The mysterious case of the vanishing money

julieq

If you ever start thinking about what the circulation of money actually means in practice, you'll end up with a headache in your eyebrows. It's like watching Brian Cox explain the universe but without the eye candy

the_flying_pig

julieq wrote: »

If you ever start thinking about what the circulation of money actually means in practice, you'll end up with a headache in your eyebrows. It's like watching Brian Cox explain the universe but without the eye candy

I agree - two degrees in economics down the line I'm none the wiser.

shortchanged_2

the_flying_pig wrote: »

I agree - two degrees in economics down the line I'm none the wiser.

Says it all really doesn't it. And I don't mean that in a nasty way.

HAMISH_MCTAVISH

Thrugelmir wrote: »

. You are also overlooking the billions of lost capital that was lost with collapse of the banks.

Oh I'm not overlooking it at all.....

We're just taking baby steps down 'Reality Road' with a few of our posters...

The fun bit will come later when we start discussing what actually "takes money out of the economy".

shortchanged_2

HAMISH_MCTAVISH wrote: »

The fun bit will come later when we start discussing what actually "takes money out of the economy".

Would that be when I accidentally drop my pound coin down the sewer drain?

julieq

no, it involves foul parasites

the_flying_pig

shortchanged wrote: »

Says it all really doesn't it. And I don't mean that in a nasty way.

most degree level economics, particularly at postgraduate level and particularly at the better universities, is very theoretical/mathematical.

i specialised mostly in microeconomics. the only thing i can really remember about macro is that nearly all of the last course I did was about something called 'x dot'.

gingertips

HAMISH_MCTAVISH wrote: »

Immensely curious as to where the bears think money spent on housing benefits, house prices, mortgage interest, rent, etc, actually goes...

We've had several weeks of comments that "money spent on house prices/rents/benefits" is "taken/removed from the economy".

So where exactly do you think it goes?

Could anyone describe the mechanism where they think lending higher amounts of money to buy housing actually decreases the money in circulation within the economy?

Or for that matter, the mechanism through which they think allocating tax revenue to pay for goods and services through housing benefit actually removes money from the economic system?

And if not, lets put this tiresome and fallacious bear meme to bed once and for all.

I think it goes to banks to repay mortgages & also for landlords to buy more property, so they can make more rentals & more money

HAMISH_MCTAVISH

Mallotum_X wrote: »

I guess the point is that although money is not destroyed the utilisation and redistribution of it is done in a way that is uneven, taking often from less well off (middle classes down) and ending up in the hands of the providers of finance.

Whilst they may well recycle this money, a lot of it will end up being horded in ways that are not productive, or used in ways that does not stimulate demand at the lower end of the scale.

If the general population is not spending in 'local' shops or businesses then these will close. The fact that the money ends up with a richer demographic may help say the bently dealership or whatever, rather than a larger group of the population.

Of course whether one way of the other is better depends on individual viewpoints.

Ah, but that's a very different argument to the one we see so often, ie, that high house prices and rents "take money out of the economy".

Which of course is absurd. The money doesn't vanish, it has just been redistributed and recycled, as almost all money eventually is.

So what these "take money out of the economy" posters really mean is that it takes money out of their pockets and redistributes it to someone else.

Which sounds a lot like petty jealousy to me. In fact, now that I think about it, it is petty jealousy, disguised as altruism.

Which leaves us with a bit of a problem.....

Now that we've established that high house prices, high rents, and high housing benefits DO NOT in fact "take money out of the economy", perhaps we should at least make the effort to find out what does "take money out of the economy".....

You know, an event that could cause a reduction in lending, a contraction in the money supply, the hoarding of funds, lower velocity of money, and destruction of wealth and spending power on an epic scale.

I'm sure there was something recently, but I just can't seem to put my finger on it.....:money:

ninky_2

HAMISH_MCTAVISH wrote: »

So what these "take money out of the economy" posters really mean is that it takes money out of their pockets and redistributes it to someone else.

not really out of "their" pockets. it takes it out of the public spending pot which could be spent elsewhere. there are things of greater value to society imho than paying for a family on benefits to live in islington rather than tottenham.