by Higgenbotham » Wed Sep 22, 2010 11:03 am
vincecate wrote:Higgenbotham wrote:
This is a repeat of a reply I made to a nearly identical post of yours a few months ago. I don't think you responded. Values of debts and notional values of options (or more broadly, derivatives) in many cases are not counted in money supply figures.
Are there any economic theories or economists who count all debts and notional values of options as money? Do you have any references?
I understand that options/derivatives can change in value many times their original value. But for every winner their is an equal loser. These are not like an equity or bond where it is possible that counting all parties involved there is a net change in wealth, right? So how does this create or destroy money? But more to the point, who counts the notional value on these as money?
To be more clear in this post, I'll need to separate exchange traded derivatives that are marked to market each day from over the counter derivatives that are marked to model or marked to myth.
Exchange traded derivatives (options as an example) act more like basic money (Federal Reserve Notes or paper dollars as an example) from an accounting standpoint.
Over the counter derivatives act more like bonds or other securities that can change value.
All basic forms of money in our system (including instruments like exchange traded derivatives that act more like money than not) are simultaneously an asset and a liability. So, for example, if someone has a positive number on their balance sheet because they are holding a Federal Reserve Note, that note is simultaneously the liability of the Federal Reserve. So, what about the exchange traded derivatives? Likewise, an exchange traded derivative such as an option is simultaneously a positive dollar number on one balance sheet and an offsetting negative number on another balance sheet. From a practical standpoint, an options trader can clear their account at the market by 4 pm and have the proceeds wired into their bank first thing the next morning. Additionally, any excess in a futures account that is over margin requirements can be wired out immediately or used directly to purchase commodities from the account itself. So positive futures marks equate to direct money for the purchase of commodities.
Thinking about things like bonds that have time dependencies, when, say, a government issues a bond it has a certain initial par value but the value can change. My understanding is, yes, the overall wealth in the system will increase if interest rates fall and the value of the bond goes up. However, the overall wealth in the system won't change over the entire term of the bond because the original terms don't change. Over the counter derivatives act much the same way except the mechanism is different and the means to increase wealth are illegitimate and fraudulent. Since there's no exchange traded market for these derivatives, they are "marked to myth" in many cases, allowing positive net worth to appear due to fraudulent markings.
Probably the reason no economists count these as money is because economists, bankers, and even the Federal Reserve itself on the whole act as fraudsters and rent seekers during these generational booms and they know the wealth effect is temporary and fraudulent. The securities that are generated are fraudulent, they have essentially printed money out of thin air, the regulators look the other way, and then the whole Ponzi scheme collapses. When the illegitimate forms of money disappear, then the money supply numbers will really be representative.
[quote="vincecate"][quote="Higgenbotham"]
This is a repeat of a reply I made to a nearly identical post of yours a few months ago. I don't think you responded. Values of debts and notional values of options (or more broadly, derivatives) in many cases are not counted in money supply figures. [/quote]
Are there any economic theories or economists who count all debts and notional values of options as money? Do you have any references?
I understand that options/derivatives can change in value many times their original value. But for every winner their is an equal loser. These are not like an equity or bond where it is possible that counting all parties involved there is a net change in wealth, right? So how does this create or destroy money? But more to the point, who counts the notional value on these as money?[/quote]
To be more clear in this post, I'll need to separate exchange traded derivatives that are marked to market each day from over the counter derivatives that are marked to model or marked to myth.
Exchange traded derivatives (options as an example) act more like basic money (Federal Reserve Notes or paper dollars as an example) from an accounting standpoint.
Over the counter derivatives act more like bonds or other securities that can change value.
All basic forms of money in our system (including instruments like exchange traded derivatives that act more like money than not) are simultaneously an asset and a liability. So, for example, if someone has a positive number on their balance sheet because they are holding a Federal Reserve Note, that note is simultaneously the liability of the Federal Reserve. So, what about the exchange traded derivatives? Likewise, an exchange traded derivative such as an option is simultaneously a positive dollar number on one balance sheet and an offsetting negative number on another balance sheet. From a practical standpoint, an options trader can clear their account at the market by 4 pm and have the proceeds wired into their bank first thing the next morning. Additionally, any excess in a futures account that is over margin requirements can be wired out immediately or used directly to purchase commodities from the account itself. So positive futures marks equate to direct money for the purchase of commodities.
Thinking about things like bonds that have time dependencies, when, say, a government issues a bond it has a certain initial par value but the value can change. My understanding is, yes, the overall wealth in the system will increase if interest rates fall and the value of the bond goes up. However, the overall wealth in the system won't change over the entire term of the bond because the original terms don't change. Over the counter derivatives act much the same way except the mechanism is different and the means to increase wealth are illegitimate and fraudulent. Since there's no exchange traded market for these derivatives, they are "marked to myth" in many cases, allowing positive net worth to appear due to fraudulent markings.
Probably the reason no economists count these as money is because economists, bankers, and even the Federal Reserve itself on the whole act as fraudsters and rent seekers during these generational booms and they know the wealth effect is temporary and fraudulent. The securities that are generated are fraudulent, they have essentially printed money out of thin air, the regulators look the other way, and then the whole Ponzi scheme collapses. When the illegitimate forms of money disappear, then the money supply numbers will really be representative.