JasonC

Today in Commodities: Dollar Up, Again

Hey, someone noticed that the dollar went up! No fair! No one on the planet is supposed to be able to notice when that happens! Everyone screaming in chorus that it is toilet paper is supposed to make it so, and make everyone's overcrowded commodity bets pay off at infinite, wipe away all debts, and make every doom monger whole.

Dollar Wins on Euro, Pound Weakness

Pauleans endlessly spout that there is rampant dollar creation by the Fed, but they are merely ignorant or lying. M1 hasn't moved since 2005. An inch. In real terms the money supply has been falling since the housing bubble peaked. Even in nominal terms, it has been falling since Bear Stearns day. All the Fed credit provided to banks since last July has been offset one to one by selling treasuries into the market, leaving the size of the Fed's overall balance sheet, and with it M1, completely flat. That isn't "endless dollar creation" and no amount of insane repetition will make it so. Pauleans simply have an ideological narrative line. They can't process facts that do not fit it. Right now we are not in an inflation, we are in a deflation. $2 trillion in past credit will default, and banks are scrambling to force cash flows in their favor, and using it merely to reduce their liabilities. There is no way to turn that into "banks are endlessly creating as much money as they can". In fact, long before the Fed's reserve requirements bind, Basel II capital adequacy requirements bind. And long before Basel II requirements bind, ordinary prudence about volatile assets, binds the banks.

Was the Fed too loose from 2002 to 2004, and too slow to tighten? Sure. Were the banks reckless in expanding credit even beyond that, especially when they lent to deadbeats or at near-zero spreads? Sure. Are they paying the piper for it? You bet - they've lost $1 trillion in market cap in the last year and half the leadership has been fired, and everyone screaming that they are all being bailed out and that there are no incentives yada yada is smoking something.

Flip ideology passes for thought. But it is all hogwash.

Dollar Wins on Euro, Pound Weakness

Will we finally see the financial press stop repeating its endless refrain that "oil is rising because the dollar is falling", every single day? The dollar hasn't move an inch, net, since Bear Stearns day, nearly five months ago. There was a correlation between the Euro and oil between the 2004 elections and this March - (both up, duh), but it has collapsed completely since then, as oil went into a speculative blow-off and the Euro stopped dead. Why? Check out M2. M1 hasn't moved since 2005 - now M2 is declining at double digit annual rates. Not the story commodity bulls are selling, though, and they are tactically allied to the left's economic doom mongering. So you never hear a word about it, or see the slightest comment when it is mentioned (by accident).