Jimney Credit on Money Supply
A Jimney Credit Edutainment Interruption
Only 100 years ago, most people lived like total animals. We would wake up, and there was ZERO food in the house.
Every grueling day was spent getting just-the-basics. That is, unless you were a squirrel or barn animal. Then you'd have lots of backup.
But being a squirrel would really suck. Like living in Hartford! Nothing to do.
Repo Pawn Shop
When something is in short supply, the price goes up. Most interest rates creep gradually and spike at some point, when money supply in circulation declines.
The Fed Funds Rate expresses uncollateralized overnight lending costs between banks.
The overnight REPO rate shows what over-collateralized loan rates look like, if you annualize them out to 365 days. That is the heart beat of the economy for professionals. Repurchase agreements are a pawn shop for portfolio managers.
Bank reserve requirements, FOMC government bond activity, Fed Funds and Discount Rate changes, together in concert, control M2 in circulation out on Main Street.
When the cost of mortgage financing goes up, the valuation of the shack normally declines on the same day, because buyers can afford less principal. More of their fixed monthly payment is dedicated to satisfying that higher mortgage interest expense.
They can afford less house, during periods of tighter money. Prices decline.
M2 is our Share Count
The US Dollar is the equity on the American balance sheet. Our share count is M2.
Fred deposits a dollar at Bedrock Bank. Barney borrows it. That same dino-dollar appears on both balance sheets at the same time. That’s M2. It doubles deposits.
Net income drives value to a company's stock in the same way that GDP drives tax revenue that satisfies cash interest sufficiently that our currency has value.
Anyone who claims that the US Dollar is not backed by anything should consider whether NYSE or NASDAQ listed stocks are backed by anything. They’re both equities.
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