A small exercise done with a pen and paper on the top of the knee.
We have an alleged 21 trillion dollars secretly printed by the Fed and that mysteriously disappeared by simply not reporting its existence.
1st question for you. What do you think that happened to that money when it was injected into the economy ? The answer is, of course, that in the very least it went in part into circulation in the hands of the public and in part back the Fed in the form of commercial bank deposits, AKA bank reserves.
2nd question for you. And what do you think that the banking system did with that extra 21 trillion dollars? The answer is. of course, it used it to grant bank loans, AKA money multiplier (the creation of more money).
3rd question. What do you think the overall effect would have been? To be generous with you lets put the multiplier at 0.6 meaning that for every dollar that the FED printed an extra 60cs were created by the banking system. Now .6 of 21 trillion dollars is 12.6 trillion. This means that we have now not an extra 21 trillion dollars missing but 33.6 trillion.
4th question for you. What do you think that the equation PQ=MV states? Well it states that PQ, AKA GDP, equals the stock of money M, times its velocity V. In order to be again generous with you lets put V at 1.4. This means that a nominal slice of GDP equal to 47 trillion must be missing from the statistics.
You may say, of course, that at this moment the multiplier and the velocity of money are all much lower, but if that is the case the the onus of proof is upon you.
What is 'Monetary Base'
A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies; it is also known as the "money base."
What is The 'Multiplier Effect'
The multiplier effect is the expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is the money used to create more money and is calculated by dividing total bank deposits by the reserve requirement.
