When coming out of both low inflation & slow economic growth (or a recession), quantitative easing can be used to effectively boost aggregate monetary demand (AMD), which in turn will boost nominal-gDp (economic growth, inflation, & employment).
Contrary to Keynesian economics, we are not in a liquidity trap (where ZIRP fails to stimulate AMD). That’s because not all QE is "ubiquitous". QE may result in either an increase in the volume of un-used excess reserve balances (a bank's highly liquid earning assets), or QE may expand the money stock (a member bank’s deposit liability & a non-earning asset). The difference depends upon who sells Treasury’s to the FRBNY’s “trading desk” (Central Bank), at their auctions in the secondary government securities market.
These permanent open market operations (POMOs) should be divided into 2 separate classes (#1) purchases from & sales to: the commercial banks; & (#2) purchases from, and sales to: others than banks:
(#1) Transactions between the Reserve banks & the commercial banks directly affect the volume of member bank reserves without bringing about any change in the money supply (an asset swap). The “trading desk” “credits the account of the member clearing bank used by the primary dealer from whom the security is purchased”. This alteration in the assets of the commercial banks (the banks’ reserve balances or IOeR’s), increase - by exactly the amount the Primary Dealer’s government securities portfolio was decreased.
These reserve balances (IOeR’s) are not just the result of an asset swap. IOeR’s are assets defined by economists to be outside-of-the properties normally assigned to the money aggregates. I.e., IOeR’s are not a medium of exchange. They do not circulate outside of the inter-bank market (i.e., IOeR’s may reflect reserve velocity, not transactions velocity). They do not require Basel II regulatory capital. They are not a reservable liability.
(#2) Purchases and sales between the Reserve banks & Non-bank investors directly affect both bank reserves & the money supply.
Note: the non-bank public includes every institution, corporation, the U.S. Treasury, the U.S. Government, State, & local governmental jurisdictions, foreigners, & every person (everyone except the commercial and the Reserve banks). ----------------------... “As of May 2012, Federal debt held by the public was $11 trillion (includes SOMA holdings), while the intra-governmental debt was $4.76 trillion, to give a combined total public debt outstanding of $15.77 trillion” –Wikipedia
As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion ----------------------... So the Fed has plenty of ammunition (government debt outstanding). Government’s in the secondary market (held by the non-bank public) may be monetized (financing government spending) through open market operations of the buying type (Central Bank POMO’s).
These purchases may or may not be sterilized (neutralize the inflationary impact) in 2 ways: (1) by increases in the volume of idle excess reserve balances (via changing the remuneration rate), & (2) by increases in the volume of required reserves (via reserve ratios as applied to reservable liabilities).
QE can involve other actions: “credit easing -- changing the mix of loans and securities that it holds & on how this composition of assets affects credit conditions for households and businesses” or “qualitative easing - a shift in the composition of the assets of the central bank towards less liquid & riskier assets”
Thus even under QE, monetary policy is multifaceted, objectives can be hard to quantify, & even harder to carry out. Regardless of how difficult QE might be, that shouldn't preclude the Fed from using QE operations (to achieve their employment & inflation mandates).
Upcoming Headline Risk: Another U.S. Credit Downgrade [View article]
There will come a time (unpredictable) when it will be impossible for the government (federal) to collect enough in taxes to pay all of its expenses, including interest on the national debt (Greece's problem).
The Gov't can of course borrow an indefinite amount through the Fed. (Concealed green backing) given a few changes in existing law. But that would lead to hyper inflation - i.e., a collapse in the credit of the Gov't (adopting chartalism is no exception).
So the easy way, is the way the French did it in 1960. Simply say that beginning Jan 1 (or any other date), new dollars will be issued, and that each new dollar is worth 100 old dollars. Then follow that up with a largely state controlled economy.
"In 1960, the French economist / mathematician Jacques Rueff, during Charles de Gaulle's presidency, converted the old franc, to a nouveau franc, equal to 100 of the old franc. However, even with this substitution, inflation continued to erode the currency's value, though at lower rates of change, in comparison to other countries. And this new franc equaled 20 cents to a U.S. dollar. The old rate was 5.00 to a dollar.
In 1960, the French franc, which was one of the weakest currencies, overnight, became one of the strongest. Correcting policies included plans to 1) balance the budget, 2) stabilize the currency, and 3) eliminate currency controls.
The gold content of the franc increased 100%, & 1) foreign exchange rates, and 2) France's internal prices, reflected the conversion overnight. Internally, prices dropped about 90 per cent, and the foreign exchange value rose from about 0.238 cents per franc, to about 20.389 cents per franc.
Domestically, France was on a managed paper standard; externally, on a modified gold bullion standard. With the new policies, France's economy strengthened, and the franc became fully convertible @ approximately its gold par, into gold for foreign exchange and into foreign currencies."
With the introduction of the Euro, the franc in Jan. 1, 1999, was worth less than 1/8 of its Jan. 1, 1960 value
Given the current direction of political-economic instruction, the U.S. becomes ever closer to being forced into operating under the constraints imposed by a command economy & falling into an increasingly totalitarian mold. We when we look back we will decry our "elastic" legislators, our "elastic" currency, the banking lobbyists, and their constituents.
"The Fed is no longer making net new purchases of Treasuries, and they won't buy more unless the economy deteriorates significantly"
Any recovery in the economy will present a “Catch 22” situation. An upturn in the economy will add increased private demand for loan-funds, to the insatiable demands of Federal, State, & Local Governments. The consequent rise in interest rates will effectively abort any recovery. -- June should be the bottom in rates.
Does Another Cruel Summer Lie Ahead For Stocks? [View article]
"I am not a 'Bernanke hater' "
I not only hate Bernanke, but Volcker & Greenspan too. If the "silent majority" only knew what each one did wrong they would have been lynched before anyone thought to fire them.
The Problem With Small Surprises: The Inflation Paradigm Shift [View article]
"Could we be in the midst of an inflationary paradigm shift without knowing it?" --------------------- Any paradigm shift is extremely easy to spot using the correct metrics & time frames. ================= "Draining reserves while the Unemployment Rate is above 7%, especially during an election year, is almost out of the question"
It isn’t within the power or responsibility of the Federal Reserve to hold unemployment to a 5 or even a 6 per cent. In fact, to assume that the Federal Reserve can solve our unemployment problem is to assume the problem is so simple that its solution requires only that the manager of the Open Market Account buy a sufficient quantity of U.S obligations for the accounts of the 12 Federal Reserve Banks. This is utter naiveté.
If there is an inflation-unemployment trade-off curve, it is shifting to the right, and at an accelerated rate.
3 Signs The Sell-Off Will End This Week [View article]
"Given that the market has pulled back by nearly 5% in just a week, the question is, what's next? While obviously predicting short-term movements in the markets is difficult"
"will be micro-analyzed in this environment, and economic data is seasonally adjusted" ------------------------
NO, the data is seasonally MAL-adjusted.
NO "predicting short-term movements in the markets is not difficutlt": Stocks may reverse for the next 2-2 1/2 weeks, then its all over until June month-end (barring countervailing stimulus).
Does Another Cruel Summer Lie Ahead For Stocks? [View article]
Yellen is worth reading but in this case she is out in left field.
(1) "the arguments linking the run-up in commodity prices to the stance of U.S. monetary policy do not seem to hold up to close scrutiny"
(2) "even if you believe (incorrectly in my view) that monetary policy causes oil price spikes, the Fed does not and they make the decisions" ===========
It certainly does. Monetary policy definitely tracks (i.e., almost prefectly) "Crude Oil: Brent - Europe (DCOILBRENTEU)" FRED
The value of money as a medium of exchange is it purchasing power. If prices rise, the value of money falls, & vice versa. From an economic standpoint, the value of money could be represented by an index of prices. But no such index exists because an overall-all index (or an average of all prices), is useless & would be impossible, to compute.
Instead, agencies produce price data & create specialized types of indexes, i.e., wholesale prices, retail prices, consumer prices, non-agricultural prices at wholesale, agricultural prices, and prices of basic raw materials. I.e., no single figure is complied which represents the value of money.
A Crash Course In The Weird World Of A Liquidity Trap [View article]
"cut the regulations that keep employees and society safe"
To reduce both the rate of unemployment and the rate of inflation is to acceptable levels requires fundamental structural changes in our product and labor markets.
Some contribution to solving the problem of marginal unemployment could be achieved through measures that would increase the necessary qualifications of the labor force and that would produce a speedier matching of workers and jobs (e.g., eliminate the liberal/cultural art's distribution requirements for STEM fields at college & universities).
But the crux of the unemployment-inflation problem arises from the excessive amount of monopolistic practices in our product markets and, to a lesser extent, our labor markets. What could be done to reduce or eliminate barriers to competition, to create a market structure in which there was both downward and upward price flexibility? Here are a few suggestions:
Abolish all resale price maintenance laws. Conduct antitrust actions on the basis of the most economical size of plant. That is, limit corporations to a size that would achieve minimum unit costs at optimum rates of output.
Outlaw the conglomerate and holding companies beyond the first degree, and severely restrict vertical as well as horizontal corporate aggregations. That is to say, prohibit corporations from conducting unrelated activities under a single corporate roof, from expanding in order to broaden their share of the market or from controlling their suppliers through ownership or legal devices.
Eliminate most Buy Americas Act provisions, tariffs, import quotas, customs “red tape” and classification practices that restrict imports. Limit Export-import bank credit to those situations in which our exports are at an artificial disadvantage.
Repeal the Davis-Bacon Act and similar laws concerning union wages paid under government contracts and exempt juveniles from minimum wage laws. Eliminate union provisions that put excessive restrictions on apprenticeships or require excessive entrance fees, and abolish hiring halls operated by unions.
Require all drugs to be sold under their generic names. Enforce that products be sold by standard grades established by the Bureau of Standards, and that prices be posted by unit (per pound, quart, etc.).
Repeal restrictive building codes that have the effect of unnecessarily raising construction costs without contributing substantively to the safety or efficiency of the structure.
Do you think that corporation managers and labor leaders will cease to exploit their economic powers and that Congress, state legislatures, city councils, and the bureaucracy will “bite these bullets”?
Because we are unwilling to make the individual sacrifices that would significantly increase competition in our product and labor markets, and because the federal government is committed to hold unemployment to “tolerable levels,”, the prospects are a prolonged indefinite period of underemployment and concomitantly an excessive rate of inflation.
Friday Fade - March Goes Out Like A Lamb (To The Slaughter?) [View article]
JFerraro819:
"I like how all of your outcomes end happily"
It's the proper application of math, not emotion. Derision is inappropriate when the facts are undeniable & the proof is incontestable.
"Enjoy the FAIRY TALE while it lasts. Which is most likely a month at most"
Written on Mar 30 11:31 am prior to the MAY 6th FLASH CRASH:
"Contrary to economic theory, & Nobel laureate Dr. Milton Friedman, monetary lags are not "long & variable". The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length. However the lag for nominal gdp (the FED's target??), varies widely."
Assuming no quick countervailing stimulus:
2010 jan..... 0.54.... 0.25 top feb..... 0.50.... 0.10 mar.... 0.54.... 0.08 apr..... 0.46.... 0.09 top may.... 0.41.... 0.01 stocks fall
Been saying this for the last 6 months. Should see shortly. Stock market makes a double top in Jan & Apr. Then the real-output of final goods & services falls/inverts from (9) to (1) from Apr to May.
Recent history indicates that this will be a marked, short, one month drop, in rate-of-change for real-output (-8). So stocks follow the economy down (with yields moving sympathetically?)" Mar 30 11:31 am
Also:
flow5 Message #10 - 05/03/10 07:30 PM The markets usually turn (pivot) on May 5th (+ or - 1 day).
====================
I discovered the GOSPEL in July 1979. The Board of Governors G.6 statistical release which I used to calculate money flows was discontinued in Oct. 1996. The figure for MVt I use today is a surrogate (it is imperfect). Those are the FACTS that you know nothing about.
"As prevailing interest rates measure the costs of money - then it is logical for interest rates to move higher as the money supply tightens"
NO, The widely held misconception that a tight money policy results in high interest rates (and vice versa) derives from the premise that interest rates are determined by the demand for and the supply of money rather than the demand for and the supply of loan-funds.
Interest is the price of loan-funds; the price of money is the reciprocal of the price level. It is true that an expansion of commercial bank credit (loan-funds) produces a concomitant increase in the volume of money & that the initial effect is to depress interest rates, other things being equal. If, however, the increase in the volume of money flows exceeds the changes in the volume of goods and services offered in the markets, prices will rise. And if the price increases broadly based & chronic, we have inflation
It is not an exaggeration to say that inflation expectations largely determine minimal long-term interest rates. Investors will not for long accept negative real returns, that is, nominal interest rates that are less than the rate of inflation.
Higher interest rates consequently are not evidence of "tight money"; rather they are the consequence, over time, of an excessively easy (irresponsible) money policy -- money expansion so great that money flows substantially exceed the rate of expansion in real output.
Bill Gross On Risk Seeking Return And Safe Carry [View article]
“There is no natural check on the amount of credit that can be created under this arrangement”
And that's an imminent threat to the U.S. & indeed capitalism itself.
“There is no direct link between reserves and credit”
That’s where EVERYONE gets it wrong. Milton Friedman’s “monetary base” is not now, nor has never been, a base for the expansion of new money & credit (today both (1) curreny held by the non-bank public & (2) excess reserve balances are contractionary). Total reserves once were, but now only required reserves loosely serve as the “base” for the system's expansion coefficient. This idea was apparently just re-discovered by Thornton:
Quantitative Easing and Money Growth: Potential for Higher Inflation? Daniel L. Thornton
Reserve & reserve ratio constraints are uni-directional, not bi-directional (reserves aren't binding when the member banks see an opportunity to make a profit, but are contractionary when the Central bank drains liquidity).
In the simplest terms: "Banks need central bank deposits for clearing checks and making other interbank payments, which gives the central bank leverage over money and bond markets". I.e., recently contractual clearing balances (liquidity reserves - when a bank is able to exchange its assets for cash rapidly enough to meet the demands made upon it for cash and payments ), have been commingled with legal reserves (just as vault cash was allowed to be applied to reserve requirements beginning in 1959).
“US Consumers are not increasing savings”
That’s the direct result of the FED’s new policy tool paying interest on excess reserves. I.e., it's influence predominately stems from the fallacious Gurley-Shaw thesis which maintains that liquid assets are not any different than the money stock.
Said The Fed: "Damn The Accountants...Full Speed Ahead!" [View article]
My take:
The predominant impact of the European Union's (flight-to-safety) crisis is scheduled to fade away at May's month-end. U.S. over-regulation, the additional requisite tax increases as a consequence of our tax revenue receipt short-fall, expiration of the Bush-era tax cuts, Obama-care, end of the payroll tax cuts, etc., are setting up to simultaneously decrease the supply of loan funds, & increase the demand for loan funds, and thus send interest rates higher. And that doesn't count my expectation that the rate of inflation will increase this year (even if the price of oil doesn't). We are not "safe" from inflation.
Why QE3 Is Still Not Coming [View article]
Contrary to Keynesian economics, we are not in a liquidity trap (where ZIRP fails to stimulate AMD). That’s because not all QE is "ubiquitous". QE may result in either an increase in the volume of un-used excess reserve balances (a bank's highly liquid earning assets), or QE may expand the money stock (a member bank’s deposit liability & a non-earning asset). The difference depends upon who sells Treasury’s to the FRBNY’s “trading desk” (Central Bank), at their auctions in the secondary government securities market.
These permanent open market operations (POMOs) should be divided into 2 separate classes (#1) purchases from & sales to: the commercial banks; & (#2) purchases from, and sales to: others than banks:
(#1) Transactions between the Reserve banks & the commercial banks directly affect the volume of member bank reserves without bringing about any change in the money supply (an asset swap). The “trading desk” “credits the account of the member clearing bank used by the primary dealer from whom the security is purchased”. This alteration in the assets of the commercial banks (the banks’ reserve balances or IOeR’s), increase - by exactly the amount the Primary Dealer’s government securities portfolio was decreased.
These reserve balances (IOeR’s) are not just the result of an asset swap. IOeR’s are assets defined by economists to be outside-of-the properties normally assigned to the money aggregates. I.e., IOeR’s are not a medium of exchange. They do not circulate outside of the inter-bank market (i.e., IOeR’s may reflect reserve velocity, not transactions velocity). They do not require Basel II regulatory capital. They are not a reservable liability.
(#2) Purchases and sales between the Reserve banks & Non-bank investors directly affect both bank reserves & the money supply.
Note: the non-bank public includes every institution, corporation, the U.S. Treasury, the U.S. Government, State, & local governmental jurisdictions, foreigners, & every person (everyone except the commercial and the Reserve banks).
----------------------...
“As of May 2012, Federal debt held by the public was $11 trillion (includes SOMA holdings), while the intra-governmental debt was $4.76 trillion, to give a combined total public debt outstanding of $15.77 trillion” –Wikipedia
As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion
----------------------...
So the Fed has plenty of ammunition (government debt outstanding). Government’s in the secondary market (held by the non-bank public) may be monetized (financing government spending) through open market operations of the buying type (Central Bank POMO’s).
These purchases may or may not be sterilized (neutralize the inflationary impact) in 2 ways: (1) by increases in the volume of idle excess reserve balances (via changing the remuneration rate), & (2) by increases in the volume of required reserves (via reserve ratios as applied to reservable liabilities).
QE can involve other actions: “credit easing -- changing the mix of loans and securities that it holds & on how this composition of assets affects credit conditions for households and businesses” or “qualitative easing - a shift in the composition of the assets of the central bank towards less liquid & riskier assets”
Thus even under QE, monetary policy is multifaceted, objectives can be hard to quantify, & even harder to carry out. Regardless of how difficult QE might be, that shouldn't preclude the Fed from using QE operations (to achieve their employment & inflation mandates).
Upcoming Headline Risk: Another U.S. Credit Downgrade [View article]
The Gov't can of course borrow an indefinite amount through the Fed. (Concealed green backing) given a few changes in existing law. But that would lead to hyper inflation - i.e., a collapse in the credit of the Gov't (adopting chartalism is no exception).
So the easy way, is the way the French did it in 1960. Simply say that beginning Jan 1 (or any other date), new dollars will be issued, and that each new dollar is worth 100 old dollars. Then follow that up with a largely state controlled economy.
"In 1960, the French economist / mathematician Jacques Rueff, during Charles de Gaulle's presidency, converted the old franc, to a nouveau franc, equal to 100 of the old franc. However, even with this substitution, inflation continued to erode the currency's value, though at lower rates of change, in comparison to other countries. And this new franc equaled 20 cents to a U.S. dollar. The old rate was 5.00 to a dollar.
In 1960, the French franc, which was one of the weakest currencies, overnight, became one of the strongest. Correcting policies included plans to 1) balance the budget, 2) stabilize the currency, and 3) eliminate currency controls.
The gold content of the franc increased 100%, & 1) foreign exchange rates, and 2) France's internal prices, reflected the conversion overnight. Internally, prices dropped about 90 per cent, and the foreign exchange value rose from about 0.238 cents per franc, to about 20.389 cents per franc.
Domestically, France was on a managed paper standard; externally, on a modified gold bullion standard. With the new policies, France's economy strengthened, and the franc became fully convertible @ approximately its gold par, into gold for foreign exchange and into foreign currencies."
With the introduction of the Euro, the franc in Jan. 1, 1999, was worth less than 1/8 of its Jan. 1, 1960 value
Given the current direction of political-economic instruction, the U.S. becomes ever closer to being forced into operating under the constraints imposed by a command economy & falling into an increasingly totalitarian mold. We when we look back we will decry our "elastic" legislators, our "elastic" currency, the banking lobbyists, and their constituents.
The Economy Grows Under The Shadow Of Recession [View article]
The "behind the scenes" corruption is much worse than "Joe sixpack" would even be able to understand. And it started a long time ago.
The U.S. Economy In Q1: Slow, Steady And Vulnerable [View article]
Still No Sign Of A Recession [View article]
Any recovery in the economy will present a “Catch 22” situation. An upturn in the economy will add increased private demand for loan-funds, to the insatiable demands of Federal, State, & Local Governments. The consequent rise in interest rates will effectively abort any recovery. -- June should be the bottom in rates.
Does Another Cruel Summer Lie Ahead For Stocks? [View article]
I not only hate Bernanke, but Volcker & Greenspan too. If the "silent majority" only knew what each one did wrong they would have been lynched before anyone thought to fire them.
The Problem With Small Surprises: The Inflation Paradigm Shift [View article]
---------------------
Any paradigm shift is extremely easy to spot using the correct metrics & time frames.
=================
"Draining reserves while the Unemployment Rate is above 7%, especially during an election year, is almost out of the question"
It isn’t within the power or responsibility of the Federal Reserve to hold unemployment to a 5 or even a 6 per cent. In fact, to assume that the Federal Reserve can solve our unemployment problem is to assume the problem is so simple that its solution requires only that the manager of the Open Market Account buy a sufficient quantity of U.S obligations for the accounts of the 12 Federal Reserve Banks. This is utter naiveté.
If there is an inflation-unemployment trade-off curve, it is shifting to the right, and at an accelerated rate.
3 Signs The Sell-Off Will End This Week [View article]
"will be micro-analyzed in this environment, and economic data is seasonally adjusted"
------------------------
NO, the data is seasonally MAL-adjusted.
NO "predicting short-term movements in the markets is not difficutlt": Stocks may reverse for the next 2-2 1/2 weeks, then its all over until June month-end (barring countervailing stimulus).
Does Another Cruel Summer Lie Ahead For Stocks? [View article]
(1) "the arguments linking the run-up in commodity prices to the stance of U.S. monetary policy do not seem to hold up to close scrutiny"
(2) "even if you believe (incorrectly in my view) that monetary policy causes oil price spikes, the Fed does not and they make the decisions"
===========
It certainly does. Monetary policy definitely tracks (i.e., almost prefectly) "Crude Oil: Brent - Europe (DCOILBRENTEU)" FRED
http://bit.ly/pao39W[1][id]=DCOILBRENTEU&a...
=========
But doesn't accurately explain the CPI (although the roc in the CPI bottomed in Jan 2011 which matched the roc in (MVt)).
"Consumer Price Index for All Urban Consumers: Purchasing Power of the Consumer Dollar"
http://bit.ly/pao39W[1][id]=CUUR0000SA0R&a...
===============
The value of money as a medium of exchange is it purchasing power. If prices rise, the value of money falls, & vice versa. From an economic standpoint, the value of money could be represented by an index of prices. But no such index exists because an overall-all index (or an average of all prices), is useless & would be impossible, to compute.
Instead, agencies produce price data & create specialized types of indexes, i.e., wholesale prices, retail prices, consumer prices, non-agricultural prices at wholesale, agricultural prices, and prices of basic raw materials. I.e., no single figure is complied which represents the value of money.
A Crash Course In The Weird World Of A Liquidity Trap [View article]
To reduce both the rate of unemployment and the rate of inflation is to acceptable levels requires fundamental structural changes in our product and labor markets.
Some contribution to solving the problem of marginal unemployment could be achieved through measures that would increase the necessary qualifications of the labor force and that would produce a speedier matching of workers and jobs (e.g., eliminate the liberal/cultural art's distribution requirements for STEM fields at college & universities).
But the crux of the unemployment-inflation problem arises from the excessive amount of monopolistic practices in our product markets and, to a lesser extent, our labor markets. What could be done to reduce or eliminate barriers to competition, to create a market structure in which there was both downward and upward price flexibility? Here are a few suggestions:
Abolish all resale price maintenance laws. Conduct antitrust actions on the basis of the most economical size of plant. That is, limit corporations to a size that would achieve minimum unit costs at optimum rates of output.
Outlaw the conglomerate and holding companies beyond the first degree, and severely restrict vertical as well as horizontal corporate aggregations. That is to say, prohibit corporations from conducting unrelated activities under a single corporate roof, from expanding in order to broaden their share of the market or from controlling their suppliers through ownership or legal devices.
Eliminate most Buy Americas Act provisions, tariffs, import quotas, customs “red tape” and classification practices that restrict imports. Limit Export-import bank credit to those situations in which our exports are at an artificial disadvantage.
Repeal the Davis-Bacon Act and similar laws concerning union wages paid under government contracts and exempt juveniles from minimum wage laws. Eliminate union provisions that put excessive restrictions on apprenticeships or require excessive entrance fees, and abolish hiring halls operated by unions.
Require all drugs to be sold under their generic names. Enforce that products be sold by standard grades established by the Bureau of Standards, and that prices be posted by unit (per pound, quart, etc.).
Repeal restrictive building codes that have the effect of unnecessarily raising construction costs without contributing substantively to the safety or efficiency of the structure.
Do you think that corporation managers and labor leaders will cease to exploit their economic powers and that Congress, state legislatures, city councils, and the bureaucracy will “bite these bullets”?
Because we are unwilling to make the individual sacrifices that would significantly increase competition in our product and labor markets, and because the federal government is committed to hold unemployment to “tolerable levels,”, the prospects are a prolonged indefinite period of underemployment and concomitantly an excessive rate of inflation.
Friday Fade - March Goes Out Like A Lamb (To The Slaughter?) [View article]
"I like how all of your outcomes end happily"
It's the proper application of math, not emotion. Derision is inappropriate when the facts are undeniable & the proof is incontestable.
"Enjoy the FAIRY TALE while it lasts. Which is most likely a month at most"
Written on Mar 30 11:31 am prior to the MAY 6th FLASH CRASH:
"Contrary to economic theory, & Nobel laureate Dr. Milton Friedman, monetary lags are not "long & variable". The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length. However the lag for nominal gdp (the FED's target??), varies widely."
Assuming no quick countervailing stimulus:
2010
jan..... 0.54.... 0.25 top
feb..... 0.50.... 0.10
mar.... 0.54.... 0.08
apr..... 0.46.... 0.09 top
may.... 0.41.... 0.01 stocks fall
Been saying this for the last 6 months. Should see shortly. Stock market makes a double top in Jan & Apr. Then the real-output of final goods & services falls/inverts from (9) to (1) from Apr to May.
Recent history indicates that this will be a marked, short, one month drop, in rate-of-change for real-output (-8). So stocks follow the economy down (with yields moving sympathetically?)"
Mar 30 11:31 am
Also:
flow5 Message #10 - 05/03/10 07:30 PM
The markets usually turn (pivot) on May 5th (+ or - 1 day).
====================
I discovered the GOSPEL in July 1979. The Board of Governors G.6 statistical release which I used to calculate money flows was discontinued in Oct. 1996. The figure for MVt I use today is a surrogate (it is imperfect). Those are the FACTS that you know nothing about.
Ben Bernanke: 'Please Understand Me!' [View article]
NO, The FED cannot control the base because the volume of currency held by the non-bank public is unregulated.
"the Federal Reserve should have done whatever was possible to have kept the M2 money stock from declining"
But alas, Friedman didn't know how to do that.
Bernanke: Play That Funky Music [View article]
NO, The widely held misconception that a tight money policy results in high interest rates (and vice versa) derives from the premise that interest rates are determined by the demand for and the supply of money rather than the demand for and the supply of loan-funds.
Interest is the price of loan-funds; the price of money is the reciprocal of the price level. It is true that an expansion of commercial bank credit (loan-funds) produces a concomitant increase in the volume of money & that the initial effect is to depress interest rates, other things being equal. If, however, the increase in the volume of money flows exceeds the changes in the volume of goods and services offered in the markets, prices will rise. And if the price increases broadly based & chronic, we have inflation
It is not an exaggeration to say that inflation expectations largely determine minimal long-term interest rates. Investors will not for long accept negative real returns, that is, nominal interest rates that are less than the rate of inflation.
Higher interest rates consequently are not evidence of "tight money"; rather they are the consequence, over time, of an excessively easy (irresponsible) money policy -- money expansion so great that money flows substantially exceed the rate of expansion in real output.
Bill Gross On Risk Seeking Return And Safe Carry [View article]
And that's an imminent threat to the U.S. & indeed capitalism itself.
“There is no direct link between reserves and credit”
That’s where EVERYONE gets it wrong. Milton Friedman’s “monetary base” is not now, nor has never been, a base for the expansion of new money & credit (today both (1) curreny held by the non-bank public & (2) excess reserve balances are contractionary). Total reserves once were, but now only required reserves loosely serve as the “base” for the system's expansion coefficient. This idea was apparently just re-discovered by Thornton:
See: http://bit.ly/yUdRIZ
Quantitative Easing and Money Growth:
Potential for Higher Inflation?
Daniel L. Thornton
Reserve & reserve ratio constraints are uni-directional, not bi-directional (reserves aren't binding when the member banks see an opportunity to make a profit, but are contractionary when the Central bank drains liquidity).
In the simplest terms: "Banks need central bank deposits for clearing checks and making other interbank payments, which gives the central bank leverage over money and bond markets". I.e., recently contractual clearing balances (liquidity reserves - when a bank is able to exchange its assets for cash rapidly enough to meet the demands made upon it for cash and payments ), have been commingled with legal reserves (just as vault cash was allowed to be applied to reserve requirements beginning in 1959).
“US Consumers are not increasing savings”
That’s the direct result of the FED’s new policy tool paying interest on excess reserves. I.e., it's influence predominately stems from the fallacious Gurley-Shaw thesis which maintains that liquid assets are not any different than the money stock.
Said The Fed: "Damn The Accountants...Full Speed Ahead!" [View article]
The predominant impact of the European Union's (flight-to-safety) crisis is scheduled to fade away at May's month-end. U.S. over-regulation, the additional requisite tax increases as a consequence of our tax revenue receipt short-fall, expiration of the Bush-era tax cuts, Obama-care, end of the payroll tax cuts, etc., are setting up to simultaneously decrease the supply of loan funds, & increase the demand for loan funds, and thus send interest rates higher. And that doesn't count my expectation that the rate of inflation will increase this year (even if the price of oil doesn't). We are not "safe" from inflation.