The Tao of Economy

[Mexicano]

Here are some general principles of the economy that I hope help have insightful discussions:
Resources and wealth

• Wealth is the sum of natural resources, human-made artifacts, and human capital (knowledge and expertise ).
• Wealth can only be created through work either performed by humans, animals or machines.
• The source of energy for plants is the sun, for humans and animals is food, the source of energy for machines is fuel or electricity
• Wealth can only be created by performing work which requires energy.
• War is the destruction of wealth
• Growth follows a sigmoid curve, while interest rates follow an exponential curve; the discrepancy between these two curves is the root cause of all banking crisis: eventually growth tapers and can't keep up with the growth of interest rates.

Money

• Money is many things: a store of value, a means of exchange, the unit of account in a country
• Modern countries use fiat ( so be it in latin) money.
• Fiat currency's value is supported by the demand for that currency; taxes are the ultimate form of demand: you need a currency to pay taxes.
• Money is both an asset and a liability created (and destroyed by financial institutions); it is created by a journal entry : credit- deposits( liability) , debit - credit ( assets)
• When banks issue a loan, money is created,
• The formula for the total amount of money in a country is the following :
  Money = sum over time of ( ( government spending - taxes ) +
  interests on bonds +
  ( loans - loan payments ) +
  ( exports - imports )
• Money and currency are not the same: Money refers to the journal entries created in books by financial institutions, currency refers to the bills and notes issued by the central bank.

Transactions

• Most economic transactions have two flows: one of money and one of resources; they flow in opposite directions.
• Exporting means a country sends its resources and the product of many work hours in exchange for money ( foreign currency).
• Importing means a country acquires resources and finished goods that are exchanged for its currency.
• Some transactions are purely monetary: credit , loan repayments, selling and buying financial assets; these transactions are de-coupled from the resource component of the economy.
  • They create a monetary flow that produces no growth , but inflates the price of financial assets.
• The economy is made up of five sectors : government, banks, firms, households, the external sector.
• The economy is a set of interleaved balance sheets; hence the loss of a sector is the profit of another sector.
• The government is the only sector that can be permanently in negative financial equity; allowing the other sectors to have a positive financial equity.

Wages

• Wages are a cost for producers, but wages also allow households to consume goods.
• Firms that export are ideal for any capitalist firm: the consumption of their goods is not subjected to the wages they pay; hence the most common way for a country to grow is export-led growth.
• When wages are too low, people will often find other ways to survive: from informal jobs to criminal activities.

 

[Toddsterpatriot]

Here are some general principles of the economy that I hope help have insightful discussions:
Resources and wealth

• Wealth is the sum of natural resources, human-made artifacts, and human capital (knowledge and expertise ).
• Wealth can only be created through work either performed by humans, animals or machines.
• The source of energy for plants is the sun, for humans and animals is food, the source of energy for machines is fuel or electricity
• Wealth can only be created by performing work which requires energy.
• War is the destruction of wealth
• Growth follows a sigmoid curve, while interest rates follow an exponential curve; the discrepancy between these two curves is the root cause of all banking crisis: eventually growth tapers and can't keep up with the growth of interest rates.

Money

• Money is many things: a store of value, a means of exchange, the unit of account in a country
• Modern countries use fiat ( so be it in latin) money.
• Fiat currency's value is supported by the demand for that currency; taxes are the ultimate form of demand: you need a currency to pay taxes.
• Money is both an asset and a liability created (and destroyed by financial institutions); it is created by a journal entry : credit- deposits( liability) , debit - credit ( assets)
• When banks issue a loan, money is created,
• The formula for the total amount of money in a country is the following :
  Money = sum over time of ( ( government spending - taxes ) +
  interests on bonds +
  ( loans - loan payments ) +
  ( exports - imports )
• Money and currency are not the same: Money refers to the journal entries created in books by financial institutions, currency refers to the bills and notes issued by the central bank.

Transactions

• Most economic transactions have two flows: one of money and one of resources; they flow in opposite directions.
• Exporting means a country sends its resources and the product of many work hours in exchange for money ( foreign currency).
• Importing means a country acquires resources and finished goods that are exchanged for its currency.
• Some transactions are purely monetary: credit , loan repayments, selling and buying financial assets; these transactions are de-coupled from the resource component of the economy.
  • They create a monetary flow that produces no growth , but inflates the price of financial assets.
• The economy is made up of five sectors : government, banks, firms, households, the external sector.
• The economy is a set of interleaved balance sheets; hence the loss of a sector is the profit of another sector.
• The government is the only sector that can be permanently in negative financial equity; allowing the other sectors to have a positive financial equity.

Wages

• Wages are a cost for producers, but wages also allow households to consume goods.
• Firms that export are ideal for any capitalist firm: the consumption of their goods is not subjected to the wages they pay; hence the most common way for a country to grow is export-led growth.
• When wages are too low, people will often find other ways to survive: from informal jobs to criminal activities.

eventually growth tapers and can't keep up with the growth of interest rates.

Why not? And if you're right, so what?

 

[Mexicano]

eventually growth tapers and can't keep up with the growth of interest rates.

Why not? And if you're right, so what?

For several reasons:
1) Marginal utility - If we take the average of houses per family : one adds the most value, the second is handy , the third will probably be a burden. Utility is reduced as the amount increases, but the same can be said abut almost everything food, transport , clothing. Yes , you can buy , but the first items are the ones that deliver most value.
2) Resources are finite - You can only grow a limited amount of food in a piece of land. Sure , you can irrigate and use fertilizer or use better seeds but at some point the productivity will taper.
On the other hand interest rates increase exponentially. The output can't keep up, at some point loans will not be paid because business expectations were not met.... and a new banking crisis starts.

 

[Toddsterpatriot]

For several reasons:
1) Marginal utility - If we take the average of houses per family : one adds the most value, the second is handy , the third will probably be a burden. Utility is reduced as the amount increases, but the same can be said abut almost everything food, transport , clothing. Yes , you can buy , but the first items are the ones that deliver most value.
2) Resources are finite - You can only grow a limited amount of food in a piece of land. Sure , you can irrigate and use fertilizer or use better seeds but at some point the productivity will taper.
On the other hand interest rates increase exponentially. The output can't keep up, at some point loans will not be paid because business expectations were not met.... and a new banking crisis starts.

Marginal utility

After I bought my first house, I paid down the debt.
Why would interest rates "grow"? Why do I care?

Resources are finite - You can only grow a limited amount of food in a piece of land

What was the limit 100 years ago? What is the current limit? What will the limit be in 100 years?

On the other hand interest rates increase exponentially.

My mortgage today is smaller than ever. What increase?

The output can't keep up,

I'm happy to examine your evidence for this claim.

at some point loans will not be paid because business expectations were not met

I'm happy to examine your evidence for this claim.

 

[Mexicano]

Marginal utility

After I bought my first house, I paid down the debt.
Why would interest rates "grow"? Why do I care?

Resources are finite - You can only grow a limited amount of food in a piece of land

What was the limit 100 years ago? What is the current limit? What will the limit be in 100 years?

On the other hand interest rates increase exponentially.

My mortgage today is smaller than ever. What increase?

The output can't keep up,

I'm happy to examine your evidence for this claim.

at some point loans will not be paid because business expectations were not met

I'm happy to examine your evidence for this claim.

Marginal utility
As you paid the debt the money created by the loan was destroyed, because it is the opposite journal entry.

Resources are finite - The output can't keep up

Let's say 7 tons of corn was the average and today maybe 16
With an exponential growth of 1% each year 7 tons become 165 after 100 years ... no field can produce that amount in one year.

interest rates increase exponentially.

Not your mortgage ( although the case for the credit card is different ) the interest rates that banks have to pay on investments...

at some point loans will not be paid because business expectations were not met
1929 - The stock crashed and banks went belly up
2007 - The whole banking system froze because they couldn't trust each other's collateral.
2023 - It isn't a systemic crisis yet, but several banks already broke.

 

[Failzero]

A Cloward/ Piven Type crash is needed to Get Far Left & Left where they wanna go .

 

[Toddsterpatriot]

Marginal utility
As you paid the debt the money created by the loan was destroyed, because it is the opposite journal entry.


Let's say 7 tons of corn was the average and today maybe 16
With an exponential growth of 1% each year 7 tons become 165 after 100 years ... no field can produce that amount in one year.


Not your mortgage ( although the case for the credit card is different ) the interest rates that banks have to pay on investments...

at some point loans will not be paid because business expectations were not met
1929 - The stock crashed and banks went belly up
2007 - The whole banking system froze because they couldn't trust each other's collateral.
2023 - It isn't a systemic crisis yet, but several banks already broke.

As you paid the debt the money created by the loan was destroyed, because it is the opposite journal entry

Absolutely and also, so fucking what?

With an exponential growth of 1% each year 7 tons become 165 after 100 years ..

Your math is really, really bad. Really.

Not your mortgage ( although the case for the credit card is different ) the interest rates that banks have to pay on investments...

Banks have to pay rates that increase exponentially?
Who told you that? Why did you believe them?

1929 - The stock crashed and banks went belly up

Yes. So what?

2007 - The whole banking system froze because they couldn't trust each other's collateral.

Yes. So what?

2023 - It isn't a systemic crisis yet, but several banks already broke.

Yes. So what?

We shouldn't have banks?
We shouldn't have loans?
We shouldn't pay interest?

What point are you failing to make?

 

[Mexicano]

As you paid the debt the money created by the loan was destroyed, because it is the opposite journal entry

Absolutely and also, so fucking what?

With an exponential growth of 1% each year 7 tons become 165 after 100 years ..

Your math is really, really bad. Really.

Not your mortgage ( although the case for the credit card is different ) the interest rates that banks have to pay on investments...

Banks have to pay rates that increase exponentially?
Who told you that? Why did you believe them?

1929 - The stock crashed and banks went belly up

Yes. So what?

2007 - The whole banking system froze because they couldn't trust each other's collateral.

Yes. So what?

2023 - It isn't a systemic crisis yet, but several banks already broke.

Yes. So what?

We shouldn't have banks?
We shouldn't have loans?
We shouldn't pay interest?

What point are you failing to make?

With an exponential growth of 1% each year 7 tons become 165 after 100 years ..

Sorry for the mistake, I was playing with several interest rates ... and posted in a hurry.
The correct statement is a compound growth of 1% turns into 18.9 tons. And a compound growth of 3% turns into 134 tons.
Regardless... you get the picture.

As for the rest: if we want to avoid recurring crises we need to keep private debt levels and interest rates low.
The above is really hard under our current framework because credit is demand-driven and low interest rates encourage more lending. So, banks need a change in their regulatory framework. Another option is to have a debt jubilee, but since it hasn't been tried in a modern economy we don't really know what would happen.

 

[Toddsterpatriot]

With an exponential growth of 1% each year 7 tons become 165 after 100 years ..

Sorry for the mistake, I was playing with several interest rates ... and posted in a hurry.
The correct statement is a compound growth of 1% turns into 18.9 tons. And a compound growth of 3% turns into 134 tons.
Regardless... you get the picture.

As for the rest: if we want to avoid recurring crises we need to keep private debt levels and interest rates low.
The above is really hard under our current framework because credit is demand-driven and low interest rates encourage more lending. So, banks need a change in their regulatory framework. Another option is to have a debt jubilee, but since it hasn't been tried in a modern economy we don't really know what would happen.

Sorry for the mistake, I was playing with several interest rates ... and posted in a hurry.
The correct statement is a compound growth of 1% turns into 18.9 tons. And a compound growth of 3% turns into 134 tons.
Regardless... you get the picture.

The picture is that betting against human ingenuity tends to be a losing bet.
Especially when you use bad math.
Ask Paul Ehrlich.

As for the rest: if we want to avoid recurring crises we need to keep private debt levels and interest rates low.

You should definitely pay off all your debt.

So, banks need a change in their regulatory framework.

Like what? Any specifics?

Another option is to have a debt jubilee

That would be awesome.....before we do, could you lend me a quick $100K?