What Obama cannot say at the debate, but I wish he could

Money isn't just currency. Potential lending is money. Asset valuations are money. In the broadest measure of the money supply, if you have a credit card with a $5,000 limit that you haven't used, that $5,000 is still part of the money supply.

Between the decline in housing and stocks, the tightening of credit and (most of all) the decline in value of MBS the global money supply has contracted sharply.

In a short span of time something like 30 trillion dollars has probably disappeared around the world. (That's my guesstimate. Anything from 10 to 50 is plausible.)

That money has to be re-created. If not, there's not enough money and money becomes more precious than goods.

The price of goods goes down. And people horde money, because it's a scarce, precious commodity. Once people realize that whatever they want will be cheaper next month there is a disincentive to buy anything. Economic activity grinds to a halt.

Since we, the world's major economies, need to create tens of trillions of dollars just to stay in the same place, just to avoid a deflationary collapse, all talk of austerity, balanced budgets, "paying for programs" and "reigning in the federal budget" is INSANE.

McCain's economic proposals are as facially absurd as, and no less destructive than, starting the Iraq War.

And it grew 5% last year.

How does printing more money solve the problem?

The measure that includes potential borrowing has to have been creamed.

If I am wrong about that then I am, but given the global withdrawal of credit, the decline in the collateral value of real estate world wide (and attendent withdrawl of home equity lending) and the collapse of 50-60 trillion of potential collateral in MBS (which may have some value, but are currently all but useless as collateral) I don't see how M3 could not have contracted violently.

And has not done so since March of 2006.

I'm not saying your wrong, but rather trying to figure it out myself.

We keep goosing M2 but it doesn't get turned into extension of credit... we have given banks authority to lend (create) trillions of new dollars, but they will not pull the trigger.

So I assume that M2 and M3 are converging, in relative terms.

But, as you note, we are left to guess at M3, so what I am saying is just my set of assumptions from reading between the lines. If all the money didn't disappear we wouldn't have global unanimity on the need to create trillions and trillions of dollars. (Particularly since Fed types are, as a global class, inflation hawks by nature.)

are bank runs that are staggering in size.

Washington Mutual didn't fail becuase of its debt or because of its lack of profit or under capitialization.

Washington Mutual was done in by the largest bank run in world history with depositors withdrawing in excess of $ 50 billion.

There is a reason why they don't want to publicize what is going on but decision makers need to realize how combustable the situation is.


What is M3 today - no one knows - could take several months to figure out exactly how dry the creek has gone.

But nobody is offering.

And the government cannot get to far into the lending business because sooner or later people will vote to retire their personal debts to the government.

So it looks like we just have to keep bribing the banks to lend.

that velocity has declined a lot this year. It's harder to measure, but it has just as strong an effect as the expanded definition of money you are using (which I fundamentally agree with).

I hope all these efforts are going to work. There has been a tremendous outpouring of ideas, not all of which are good. But the better ones, like the UK plan, are rising to the top, and other countries are adopting similar measures.

Thats straight talk and its in simple enough terms for most people to understand.

The populist chat about how the government should follow the rules of family finance is too ingrained. It would take a generation to wean people from it.

We have an ingrained sense that 1) all things have an intrinsic true value, 2) middle men are parasites, and 3) interest is theft.

None of those things are true, but almost all of us FEEL them to be true.