From the leverage ratio, we know that the amount of borrowing is related to the property of the borrower, and more personal or corporate assets can borrow more money from the bank. So, is this the essence? Is the loan amount really related to the asset ? Is it related to productivity closer to the essence? Whether individual or corporate, the more productive it is, the more money it borrows, isn't that more reasonable? Isn't the better the job the ability, the higher the income，Isn't it even more reasonable?
Leverage is the rate of money flowing. Nobel Prize-winning economist Eric Maskin said, "High leverage is the cause of the financial crisis". Is it true? If a financial crisis occurs because money flows too fast, what should determine that speed? Why is the American currency flowing so fast? Does it have something to do with productivity? I changed the denominator of the leverage formula and replaced it with "productivity"Do you think there is logic? Is it closer to nature than the original leverage calculation?
M/kAL=V
Here, M is the amount of money flowing into or out of companies (or individuals, banks, etc.), A is production efficiency or knowledge, and L is labor. k is the coefficient. V is the new rate of money circulation.
https://www.researchgate.net/publication/362233496_Analysis_of_Financial_Crisis_Causes_and_Complex_Systems_Scientific_Methods?_tp=eyJjb250ZXh0Ijp7ImZpcnN0UGFnZSI6ImhvbWUiLCJwYWdlIjoicHJvZmlsZSIsInByZXZpb3VzUGFnZSI6InF1ZXN0aW9uIiwicG9zaXRpb24iOiJwYWdlQ29udGVudCJ9fQ
When Money flows too quickly, atutomacticly the price level rises and causes hyperinflation (V=T/M). This is the basic concept of The Quantity Theory of Money. Of course, the impact of hyperinflation cannot be underestimated because it could lead to a crisis later.
Pristanto Silalahi
I said "speed of money circulation" is not the speed in this formula.
Financial crisis happens because banks are able to create too much money, too quickly, and use it to push up house prices and speculate on financial markets. Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy, i.e. the very speed of this circuit matters, financial crises are an inherent feature in how modern capitalist economies function, where the ( monetary speed of the) business cycle fuels speculative growth during economic booms, only to be met by contractions and recession. Finally, assets decrease in value, and the overall level of debt increases. In this sense, Eric Maskin is right, imo.
Stephen I. Ternyik
Can the calculation of the leverage ratio be slightly modified? For example, the household leverage ratio = the loan balance of the year / disposable income of the year, and the government leverage ratio = the balance of Treasury bonds / GDP. Are these two denominators the same as productivity? Why not use "productivity" to replace the denominator in these formulas?
Stephen I. Ternyik
These two leverage ratios can be roughly the same as productivity, because revenue and GDP mean productivity. However, for the financial leverage ratio, the formula is: total assets / net assets, which seems not accurate, because financial companies, besides assets, also have the ability to operate companies and analyze the market, which are the guarantee that they use leverage, but they do not set this parameter in the formula.
Stephen I. Ternyik
In some places, the formula for calculating the leverage ratio is: leverage = total liabilities / total assets, total liabilities represent all the current debts of the company or portfolio, and total assets represent all assets, including cash, securities, equipment, real estate, etc. This ignores the non-physical productivity. The calculation of the various leverage ratios is not uniform.
The attached text and formulations can maybe help you Duan Xian Xiang to further elaborate your formulae on monetary excess:
https://mpra.ub.uni-muenchen.de/54835/1/MPRA_paper_54835.Pdf
Stephen I. Ternyik
What seems to be the "money multiplier" causing money flooding? But, I'm talking about leverage
In my model, leverage is part of f (liquidity frequency), point 2.
Leverage strategies are part of monetary excess Duan Xian Xiang
As r (reserve requirement), point 1, is today only a legal paper tiger, money is not multiplied, but created out of thin air.
Of course, I also had to learn about the money multiplier in the early 1980s via the Samuelson/Nordhaus textbook, but these models (with some spicing from Keynes) are fully outdated, with respect to banking practice.
The newest textbooks have also omitted the JvNeumann growth model formulae, because this does not fit with the negative, zero and low interest policies of the the last 2 decades, in terms of central bank monetary policing.
_________
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Lv Mises
PS/to the catastrophe mentioned also belongs war
Inflation made it possible to divert the fury of the people to 'speculators' and 'profiteers'. Thus it proved itself an excellent psychological resource of the destructive and annihilist war policy.” Lv MIses, The Theory of Money and Credit
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