This is no longer an active blog.
It was my original plan to delete it, but there is enough useful information documenting bailout efforts since March 2008 that I've decided to keep it up, with the caveat that the "Core Theory" posts should be ignored because the Cash-Inventory Equivalency is in error.
Its replacement, where I will be posting similar content but greatly de-emphasizing if not eliminating monetary theory discussions, will be here:
Countdown: Zero Hour.
Thank you readers for your support.
Wednesday, May 19, 2010
Sunday, April 18, 2010
Countdown
Having slept on it, one week from now the Ca$h Bull will be deleted.
There are a few reasons but the main one is the disproof of the cash-inventory equivalency. While there are many other points raised over the last couple of years which I think are good, looking back over things, the assumption of the cash-inventory equivalency is so interlaced into everything that even if the idea directly affects only a small portion, it spoils the rest. In examining the relationship of cash and inventory, rather than fixing what is here, I think it is best just to start over.
Having become so focused on the consequences and demonstration of this theory, the blog has degenerated into a debate with myself on abstract financial formulas, to the point I haven't been encouraging nor even wanted others to read it, or done anything to promote the site for over a year now. While I was hoping things might change with a positive demonstration of the cash-inventory equivalency, that didn't happen.
With its name, it was a time-limited blog anyway. I chose it because I was bullish on cash, and March 2008 was a good time to be bullish on the U.S. dollar, at least until March 2009. The dollar has still done okay over the past two years, but over the past year there have been better investments.
I've much enjoyed economic blogging and plan to continue. It has greatly refined my knowledge of things like money creation, fractional reserve lending, government bonds, and the relationship of yields to principle. My definition of inventory, economic capacitance, errors of pricing and production, the desire coefficient, and considering how production relates to money supply are still good and will somehow be ported over to the new blog.
My blogging interests lately have been, aside from proving or disproving the cash-inventory equivalency, are pending government bankruptcies and good investment opportunities with a 0% federal lending rate.
Rather than just letting the blog sit and moving on, in the interest of minimizing the misinformation that already exists on the Internet, I will delete it completely, and that which was good I still have saved and can be ported over to its replacement.
There are a few reasons but the main one is the disproof of the cash-inventory equivalency. While there are many other points raised over the last couple of years which I think are good, looking back over things, the assumption of the cash-inventory equivalency is so interlaced into everything that even if the idea directly affects only a small portion, it spoils the rest. In examining the relationship of cash and inventory, rather than fixing what is here, I think it is best just to start over.
Having become so focused on the consequences and demonstration of this theory, the blog has degenerated into a debate with myself on abstract financial formulas, to the point I haven't been encouraging nor even wanted others to read it, or done anything to promote the site for over a year now. While I was hoping things might change with a positive demonstration of the cash-inventory equivalency, that didn't happen.
With its name, it was a time-limited blog anyway. I chose it because I was bullish on cash, and March 2008 was a good time to be bullish on the U.S. dollar, at least until March 2009. The dollar has still done okay over the past two years, but over the past year there have been better investments.
I've much enjoyed economic blogging and plan to continue. It has greatly refined my knowledge of things like money creation, fractional reserve lending, government bonds, and the relationship of yields to principle. My definition of inventory, economic capacitance, errors of pricing and production, the desire coefficient, and considering how production relates to money supply are still good and will somehow be ported over to the new blog.
My blogging interests lately have been, aside from proving or disproving the cash-inventory equivalency, are pending government bankruptcies and good investment opportunities with a 0% federal lending rate.
Rather than just letting the blog sit and moving on, in the interest of minimizing the misinformation that already exists on the Internet, I will delete it completely, and that which was good I still have saved and can be ported over to its replacement.
Saturday, April 17, 2010
Disproof of the Cash-Inventory Equivalency
In attempting to prove mathematically the cash-inventory equivalency, which has been the focus of this blog for awhile now, I've isolated its fatal flaw.
The cash-inventory equivalency states that the prices of all things for sale will self adjust to be exactly equal to the money supply.
Here is the error: in a healthy economy, inventory gravitates toward zero, not the money supply. The better inventory moves, the less inventory in stock, and the faster production can happen, and the better the profits for the producers.
However, money supply still limits production, meaning it limits what can be charged for what is produced. How it does so, and how this new construct can define the value of a dollar, will be discussed in upcoming posts.
So I don't think all is lost, but before moving on this just needed to be said.
The cash-inventory equivalency states that the prices of all things for sale will self adjust to be exactly equal to the money supply.
Here is the error: in a healthy economy, inventory gravitates toward zero, not the money supply. The better inventory moves, the less inventory in stock, and the faster production can happen, and the better the profits for the producers.
However, money supply still limits production, meaning it limits what can be charged for what is produced. How it does so, and how this new construct can define the value of a dollar, will be discussed in upcoming posts.
So I don't think all is lost, but before moving on this just needed to be said.
Thursday, April 15, 2010
T*Bux 2009
T*Bux is the cost per U.S. taxpayer on a $1 trillion expenditure.
From this, the "per capita" cost of any government program is an easy calculation. What might change slightly year-to-year is the number of taxpayers. Keep in mind data from the IRS lags by nearly a year. Still, we have a good approximation.
2009 data shows there were 131,543,000 federal filers in America. This is a 6% drop from a year before, which is unsurprising given rising unemployment. It pushes up the government burden on each particular taxpayer. Dividing $1T by that number and we get:
T*Bux (2009) = $7600 (up from $7250 last year).
To review its use, if a program costs $800B, that is $0.8T, so 7600 * 0.8 = $6080 per taxpayer. The new federal debt limit is $14.3T, so that is 7600 * 14.3, or $108,680 that each taxpayer owes if the government maxes out what it legally can, which it will, before raising the debt ceiling further.
Net federal revenues for 2008 was $2.3T. 2009 is pending. If it were the same, that would be $17,480 per taxpayer.
Now don't think corporations are going to be paying all of this because they pay hardly 10% of taxes. The vast majority of revenues comes from personal income tax. If you think corporations should be paying more, do you really want American jobs outsourced further? I suppose it depends on the corporation. If AIG wants to leave our country I'd throw out the red carpet. For the record, I support ending both personal and corporate income taxes and replacing it with a federal sales tax.
I know there are interest payments etc. but that adds extra confusion and numbers should be compelling enough as they stand.
From this, the "per capita" cost of any government program is an easy calculation. What might change slightly year-to-year is the number of taxpayers. Keep in mind data from the IRS lags by nearly a year. Still, we have a good approximation.
2009 data shows there were 131,543,000 federal filers in America. This is a 6% drop from a year before, which is unsurprising given rising unemployment. It pushes up the government burden on each particular taxpayer. Dividing $1T by that number and we get:
T*Bux (2009) = $7600 (up from $7250 last year).
To review its use, if a program costs $800B, that is $0.8T, so 7600 * 0.8 = $6080 per taxpayer. The new federal debt limit is $14.3T, so that is 7600 * 14.3, or $108,680 that each taxpayer owes if the government maxes out what it legally can, which it will, before raising the debt ceiling further.
Net federal revenues for 2008 was $2.3T. 2009 is pending. If it were the same, that would be $17,480 per taxpayer.
Now don't think corporations are going to be paying all of this because they pay hardly 10% of taxes. The vast majority of revenues comes from personal income tax. If you think corporations should be paying more, do you really want American jobs outsourced further? I suppose it depends on the corporation. If AIG wants to leave our country I'd throw out the red carpet. For the record, I support ending both personal and corporate income taxes and replacing it with a federal sales tax.
I know there are interest payments etc. but that adds extra confusion and numbers should be compelling enough as they stand.
Wednesday, April 14, 2010
Spend Cycles
Moving toward a proof of the cash-inventory equivalency, another factor that has to be considered—in addition to money velocity, production velocity, money supply, and inventory—is the maximum rate of spending.
Does money supply limit the velocity of money? Cannot one dollar spent a million times over clear the same amount of inventory as a million dollars spent once? Indeed it can.
If we are at a dollar bazaar with a number of venders all with goods at a dollar a piece, a money supply of one dollar can see all of those goods sold, eventually. If everyone there had a million dollars divided among themselves, then a million dollars worth of inventory could be cleared instantly. But with just one dollar, the rate inventory clears is dependent on the rate of spending.
Now, factor in production velocity. Say a new good enters the bazaar every five minutes during the hours it is open. If that one dollar can be spent once a minute, it can clear this new addition of inventory as well as the old inventory. If new inventory is added every minute, then that dollar can keep up, though the inventory will not change in size—it won't shrink, but at least it will not grow. If new inventory is added every 30 seconds, and if on average that dollar can be spent no faster than once a minute, then inventory will accumulate.
If a second dollar is added to the money supply at the bazaar, then the inventory can still remain in balance with new goods added every 30 seconds. A third dollar added to the money supply puts it in good shape: not only can the new inventory be accommodated, the old inventory can also clear. Once old inventory clears, production can step up to a new item every 20 seconds. If this is the maximum rate of spending, if buyers can move dollars around no faster than once per minute, then new production is limited by the $3 money supply, in a balanced economy.
In each "spend cycle" of one minute—the duration it takes for the money supply to be spent—no more than $3 of inventory can be added, or it will not clear. If $4 of inventory is added one cycle, then $1 of it would be left over, so only $2 could be added in a later cycle for things to balance out.
In the $3 economy, if two vendors are very close to one another, then the same dollar might be spent twice in a minute, whereas if sometime needs an item from a vendor far away, then a minute might go by and the dollar in transit is not spent at all. The maximum rate of money turnover should be regarded as an average.
Once money velocity hits its maximum stride, then and only then does money supply limit the amount that can be spent. If money is being spent as fast as it can, the cash-inventory equivalency can be mathematically demonstrated.
Does money supply limit the velocity of money? Cannot one dollar spent a million times over clear the same amount of inventory as a million dollars spent once? Indeed it can.
If we are at a dollar bazaar with a number of venders all with goods at a dollar a piece, a money supply of one dollar can see all of those goods sold, eventually. If everyone there had a million dollars divided among themselves, then a million dollars worth of inventory could be cleared instantly. But with just one dollar, the rate inventory clears is dependent on the rate of spending.
Now, factor in production velocity. Say a new good enters the bazaar every five minutes during the hours it is open. If that one dollar can be spent once a minute, it can clear this new addition of inventory as well as the old inventory. If new inventory is added every minute, then that dollar can keep up, though the inventory will not change in size—it won't shrink, but at least it will not grow. If new inventory is added every 30 seconds, and if on average that dollar can be spent no faster than once a minute, then inventory will accumulate.
If a second dollar is added to the money supply at the bazaar, then the inventory can still remain in balance with new goods added every 30 seconds. A third dollar added to the money supply puts it in good shape: not only can the new inventory be accommodated, the old inventory can also clear. Once old inventory clears, production can step up to a new item every 20 seconds. If this is the maximum rate of spending, if buyers can move dollars around no faster than once per minute, then new production is limited by the $3 money supply, in a balanced economy.
In each "spend cycle" of one minute—the duration it takes for the money supply to be spent—no more than $3 of inventory can be added, or it will not clear. If $4 of inventory is added one cycle, then $1 of it would be left over, so only $2 could be added in a later cycle for things to balance out.
In the $3 economy, if two vendors are very close to one another, then the same dollar might be spent twice in a minute, whereas if sometime needs an item from a vendor far away, then a minute might go by and the dollar in transit is not spent at all. The maximum rate of money turnover should be regarded as an average.
Once money velocity hits its maximum stride, then and only then does money supply limit the amount that can be spent. If money is being spent as fast as it can, the cash-inventory equivalency can be mathematically demonstrated.
Sunday, April 11, 2010
Inventory in Motion
Previously, I said an actual proof of the "cash-inventory equivalency" was probably beyond my mathematical ability, but this post is the start of an attempt.
Money supply and inventory are hard to compare. Money supply is fixed—who is holding on to a given dollar will change, but the total supply of money, excepting hyperinflationary situations, remains generally stable from month-to-month. When it does change from printing, credit expansions, or credit contractions, the change occurs slowly.
By contrast, things for sale are in constant flux. They enter the market when produced or put up for resale, and then leave it once purchased, and so what is for sale is always shifting in a healthy economy, and ideally nothing remains on shelves for long. To remain in balance, that which is sold must equal that which is produced or put up for resale.
In a productive economy, inventory has to clear at the rate it is produced or added, otherwise it accumulates if produced faster, or disappears if sales are faster. If sales stop but production continues, then the producer is working for free, which is an unsustainable condition. But if production stops and inventory stagnates then prices could be anything. However inventory will clear faster and production can resume if prices are lower.
So: money velocity = production velocity, where money velocity is dollars spent on inventory over time, and production velocity is the price of goods produced over time.
They do not have to equate—producing a unit does not imply it will be bought, and excess inventory can be bought up faster than it is added—but over time sales has to balance with production, otherwise inventory accumulates if production velocity exceeds money velocity, and vanishes to nothing if the reverse.
Further posts will consider how money velocity and production velocity relate to money supply and total inventory.
Money supply and inventory are hard to compare. Money supply is fixed—who is holding on to a given dollar will change, but the total supply of money, excepting hyperinflationary situations, remains generally stable from month-to-month. When it does change from printing, credit expansions, or credit contractions, the change occurs slowly.
By contrast, things for sale are in constant flux. They enter the market when produced or put up for resale, and then leave it once purchased, and so what is for sale is always shifting in a healthy economy, and ideally nothing remains on shelves for long. To remain in balance, that which is sold must equal that which is produced or put up for resale.
In a productive economy, inventory has to clear at the rate it is produced or added, otherwise it accumulates if produced faster, or disappears if sales are faster. If sales stop but production continues, then the producer is working for free, which is an unsustainable condition. But if production stops and inventory stagnates then prices could be anything. However inventory will clear faster and production can resume if prices are lower.
So: money velocity = production velocity, where money velocity is dollars spent on inventory over time, and production velocity is the price of goods produced over time.
They do not have to equate—producing a unit does not imply it will be bought, and excess inventory can be bought up faster than it is added—but over time sales has to balance with production, otherwise inventory accumulates if production velocity exceeds money velocity, and vanishes to nothing if the reverse.
Further posts will consider how money velocity and production velocity relate to money supply and total inventory.
Friday, April 9, 2010
Greek Debt BBB-
Today Fitch cut Greece's credit rating from BBB+ to BBB-, one step above junk [1]. This is in the context of ongoing deficit spending and approaching the terminal limits of borrowing. Official numbers for Greece in terms of national debt relative to GDP and tax revenues aren't greatly out of proportion to other nations with heavy debt burdens such as Japan and the United States, but with Goldman Sach involved [2], I'm sure there is more than meets the eye. While many are expecting bailouts of Greece from the Eurozone, and they are not out of the question, but have not been forthcoming either.
In the broader context, pretty much the only thing that stops reckless government spending is when it runs out of money, meaning there is no longer a market for Treasury Bonds. The higher the risk, the more the country has to pay in yields, and the more it costs to insure that debt.
As more countries become unable to sell bonds, I will be looking for patterns in terms of amount of debt relative to GDP and taxes in order to anticipate the debt limit for the United States. At the rate things are going, only then can we expect bailouts to stop. If Japan is any guide, we have a ways to go.
Sources:
1. Fitch Downgrades Greece.
2. Bernanke says Fed Reviewing Goldman Sachs/Greece Contracts.
In the broader context, pretty much the only thing that stops reckless government spending is when it runs out of money, meaning there is no longer a market for Treasury Bonds. The higher the risk, the more the country has to pay in yields, and the more it costs to insure that debt.
As more countries become unable to sell bonds, I will be looking for patterns in terms of amount of debt relative to GDP and taxes in order to anticipate the debt limit for the United States. At the rate things are going, only then can we expect bailouts to stop. If Japan is any guide, we have a ways to go.
Sources:
1. Fitch Downgrades Greece.
2. Bernanke says Fed Reviewing Goldman Sachs/Greece Contracts.
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