the coutomes of those actions.

Agreed.

Sure. But you have to give over saying that the rules "work" when the evidence says they don't.

I've never claimed that the rules work as all the evidence says otherwise. Changing the rules will definately alter the outcome, it just depends on whether this change occurs because people want it or because it's a logical extension of our social relations. One section of the population cannot keep screwing the other without some sort of breakdown/backlash. It doesn't mean that one set of rules has to be adopted, but they might be considered if people want a change.

Not at all.

I'm saying that if you want a productive economy, peace, increases in living standards and so forth there are some things you have to do.

You can't aim for those outcomes and use the wrong methods. That choice is not on the table. You can't use violence backed delusion and be happy.

We can use violence to get what we want and then deal with the consequences as they crop up, but it might not be the optimum solution.

Edited August 22, 2010 by Chef

[Injin]

Agreed.

I've never claimed that the rules work as all the evidence says otherwise. Changing the rules will definately alter the outcome, it just depends on whether this change occurs because people want it or because it's a logical extension of our social relations. One section of the population cannot keep screwing the other without some sort of breakdown/backlash. It doesn't mean that one set of rules has to be adopted, but they might be considered if people want a change.

We can use violence to get what we want and then deal with the consequences as they crop up, but it might not be the optimum solution.

So we are agreed then.

Violence doesn't work. Central banking dosn't work.

Having delusions about land doesn't work.

[Authoritarian]

I agree that the securing loans on land has caused problems...

I didn't quite say that though. Using collateral as security for a loan seems like a sensible idea to me, it allows borrowers access to cash at cheaper rates and it means lenders are able to reduce the risk incurred by their lenders (i.e savers, shareholders etc). A win win scenario.

It's another case of the land market corrupting otherwise innocent financial transactions. If I secured a loan againat a car it would have exactly zero impact on the price of cars, the market could still produce unhindered by our personal agreement. Housing dosn't work like this though, there's a social element that feeds into extra costs for everyone else as the supply of land is restricted because of speculative demand.

The banking system and the housing market are uniquely entwined because of the fundamental nature of the latter, if 'housing' acted like any other economic item there wouldn't be a problem.

Edited August 22, 2010 by Chef

[Authoritarian]

So we are agreed then.

Violence doesn't work. Central banking dosn't work.

Having delusions about land doesn't work.

Yes they do work. Just not for the benefit of you or I.

[Injin]

I didn't quite say that though. Using collateral as security for a loan seems like a sensible idea to me, it allows borrows access to cash at cheaper rates and it means lenders are able to reduce the risk incurred by their lenders (i.e savers, shareholders etc). A win win scenario.

It's another case of the land market corrupting otherwise innocent financial transactions. If I secured a loan againat a car it would have exactly zero impact on the price of cars, the market could still produce unhindered by our personal agreement. Housing dosn't work like this though, there's a social element that feeds into extra costs for everyone else as the supply of land is restricted because of speculative demand.

The banking system and the housing market are uniquely entwined because of the fundamental nature of the latter, if 'housing' acted like any other economic item there wouldn't be a problem.

The ting about securing your borrowing against land is that you are borrowing not against somethign you own, but against something which the state is promising to continue to do for you, which the borrowing made it harder for them to do....

And people wonder why the states are on the brink all accross the west.....

[Injin]

Yes they do work. Just not for the benefit of you or I.

Then they don't work.

Why?

Because we are the same as those who do it to us.

[Authoritarian]

The ting about securing your borrowing against land is that you are borrowing not against somethign you own, but against something which the state is promising to continue to do for you, which the borrowing made it harder for them to do....

And people wonder why the states are on the brink all accross the west.....

Exactly, it also draws returns away from both labour and capital until they lack the funds to cover their own running costs. House price collapse is the natural remedy for this, but it was deemed too politically risky to contemplate. So now we're in no mans land.

[Injin]

Exactly, it also draws returns away from both labour and capital until they lack the funds to cover their own running costs. House price collapse is the natural remedy for this, but it was deemed too politically risky to contemplate. So now we're in no mans land.

Until the state gives way.

[Authoritarian]

Then they don't work.

Why?

Because we are the same as those who do it to us.

They're more equal than us.

My landlord can carry on milking me from now until eternity as long as he leaves me enough left over to purchase food and clothing. It's when the parasite gets too greedy that the whole thing collapses.

The housing market has a tendency to get too greedy because there are no barriers preventing it from gouging a greater and greater share out of the productive economy. If the land predators recognised this they'd adjust their claims accordingly, the banking system actually prevents this by providing the peasants the credit they need to buy their own stake in the earth and put up some form of competition.

Without the current banking system there would just be entrenched and unrelenting financial misery.

[libspero]

CPI/RPI may well be flawed, but M4 roughly correlates against the the inflation measures over a longer term. This much we know from previous studies. If Hotairmail still has the link or remembers the name of the document, it would be useful.

Whether it's an expectation of M4 growing, wages going up etc, I'd say it doesn't really matter. Whether people fear a pay rise and delay borrowing or borrow more, expecting a pay rise, the relationship between M4 and price indexes surely remains similar.

I think (suspect) there is another mechanism in place that affects the correlation between credit inflation and price inflation.

My logic is (and somebody feel free to shoot me down) that if it were a closed system, as the money supply increased price inflation would increase more or less proportionally.

The fact that it doesn't suggests to me that it isn't a closed system and that in fact as our money supply expands, a lot of it is syphoned off into investments outside the UK.

For example, people borrowing on cheap rates here and then investing abroad in high growth markets (a carry trade if you will).

Just because M4 is (slightly) positive, doesn't necessarily mean there is really more money pumping around our system, just the world generally. If it turns out all that money is going abroad and then some.. it would imply (to me) that we could still have deflation here while the money supply simultaneously expands. Just as (I think) happened in Japan.