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Erosion in the M2:M1 Relationship and the Burgeoning Eurodollar Bubble
http://seekingalpha.com/article/1725...e?source=email
This is why it's so important for the Fed to report M3! All arrows are pointing to deflation, but we're still in this balance between de- and in-flation. How is that possible with the Money Supply's impotence and liquidity sitting in bank vaults? Simply put: the cheapened dollar has been funding the global carry trade. Speculators are borrowing USD at low rates, investing in foreign currencies at higher rates. There's a glut of eurodollars floating around the globe, under short-selling pressure and beyond the jurisdiction of the Fed. That's a variable that M2 doesn't account for, which is why someone better be tracking M3.
We've all heard this "carry-trade" chatter already. Most of us are waiting for the maturity these ST USD borrowings, because it should bring a rush of demand for USDs in short covering. I worry, however, that once the rush happens, a lot of unaccounted-for, external M3 will onboard in narrower classifications (M2/M1), and we could see serious hyperinflation.
I've noticed two powers at work during our zero-interest-rate-policy onset:
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more at the link
http://seekingalpha.com/article/1725...e?source=email
This is why it's so important for the Fed to report M3! All arrows are pointing to deflation, but we're still in this balance between de- and in-flation. How is that possible with the Money Supply's impotence and liquidity sitting in bank vaults? Simply put: the cheapened dollar has been funding the global carry trade. Speculators are borrowing USD at low rates, investing in foreign currencies at higher rates. There's a glut of eurodollars floating around the globe, under short-selling pressure and beyond the jurisdiction of the Fed. That's a variable that M2 doesn't account for, which is why someone better be tracking M3.
We've all heard this "carry-trade" chatter already. Most of us are waiting for the maturity these ST USD borrowings, because it should bring a rush of demand for USDs in short covering. I worry, however, that once the rush happens, a lot of unaccounted-for, external M3 will onboard in narrower classifications (M2/M1), and we could see serious hyperinflation.
I've noticed two powers at work during our zero-interest-rate-policy onset:
1. There are powerful domestic deflationary forces
2. Even more powerful USD hyperinflation is burgeoning outside our domestic economy
The wool is over our eyes because the Fed [has us believe] that it's ignoring M3. Regardless of whether they're tracking eurodollars or not, there's no infrastructure poised to suck excess USD out of the domestic economy if inflation were to hit suddenly. Using the reverse-repo system would be like sopping up a flood with a mop. What's really happened is much of the Fed easing has leaked out of the US (where there's really no y/y nominal GDP growth) to finance opportunities internationally.2. Even more powerful USD hyperinflation is burgeoning outside our domestic economy
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more at the link
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