FOMC's "Tight Money" Policy

[flow5]

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[Jim Nickerson]

Re: FOMC's "Tight Money" Policy

t-i-g-h-t? Spince Hilton, Vice President of Domestic Reserves Management of the Open Market Account in the Federal Reserve Bank of New York has conducted the most restrictive monetary policy in the history of the Federal Reserve System over the last 16 months.

The rate of change in legal reserves corresponding to the rate of change in inflation was negative in 15 of the 16 months. The rate of change in legal reserves corresponding to the rate of change in real gdp was negative in 14 of the 16 months.

Ben Bernanke was sworn in 17 months ago and monetary policy was changed immediately.

Don't see a rate increase. See disinflation & uptick in real gdp.

The evidence? (1) rise in interest rates, (2) $20 drop in price of gold, (3) EUR/USD fell from 1.3650 to 1.3367, (4) stable price of oil, (5) declining housing prices.

I think the dude's name you tried for is Spence Hilton.

In this post are you making comments on something Hilton is quoted as saying, or did you personally have a conversation with Hilton?

Are you saying you "don't see a rate increase" or that Hilton has said that?

Same for someone seeing "disinflation & uptick in gdp," is this your impression on something you might have read somewhere, or from a conversation with Hilton, or is is what Hilton said or implied?

The "evidence" as you suggested, are these things your impression or the impression of Hilton?

Your post looks interesting, the only problem with it as I see things is one cannot tell whose thoughts are being put forth, and without that it strikes me as near worthless.

[flow5]

Re: FOMC's "Tight Money" Policy

I've already published the "HOLY GRAIL".

[Jim Nickerson]

Re: FOMC's "Tight Money" Policy

I've already published the "HOLY GRAIL".

What is the freaking Holy Grail and where did you "publish" it?

So far this is all useless.

[flow5]

Re: FOMC's "Tight Money" Policy

"Nobody Can Teach Anyone Anything" -- W.R. Wees

[Jim Nickerson]

Re: FOMC's "Tight Money" Policy

"Nobody Can Teach Anyone Anything" -- W.R. Wees

It seems to me on the internet where the possibility of discussions exists, when one asks legitimate questions, and in response one receives bullshit answers, it then raises the question of whether or not everything the bullshitter has written is not in fact bullshit.

Bullshit seems to be the bottom line for this thread, but rather than being too critical, I will admit it is possible that I am missing something.

I've received two email notifications on this thread today, and neither of the responses noted in the emails are appearing in this thread now.

The first quote below was originally on this thread but has now disappeared.

Jim, I hope someday you're comfortable speaking your mind and don't feel the need to beat aroudn the bush like that.

It strikes me that this bit -- "The rate of change in legal reserves corresponding to the rate of change in inflation was negative in 15 of the 16 months. The rate of change in legal reserves corresponding to the rate of change in real gdp was negative in 14 of the 16 months." -- would be verifiable.

With the usual Inflation Caveats, of course. But if the increase in legal reserves is negative using the official numbers (presuming), it would seem the increase vs any alternative measure would be far more so.

I'm also wondering if Bart's alt-M3 measure is relevant here, but haven't don't have a clue re: the answer to that one.

The second email was never on the thread that I can tell, yet I got the email.

Delta Turning Point Solutions Image: http://wilder-concepts.com/Images/2005LOGO120.jpg

Wells Wilder's service uses astrology to predict when a commodity, stock, etc. will turn. There are 3 basic time frames, short, medium, and long. When all three line up the odds are very good that the turn will occur within narrow parameters.

It is amazing that every market has its own "finger prints". It is really true. Each commodity, currency, etc., always has a unique number of turning points (these never vary) within a specific astrological time frame, based on a specific celestial body - sun, moon, and earth.

I bring this up because there are economic cycles that have their own "finger prints". These are called lags. They are of a specific, unvarying, length. These lags are not recognized in main stream economics. They not recognized because there is no explanation for this phenomenon. Specific lags are illogical.

Nevertheless, these lags do exist. They are unvarying. They can be demonstrated using both legal reserves, and monetary flows (MVt). With these fixed lags, you obtain identical results for both time series. I.e., each time series corroborates the other.

Joseph Granville offered his trading system to the public and in Sept 1981 his followers anticipated his call. (when too many people use the same system, the system becomes worthless).

I am saying that this is the gospel. There is no valid alternate viewpoint.

If any of this stuff makes sense to anyone willing to take the time to enlighten me, and perhaps others, please do.

[Jim Nickerson]

Re: FOMC's "Tight Money" Policy

By chopping off part of the "image" link in flow5's post as I received in the email and hitting http://wilder-concepts.com/

I found this

Serious traders know that we can now PREDICT every market turn, in any market, with amazing accuracy.

Based on a hidden order which can be solved for any financial market, The Delta Phenomenon, discovered by Welles Wilder® actually plots expected market turning points, in advance, for any market, and any time frame.

Accuracy is astounding. Most Delta users report consistent earnings of more than 30%, with many achieving consistent gains of 50% to 100% per year!

Though Delta does not claim to be "The Holy Grail" of trading, it is a forward-projecting market timing tool that should be on every trader's desk. Delta Turning Point Solutions are plotted in advance, based on a recurring order in all markets.

Each market, like a fingerprint, has its own unique solution.
These solutions are created for specific time frames. The time frames and solutions were first developed by Welles Wilder and Jim Sloman in 1984. They include a 4-day cycle, a 4-month cycle, a 1-year cycle, a 4-year cycle and finally, a 19-year cycle.

WOW!, actually DOUBLE-WOW!!!

[Jim Nickerson]

Re: FOMC's "Tight Money" Policy

Quote:

Originally Posted by from above URL Serious traders know that we can now PREDICT every market turn, in any market, with amazing accuracy. Based on a hidden order which can be solved for any financial market, The Delta Phenomenon, discovered by Welles Wilder® actually plots expected market turning points, in advance, for any market, and any time frame. Accuracy is astounding. Most Delta users report consistent earnings of more than 30%, with many achieving consistent gains of 50% to 100% per year!

If a system allowed one to "PREDICT every market turn in any market, with amazing accurracy," then why would one's gains be limited to numbers "like more than 30%, or 50% to 100%." Hellsbells, if one could predict every turn in any market, after a few days, one should be able to retire from anything resembling work, and certainly retire from spending time reading financial pages on the internet.

Actually if one could "PREDICT every market turn in any market" to add the descriptor of "with amazing accuracy" would certainly seem redundant.

[flow5]

Re: FOMC's "Tight Money" Policy

Is it ever so boring to be a mere cataloguer of economic facts, a lugubrious clerk in the warehouse of petty history, a dull slave to every percentile variation in the GDP? The how much more fun to be a revolutionary? Especially if it’s only a parlor revolution, daring in all its lewd intellectual concatenations yet safe as Madam’s card party; adventurous in its billowy Weltanschauung but so for removed from reality as to be inert gas outside the alabaster walls of the cloister.

We are deep in the caverns of economic theory now. Careful there, the rocks are slippery with moss; be warned of the fathomless logical cavities, the metaphysical cul-de-sacs, and all the methodological stalactites and stalagmites ready to snare the unwary intellect. Be not surprised if you see nothing you recognize. This would is not meant for ordinary mortals; it’s for the merest few—men of occult knowledge and ethereal genius, mathematical logicians with no little contempt for the crude statistics of that vulpine species, the businessman. Economic theory is as estranged from the real world as business enterprise as, say; quantum physics is estranged from the realities of the television repair shop. And yet, while the physicist’s theorizing may find rather immediate, most concrete expression in the repair man’s circuit boards, the economists’ theories have no clear nexus with the natural pulse of economic life. In economic theory, there is no necessary connection between generally accepted facts of experience and their theoretical interpretation. Cash money, for instance, may play an obvious role in actual life, but its position in monetary theory is ambiguo0us, opaque, contradictory, an issue of hot and cool debate in n dimensions and infinite declensions.

The eminent British economist of the 1930s, John Maynard Keynes, once essayed to defend his profession by declaring that economic theory is not a body of doctrine to be ingested and duly regurgitated by students, but rather a method of thought which ought to reduce to rationality whatever might be the vexing issues of the day. Yet the formal rationality of theoretical economics too easily leaps through stratospheres of abstraction, never to feel the gravitational tug of reality; it orbits endlessly in the rarefied galaxy of theorems, lemmas, proofs, and assumptions, mischievous assumptions.

Keynes, of course, presented the occasion for the major revolution in twentieth century economic theory. But he did more than that, much more: John Maynard Keynes’s General Theory of Employment, Interest, and Money, published in 1936, spawned with almost exponential fecundity a vast academic industry which threatens to last indefinitely – or until another Keynes arises to overshadow the Master. This industry moves by its own peculiar business cycle: As the prescriptions of Keynesian policy wax, the tendency to Keynesian exegesis wanes. As Keynesian policy goes out of fashion, Keynesian theorizing roars back to glory.

Through the years, Keynesian exegesis, debate, and reinterpretation have consumed many reams of book paper and many buckets of printer’s ink; hundreds of “major” articles, dozens of “important” books have been done, and more will roll off the presses this year and the next. The titles often bear unwitting traces of satire. One asks, “Was Keynes a ‘Keynesian’?” Another expounds on the economics of Keynes as opposed to Keynesian economics. Many a career based been built upon the clever elucidation or emendation of this Keynesian postulate or that one. Many a career has been dominated even obsessed, by the avuncular ghost of Lord Keynes It’s not unrespectable to be known as a prominent Keynesian theorist, if not proselytizer. It’s surely no worse than being, for example, the seventh biographer of Gerard Manley Hopkins, and what with the dank esoterica of Keynesian exegesis, the prestige is greater.

But the Keynes Industry offers succulent ironies to contemplate.

First irony—that not one Keynesian economist in a hindered has ever read the General Theory. For though Keynes was capable of high elegance, his major tome has become famous for the elusiveness of its arguments. Professor John Kenneth Galbraith, himself an early Keynesian, has made much of the General Theory’s general inscrutability—a quality which has let Keynes’s disciples read what they wish into it. But this irony is greater yet. Surely every Marxist theorist has, at some moment, at least thumbed through Das Kapital. Can one conceive of a Doctor of Divinity who never once lifted a finger to open the Holy Bible? Still it’s acceptable not to have read the General Theory, which Galbraith dismissed as “an acrostic of English prose.”

The book is, however, possessed of a seductive Victorian Gestalt that transcends the economic theory therein propounded. It is the Gestalt of upper-middle class British comfort—the CambridgeCambridge. Keynes was, after all, the brilliant son of Cambridge philosopher and economist John Neville Keynes. Maynard Keynes was born at Cambridge, won a scholarship to Eton, got to be a King’s Scholar, entered King’s College in mathematics and classics, and remained there as a practitioner of economics for most of his life.

And to the scholar-exegete, Keynes’s lifestyle offers sweet contrast to the dreary portrait of the obscure pedant, the dull economist. No, Keynes was the stuff of literature. For there was Keynes the theorist; but also Keynes the confidant of Virgina Woolf; Keynes the correspondent of Bernard Shaw; Keynes the trustee of the National Gallery; Keynes the husband of Russian ballerina Lydia Lopokova; Keynes the stock market speculator, the insurance executive, the polemic journalist, the social reformer, the avid book collector, and, it must be reckoned, the devotee of Etonian Culture (as it might be called in a sex advertisement; Professor Harry G. Johnson, once remarking on the homosexuality of King’s College, recalled the professor who referred to the chapel there as First Church of Christ, Sodomite).

The second irony is that, though Maynard Keynes was first of all a practical economist, having little adventitious to tinker with mathematical models, he gave birth to a most highly theoretical and mathematical literature, in which it has been said that the practically important becomes the theoretically trivial, and the theoretically important is the practically trivial. As for Keynes’ own epistemological stance, economic historian Joseph Schumpeter said: “The higher ranges of mathematical economics are in the nature of what is in all fields referred to as ‘pure science’ Results have little bearing—as yet in any case –upon practical questions. And questions of policy all but monopolized Keynes’ brilliant abilities.”.

Mind you, Keynes’s practical bent did not derive from any ignorance of mathematics. He had shown an early talent for numbers, winning mathematical prizes at Eton

But what of the abstruse Apocrypha that Keynes’s General Theory has brought forth? What of the unparalleled mathematical embarrass de richesses that Keynes inspired? It must be understood that Keynes, if skeptical of mathematical modeling, still deployed mathematics with tactical genius. Keynes threw his followers just enough mathematical crumbs to whet their theoretical appetites. Each took his own crumb and cultivated it, decorated it—nay, enshrined it—and built from it a complex maze of abstraction. Do you know what magic can be done with so simple a Keynesian relation as C=f(Y)? Leave it on a theorist’s desk, and in a month he’ll emerge triumphant from his study with the most curious, elaborate extension of that simple function. It’s literally true that Keynesian geometricians have extended the basic Consumption Function to a whole system of more than a hundred many-termed equations, purportedly able to forecast the world’s future?

Here is mathematical sorcery; here is logical elegance. Never ask whether real life corresponds to the caricatures of mathematical formulae. It’s not surprising; after all, that economist’s fall in love with mathematical beauty. To marvel at the charming symmetry of the classical macro-economic model, a perpetual motion machine always at full employment, is to marvel at the triumph of human rationality. To sit at one’s desk and solve the total differential of the Utility Function is to taste of the Universal Laws:action and reaction, velocity and stability—the world’s maelstrom reduced to a paradigm of Newtonian determinism, the baleful imponderables of human life revealed in the technical investigations as to the signs of a small few partial derivatives…. Edward Meadows - National Review

[flow5]

Re: FOMC's "Tight Money" Policy

Delta uses ranges; but "turns" can be inversions. It is not quite as accurate as presented by Welles Wilder. It was an example of the existence of cycles. Monetary flows (MVt) don't cover the many different markets delta does. But for the ones it does, it's mathematically impossible for monetary flows to be wrong. Therefore it is literally the "Holy Grail".

[bart]

Re: FOMC's "Tight Money" Policy

t-i-g-h-t? Spince Hilton, Vice President of Domestic Reserves Management of the Open Market Account in the Federal Reserve Bank of New York has conducted the most restrictive monetary policy in the history of the Federal Reserve System over the last 16 months.

The rate of change in legal reserves corresponding to the rate of change in inflation was negative in 15 of the 16 months. The rate of change in legal reserves corresponding to the rate of change in real gdp was negative in 14 of the 16 months.

Ben Bernanke was sworn in 17 months ago and monetary policy was changed immediately.

Don't see a rate increase (real gdp drops sharply in Sept & Oct). See disinflation (for the rest of the year) & uptick in real gdp (real gdp up in Jul & Aug).

The evidence? (1) rise in interest rates, (2) $20 drop in price of gold, (3) EUR/USD fell from 1.3650 to 1.3367, (4) stable price of oil, (5) declining housing prices.

I don't buy that the Fed has been more restrictive lately than at any other time "in the history of the Federal Reserve System" - it's literally a ridiculous generality, given the examples in the '30s and early '80s as well as other periods.

The change rate in legal reserves has indeed been negative but it's only one factor among many. The actual ratio of excess to total reserves is far more meaningful and has been quite stable at around 3.5% since 2001, with two exceptions - the one around 9/11 and one in 2003 likely related to Iraq.

Real GDP, as measured by nominal GDP minus CPI + lies (John Williams adjustments) has been negative for three quarters now. Perhaps we'll have an uptick next quarter but it will not change the underlying relative stagflation nor will it change the virtual certainty of recession (whether the NBER call it or not).

Disinflation... very likely... but my current read is that it won't be a large drop - perhaps from the current ~10% to ~5%. And that prediction plus $4 will get you a Starbucks.

[bart]

Re: FOMC's "Tight Money" Policy

It seems to me on the internet where the possibility of discussions exists, when one asks legitimate questions, and in response one receives bullshit answers, it then raises the question of whether or not everything the bullshitter has written is not in fact bullshit.

Bullshit seems to be the bottom line for this thread, but rather than being too critical, I will admit it is possible that I am missing something.

I too have difficulty interpreting many of his posts, and am uncertain of his points sometimes.

[flow5]

Re: FOMC's "Tight Money" Policy

My arguments would be:

(1) that in the 30's excess reserves were unusually high, & the bankers couldn't find credit worthy borrowers, etc.

(2) A. in the 80's, contrary to the conventional wisdom, high interest rates are not indicative of a "tight" monetary policy but are indicative of a very "easy" & irresponsible monetary policy; & B. monetary flows (MVt) peaked then; & C. nominal gdp hit 19% + 1st qtr 81; & D. borrowed reserves were 10% of total reserves after Volcker's Oct 79 pronouncement; E. as long as it was profitable for the commercial bankers to lend and the borrowers to make money, the commercial banks controlled monetary policy.

Despite the deterioration of the multiplier in 2006, the rate of change in monetary flows has markedly slowed.

[bart]

Re: FOMC's "Tight Money" Policy

My arguments would be:

(1) that in the 30's excess reserves were unusually high, & the bankers couldn't find credit worthy borrowers, etc.

(2) A. in the 80's, contrary to the conventional wisdom, high interest rates are not indicative of a "tight" monetary policy but are indicative of a very "easy" & irresponsible monetary policy; & B. monetary flows (MVt) peaked then; & C. nominal gdp hit 19% + 1st qtr 81; & D. borrowed reserves were 10% of total reserves after Volcker's Oct 79 pronouncement; E. as long as it was profitable for the commercial bankers to lend and the borrowers to make money, the commercial banks controlled monetary policy.

Despite the deterioration of the multiplier in 2006, the rate of change in monetary flows has markedly slowed.

1. I'd say you're slicing the tight money concept exceedingly thin at best - reserves are far from the only factor in "the most restrictive monetary policy in the history of the Federal Reserve".

2. (A) I couldn't disagree more strongly - when interest rates are that much higher than inflation and are raised that fast and combined with so many other actions, that's extraordinarily restrictive.
(B) Of course velocity & flows would peak then, it was way more restrictive than now.
(C) Your data is just plain incorrect about nominal GDP then - it was around 13%. The point also has little to do with the point about restrictive monetary policy.
(D) & (E) Your points have little to do with the point being discussed about "the most restrictive monetary policy in the history of the Federal Reserve".


Depending on what definition you're using for velocity, some are up and some are down.

Austrian money supply (roughly - the total supply of cash - cash held in the banks + total demand deposits + total savings deposits in commercial and savings banks + total shares in savings and loan associations + sweeps, etc.) annual rate of change has been moving down since early 2004, much like it started to move down in 1998 and is approaching zero. It's somewhat reliable as a recession prediction aid.

Whatever you're using as a definition of "monetary flows" escapes me.

[bart]

Re: FOMC's "Tight Money" Policy

High interest rates are not evidence of a “tight” monetary policy; rather high interest rates are the result of relentless inflation and inflation expectations, which are responsible for suffocating interest rates which is followed by collapsing production.

The FED released a "time bomb" the 1st qtr 1981 which resulted in AAA bond yields peaking out in Sept 81 at 15.49%. The gdp deflator was over 10% the 1st qtr. Nominal gdp was + 19%. That's why the effective fed funds rate was 19.10% in Jun.

The only time velocity fell was in the Great Depression.

Monetary flows = (MVt) where M equals the volume of means-of-payment money; V, the rate of turnover of this money; T, the volume of transactions; and P, the average price of all transactions units. The statisticians dismiss the equation because they say it is impossible to calculate P & T.

I stand by my statements.

I did not say that "High interest rates are not evidence of a “tight” monetary policy", etc. - I said that interest rates significantly higher than the rate of inflation are evidence of tight monetary policy.

As far as your data about the nominal GDP growing at 19%, the BLS and Fed's data say differently and you're just plain wrong. I'm not even going to venture into velocity issues.


All I can say is enjoy yourself with your statements.

To believe that the current Fed "has conducted the most restrictive monetary policy in the history" is so far beyond the actual historical facts that, to be kind, it boggles my mind.