Rich People Don't Create Jobs...

Probably because people that discuss wealth inequality tend to be Democrat voters, and if one is to follow voting demographics, the lower income brackets tend to be the only ones where Democrats win a preponderance of the vote.

 

Interesting points that you raise

Velocity of money is an intricate dance of cause and effect

Over all, the fed has made sure that the money supply is adequate
So that in this case velocity is not an issue of hoarding by rich people

The concerns of recent economic events have caused a general reduction of free spending and risk taking
Which en mass has reduced the velocity of money

Also, i think the impact of this factor has been reduced as increasing amounts of money drain out of the domestic economy into foreign trade accounts. So that the positive feedback loop of Spending is less powerful

 

I didn't say that it did. I said that when a person buys and investment (stocks, bonds, real-estate, etc.) he transfers money from himself to another party.

We then need to ask what that other party then does with that money.

omg, are you serious? Someone worth $50 billion doesn't have $50 billion in money. The fact that you think they do is laughable. They have it in investments (stocks, bonds, real-estate, etc), which they bought with money, turning that money over to other people. The question is, What are those other people doing with the money?

 

If the poor and lower income brackets would actually vote. For the most part, they don't:

 

Be that as it may, Democrats tend to only win the lowest income brackets, and they win those brackets by a huge margin. The lower the income bracket, the bigger the margin.

 

I was using this as an extreme example, of course, but the general principle holds.

You still haven't answered the question: Why is the money velocity so low, if all this money is reinvested and supposedly flows back into the economy?

Ardy's above post actually is giving a hint why!

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That still doesn't justify labeling posters here, who just discuss an economic position, as lazy/envious, when in fact they are not, and are just defending a position, which in their view, would improve economic prosperity for everyone.

 

Perhaps it doesn't justify it, but I am merely explaining why so many make that assumption. If you wanted to make a moratorium on making assumptions based on generalizations in this room however, I don't believe there would be many posts left.

 

Probably for the same reason that some people assume that anyone who argues that taxation is theft is conservative and "thinks that they are the only people who produce..."

I'm more curious to know what is the moral amount of wealth beyond which it is wrong to have more.

 

No the principle doesn't hold at all. Even someone worth a paltry $1 million only has a tiny amount of their assets in money. The rest is in other assets (such as real estate, stocks, and bonds), which they have purchased over time. And in every purchase they handed money to other people.

They are not hoarding money, they simply have a lot of assets.

I'm not making any claims about the velocity of money.

 

Very few wealthy people keep their assets in hard cash. Even if they do hold cash, say, in a bank, the bank uses that to fund other capital investments.

 

But they don't. With the new restricted lending standards, banks are actually not lending much, but rather sit on the QE money that they receive first. In addition, firms are not investing, despite sitting on boatloads of cash. So, the theory that the invested money just flows back into the economy and benefits everyone may hold in an investment-starved environment, in which regular economic theory holds. However, we are currently not investment-limited environment, but rather a consumption-limited environment. That's why the typical supply-side economic tricks to spur additional investment (for which there is already an overabundance of funds) do not work.

 

This is what I've been trying to tell people here for a long time. Just because a person is worth $10 million, it doesn't mean he has 100,000 hundred dollar bills stuffed in his mattress.

Most people don't keep more than a tiny amount of their total assets in federal reserve notes. The rest they either spend on consumer goods or other productive assets (real estate, stocks, etc), or they lend (bonds, CDs, savings accounts, etc.)

Money always moves from hand to hand. It never rests anywhere for long.

 

Well, if you are not the only one producing, why are you so worried about others taking your money?

 

Yes, I already acknowledged that it changes hands. However, it is currently not changing hands fast enough (low money velocity). Clearly, there is a problem somewhere, because the total spending = money velocity x amount of money. Clearly, increasing the amount of money by the FED had no effect as the money velocity decreased by the same or even greater amount. Thus, we are still in a deflationary environment, in which spending and production is below the capacity of the economy. Why could that be?

 

Precisely. We're in a low demand environment because so many people have less today to spend than yesterday, student loans and household debt at historic levels, an outflow of jobs to cheaper wage markets, and an overall declining ability for people to spend. Flat wages and growing personal debt destroy economic demand and it's happening on a global scale. You hit it right on the head. We're not at all cash starved as far as loans. We're credit starved for people with sufficient credit to actually borrow and businesses are already sitting on piles of cash (many major corporations). We cannot fix this problem without every citizen earning and spending more, no matter how much we argue about the causes. And there's no hope in the near term of wages increasing in the aggregate sufficient to manage personal debt and encourage consumption.

 

Why could that be? I can take a stab at it.

We know that MV = PT

Let's look what's been happening to each of these variables over the last several years.

We are not in a period of price inflation, so P hasn't changed much.
Due to slow growth, total output (T) has not increased significantly.
The money supply is at record highs...
So the value of V must be lowered to keep the equation equal.

So the answer to your question of why is V so low? Because M has gone up so much, with P and T remaining relatively stable.

So the problem you see must be the increase in M.

 

They don't have much choice. http://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/

Are they earning interest on that cash? If so, from where does that interest come? The fact is that they aren't "sitting" on "boatloads" (is that a technical term?) of cash. They use it, even if the accounting shows it as cash reserves.

Your theory seems to rest on the notion that money is wealth. That by spending money, wealth is created. Is that correct?

 

Who said I'm worried? Sounds like yet another ungrounded assumption. You make a lot of those.

 

no, the increase in M would normally lead to inflation. It does not, since V has gone down. In the absence of the increase of M, we would be in a brutal deflation.

 

In the absence of the increase in M, V would have remained unchanged.

 

I don;t assume that money is wealth. In fact, in a scientific sense, money is just a catalyst to wealth generation. However, when money turnover (velocity) decreases, wealth production also decreases.

 

Come on, you can't really believe that. Are you really suggesting that people spend less money because its quantity has gone up? The increase in money supply by the FED was a REACTION to the deflationary pressures - i.e. money velocity decreasing (people spending less).

 

I'm not at all suggesting that people are spending less money. The amount that people spend is represented by PT (Prices x Total production). Both of those values have been relatively constant. Prices have remained constant and total production has remained constant.

However, money supply has increased dramatically. Subsequently V, which is indirectly measured by imputation, must go down to keep the equation in balance.

 

And do you assert that money turnover is the cause of wealth production, or are you establishing a correlation? If it's the latter, what do you believe is the reason for less wealth production?

 

1. Money Supply:

Velocity of money depends upon the supply of money in the economy. If the supply of money in the economy is less than its requirements, then the velocity of money will increase and if the money [supply is less than its requirement, the velocity of money will fall.

2. Value of Money:

The velocity of money is high during inflation when value of money decreases because people will like to part with money as soon as possible. Similarly, during deflation, when the value of money rises, the velocity of money is low because people like to keep money with them.

3. Credit Facilities:

The velocity of money increases with the expansion of lending and borrowing facilities in the country. Therefore the growth of credit institutions has a favorable effect on the velocity of money.

4. Volume of Trade:

As the volume of trade increases the number of transactions and the velocity of money increases and as the volume of trade decreases, the velocity of money decreases.

5. Frequency of Transactions:

With the increase in the frequency of transactions, the number of payments and receipts increases and, as a result, velocity of money increases. Similarly, with the decrease in the frequency of transactions, the velocity of money decreases.

6. Business Conditions:

The velocity of money increases during the period of hectic business conditions and decreases during slump conditions.

7. Business Integration:

If business is vertically integrated, the velocity of money will be less and if business is vertically disintegrated, the velocity of money will increase.

8. Payment System:

The velocity of money is also determined by the frequency with which the labour force is paid (i.e., weekly or monthly) and the speed with which the bills for goods are settled.

9. Regularity of Income:

If people receive income at regular intervals, they will spend their income more freely and the velocity of money will increase. But, if people receive their income at irregular intervals, they will prefer to hold more cash balances to meet the uncertain conditions in future and the velocity of money will fall.

10. Propensity to Consume:

Greater the tendency of the people to consume, other things remaining the same, higher will be the velocity of money. On the contrary, lower the propensity to consume, lesser will t3 the velocity of money. Saving, or not consuming, has an adverse effect on the velocity of money.

50 million people 'hoarding' $1000 would also be a problem for you? It's their money and they can do what they wish with it.

I don't assume any of those things and don't give a crap what your financial status might be or if you're lazy etc. Constant whining about the wealthy paying more and more or that they don't create jobs or pay taxes etc. is whining! The entire diatribe won't solve a single problem. Wealthy people, unless they are living under a rock, live in a material world, and since they acquire material items, it is logical that they spend relative to others like they are on steroids! Yet people continue to whine as if they don't spend? Whether someone has $1000 or $50 billion, it's their money to do whatever they wish. Somehow I'm sure you won't have a problem with 50 million people saving $1000 each but you think people who invest $50 billion are doing a disservice to the nation and the economy and to jobs...yet both scenarios are the identical amount of money! The entire premise of this thread is idiotic! Are you going to cap wealth? Are you going to cap investments? Are you prepared to eliminate the equity markets?