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To: 1rudeboy
Repaying debt is spending

No. Repaying debt is the compensation of prior spending of borrowed money. It is not additional spending.

I think you are confusing the velocity of money with the multiplier-effect.

No. The multiplier effect is the result of banks making multiple loans (assuming debtors step up) less the reserve req on each loan. But to make multiple loans, the money has to come back in multiple times. Each time it comes in, it is loaned out less the reserve. Each time a loan is made from the 'same' money supply (less a reserve) the velocity of money increases (assuming the loaned out money is spent on something) and the money supply 'multiplied'.

But the velocity of money can increase without multiplying when instead of saving, someone buys something with cash. But a cash purchase only increases the velocity, it does not increase the banks 'multiplier effect'.

They are related, but not the same.

39 posted on 08/20/2003 6:16:58 AM PDT by Starwind
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To: Starwind
Repaying debt is the compensation of prior spending of borrowed money. It is not additional spending.

Compensation? The bank spent the money when it loaned it to you, and you are spending it when you pay it back, with interest, which cannot qualify as anything other than spending.

The velocity of money is the frequency the same dollar is spent. The multiplier-effect deals with money creation, which may or may not have a bearing on its velocity.

68 posted on 08/20/2003 9:44:43 AM PDT by 1rudeboy
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