Why Our Economy Is Behaving the Way It Is
publication date: Mar 10, 2010
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author/source: Brad Hamill
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Greetings,
The 2010 Family Economics Conference was just held this past weekend in Castle Rock, Colorado – and it was a tremendous blessing.
I had a great time meeting many families that I had only known through email addresses. It was also an opportunity to reach out to many more families regarding the economic teaching put forth by the Hamill Economic Update.
Let me extend a warm welcome to all of the new additions to the Update mailing list. It now reaches hundreds of families across the United States and three foreign countries.
Here are the basic ground rules for this freely offered ministry:
1) If you are blessed by the Hamill Economic Update then please forward it to your family, friends, and associates. This is not an attempt to “build numbers”, but rather to share an economic vision that God has given to me through working many years in the financial services sector. Folks can be added to the Update by emailing me with a request: brad@newfamilyeconomics.com.
2) If you have a desire to be removed from the email list then please send an email requesting that and I will quickly comply. I have no desire to abuse the privilege of having your email address, and will never share it with any other person or organization.
I’m going to take the next few Economic Updates and use them to teach a simple explanation of exactly what’s occurring in our country – and the other developed countries in our world.
At the end of this series of Updates you will have a firm understanding of why our nation is in a perilous economic condition, and you will have the tools to seek how the learned knowledge might apply to your own families.
Please make an effort to read each Update fully during this series. I think you will be blessed by what you learn. Feel free to contact me via email with any questions.
Ready? Let’s begin.
Step 1 – Understanding the Various Types of “Money”
What is “money” in our economy? Most people think of it as the stuff they carry around in their wallets and purses – but it goes much further than that.
Money actually has different definitions, depending on how you talk about it. We’re going to examine the nation’s “money supply” beginning with the most basic level (M0) and moving up to the most complete level (M3).
One thing you need to understand is that each “level” of our money supply builds upon the previous level. In other words, M1 builds upon M0, M2 builds upon M1, and M3 builds upon M2.
M0 is sometimes mistakenly referred to as our “base money supply”. This is quite incorrect. M0 is simply the amount of PHYSICAL money that’s in circulation (notes and coins). This includes the amount of physical money sitting in the vaults of commercial banks.
As an interesting aside, approximately two-thirds of our physical currency is currently held overseas, since people from other countries trust it as a “store of value” much more than their own currencies.
Many people wrongly state that our physical currency is “just ink on paper” with “no real value”. They might even go so far as to state that it’s worthless. This would be a wrong interpretation. Our physical currency is backed by the promise that we Americans will exert FUTURE LABOR in the economy. Those holding our currency have a “claim on the future labor of others” in the amount of the currency held. They become a “master” over our “debt slave” labor. Our money is not worthless. It is backed by our future labor.
The M1 money supply builds upon M0 – except it removes the amount held in commercial bank vaults. M1 adds in “checking” deposits. The main component of these deposits that we want to focus on is “demand deposits”. What is a demand deposit? One example of this would be where somebody wrote you a check for $100 and you deposited it into your checking account. This $100 would now be theoretically available to you “on demand”. I say “theoretically” since the availability of funds would be greatly hampered if a bank run were to take place.
The largest component of “demand deposits” is bank loans. All loans are funded with new “credit” – which is exactly the same as “money” in the M1 money supply. Loans are NOT funded from the deposits of other bank customers, as is oftentimes misunderstood.
Issuance of new loan credit is exactly the same as the issuance of new money. The M1 money supply increases every time a loan of any sort is signed for. Even those using their credit card for daily purchases and paying it off in full each month are temporarily increasing our nation’s money supply until the card payment is made.
What effect does an increasing money supply have when there is a somewhat stable supply of goods and services? It causes prices to go up, since there is now more money in the nation’s supply that needs to be absorbed.
Now we turn our attention to the M2 money supply. It includes all of the components of M1, plus savings deposits, time deposits less than $100K, and individual money market accounts. This is the primary level that is talked about “in general” when we discuss our nation’s money supply.
Lastly, we have the M3 money supply. This includes M2 along with very large deposits, institutional money market accounts, and other short-term large dollar transactions.
Conclusion
The main points to learn from this discussion are that ALL of our money supply is based upon the FUTURE completion of labor. In other words, our money is based on debt. In fact, money is equal to debt. Whoever holds the money becomes the master. Whoever owes the money becomes the slave.
We also learn that “credit” (debt) is exactly the same as money in the M1, M2, and M3 money supplies. We’re often told that the Federal Reserve is the only entity that can create money. This is true with regards to the M0 money supply, but every lending institution can (and does) create new money through the issuance of new loans (credit).
Money = Credit
Credit = Debt
Therefore, Money = Debt
I have one last thing to leave you with today. Who do you think has driven the level of inflation that we have seen over the last few decades? Is it the Federal government? How about the banks? Actually, the banks encouraged it through the issuance of easy credit – but it was the American people that caused the vast majority of inflation for all of us through their reckless misuse of credit. It kept driving the M2 money supply higher and higher, causing prices on goods and services to increase at a dramatic rate.
Tomorrow: Credit Destruction – The Valve Gets Closed
If you are not currently on the Economic Update email list you can email me at: brad@newfamilyeconomics.com to be added.
The 2010 Family Economics Conference was just held this past weekend in Castle Rock, Colorado – and it was a tremendous blessing.
I had a great time meeting many families that I had only known through email addresses. It was also an opportunity to reach out to many more families regarding the economic teaching put forth by the Hamill Economic Update.
Let me extend a warm welcome to all of the new additions to the Update mailing list. It now reaches hundreds of families across the United States and three foreign countries.
Here are the basic ground rules for this freely offered ministry:
1) If you are blessed by the Hamill Economic Update then please forward it to your family, friends, and associates. This is not an attempt to “build numbers”, but rather to share an economic vision that God has given to me through working many years in the financial services sector. Folks can be added to the Update by emailing me with a request: brad@newfamilyeconomics.com.
2) If you have a desire to be removed from the email list then please send an email requesting that and I will quickly comply. I have no desire to abuse the privilege of having your email address, and will never share it with any other person or organization.
I’m going to take the next few Economic Updates and use them to teach a simple explanation of exactly what’s occurring in our country – and the other developed countries in our world.
At the end of this series of Updates you will have a firm understanding of why our nation is in a perilous economic condition, and you will have the tools to seek how the learned knowledge might apply to your own families.
Please make an effort to read each Update fully during this series. I think you will be blessed by what you learn. Feel free to contact me via email with any questions.
Ready? Let’s begin.
Step 1 – Understanding the Various Types of “Money”
What is “money” in our economy? Most people think of it as the stuff they carry around in their wallets and purses – but it goes much further than that.
Money actually has different definitions, depending on how you talk about it. We’re going to examine the nation’s “money supply” beginning with the most basic level (M0) and moving up to the most complete level (M3).
One thing you need to understand is that each “level” of our money supply builds upon the previous level. In other words, M1 builds upon M0, M2 builds upon M1, and M3 builds upon M2.
M0 is sometimes mistakenly referred to as our “base money supply”. This is quite incorrect. M0 is simply the amount of PHYSICAL money that’s in circulation (notes and coins). This includes the amount of physical money sitting in the vaults of commercial banks.
As an interesting aside, approximately two-thirds of our physical currency is currently held overseas, since people from other countries trust it as a “store of value” much more than their own currencies.
Many people wrongly state that our physical currency is “just ink on paper” with “no real value”. They might even go so far as to state that it’s worthless. This would be a wrong interpretation. Our physical currency is backed by the promise that we Americans will exert FUTURE LABOR in the economy. Those holding our currency have a “claim on the future labor of others” in the amount of the currency held. They become a “master” over our “debt slave” labor. Our money is not worthless. It is backed by our future labor.
The M1 money supply builds upon M0 – except it removes the amount held in commercial bank vaults. M1 adds in “checking” deposits. The main component of these deposits that we want to focus on is “demand deposits”. What is a demand deposit? One example of this would be where somebody wrote you a check for $100 and you deposited it into your checking account. This $100 would now be theoretically available to you “on demand”. I say “theoretically” since the availability of funds would be greatly hampered if a bank run were to take place.
The largest component of “demand deposits” is bank loans. All loans are funded with new “credit” – which is exactly the same as “money” in the M1 money supply. Loans are NOT funded from the deposits of other bank customers, as is oftentimes misunderstood.
Issuance of new loan credit is exactly the same as the issuance of new money. The M1 money supply increases every time a loan of any sort is signed for. Even those using their credit card for daily purchases and paying it off in full each month are temporarily increasing our nation’s money supply until the card payment is made.
What effect does an increasing money supply have when there is a somewhat stable supply of goods and services? It causes prices to go up, since there is now more money in the nation’s supply that needs to be absorbed.
Now we turn our attention to the M2 money supply. It includes all of the components of M1, plus savings deposits, time deposits less than $100K, and individual money market accounts. This is the primary level that is talked about “in general” when we discuss our nation’s money supply.
Lastly, we have the M3 money supply. This includes M2 along with very large deposits, institutional money market accounts, and other short-term large dollar transactions.
Conclusion
The main points to learn from this discussion are that ALL of our money supply is based upon the FUTURE completion of labor. In other words, our money is based on debt. In fact, money is equal to debt. Whoever holds the money becomes the master. Whoever owes the money becomes the slave.
We also learn that “credit” (debt) is exactly the same as money in the M1, M2, and M3 money supplies. We’re often told that the Federal Reserve is the only entity that can create money. This is true with regards to the M0 money supply, but every lending institution can (and does) create new money through the issuance of new loans (credit).
Money = Credit
Credit = Debt
Therefore, Money = Debt
I have one last thing to leave you with today. Who do you think has driven the level of inflation that we have seen over the last few decades? Is it the Federal government? How about the banks? Actually, the banks encouraged it through the issuance of easy credit – but it was the American people that caused the vast majority of inflation for all of us through their reckless misuse of credit. It kept driving the M2 money supply higher and higher, causing prices on goods and services to increase at a dramatic rate.
Tomorrow: Credit Destruction – The Valve Gets Closed
If you are not currently on the Economic Update email list you can email me at: brad@newfamilyeconomics.com to be added.
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