The Myth of the Exploding US Money Supply

[porter]

http://www.businessinsider.com/the-m...-supply-2011-3


If you disagree with this, could you please explain exactly how all this QE is getting translated into the system? Banks are not lending, so how is it getting into circulation? How is it causing the stock market to go ape crazy? People blame "excess liquidity" but I can't seem to understand how this can be.

[c1ue]

Re: The Myth of the Exploding US Money Supply

If you disagree with this, could you please explain exactly how all this QE is getting translated into the system? Banks are not lending, so how is it getting into circulation? How is it causing the stock market to go ape crazy? People blame "excess liquidity" but I can't seem to understand how this can be.

It is correct in the sense that the Fed isn't directly printing extra paper dollars.

But it isn't correct because the money otherwise tied up on crap MBS securities, CDOs, and what not in the TBTF banks is now freed up via ZIRP and the Fed balance sheet.

And there absolutely is excess liquidity leaking out - only it is leaking out in the form of bankster bonuses, the stock market, and Treasuries.

Treasury bonds are at historic lows in yield despite historic highs in issuance. Normally the more you issue, the higher the interest rate.

Ditto the stock market: the capital freed up in TBTF banks coupled with increased leverage due to zero interest rate policies allows ever more hedge fund action via leverage via TBTF loans, ever more high frequency trading, mergers and acquisitions, etc etc.

Thus to say QE(x) where x=1 to 2 (thus far) has not had an effect on dollar supply is true in a very narrow and literal sense, but is a lie in every other respect.

[porter]

Re: The Myth of the Exploding US Money Supply

Is there any proof that the TBTF banks are lending out this money? I still don't understand how ZIRP and QE is turning into "excess liquidity" when banks are still not lending. Please clarify.

[wayiwalk]

Re: The Myth of the Exploding US Money Supply

I think banks must be lending - in the last few months I've noticed the "easy terms car purchase" ads on the radio ("we'll make your payments through 2012, etc") after not hearing them for at last a year, maybe longer.

Cheap cars means more money to burn somewhere else....so QE 2 must be leaking into the system that way.

[c1ue]

Re: The Myth of the Exploding US Money Supply

Is there any proof that the TBTF banks are lending out this money? I still don't understand how ZIRP and QE is turning into "excess liquidity" when banks are still not lending. Please clarify.

Define lending.

Lending used to be loans for 80% of a home's value, or against capital equipment like tractors, seed corn, industrial machinery, etc etc.

Lending today is letting a hedge fund leverage 10 to 1 on a bet for/against commodities, or providing the capital for leveraged buy outs, or 110% of the value of a home via an interest only loan.

Note that for 2 of the 3 categories above, the TBTF bank still retains the 'liquidity'.

Or let's put this another way: do you consider the Fed liquid?

Strictly speaking, their balance sheet is a complete mess.

But the Fed can continue to 'create' money both by directly buying securities (Treasuries, crap home loans, GSE debt) and by letting TBTF banks 'borrow' at 0 to 0.25% interest - said banks then having all sorts of options to make money such as buying 30 year Treasuries yielding 3%+, or loaning the money to investment banks/hedge funds/acquiring companies, etc etc.

On a smaller scale, the TBTF banks do the same thing: while they cannot 'create' money directly, being able to get it for 0 to 0.25% interest is pretty close.

And on down the line.

Notice who's left out: the individuals. The small companies. The companies that actually produce tangible goods.

By the time this credit creation cluster f*** rolls to that level, the above entities are paying 14% interest.

[gwynedd1]

Re: The Myth of the Exploding US Money Supply

Don't quite see consumer credit going crazy yet.

http://www.federalreserve.gov/releases/g19/Current/

I also see real estate continue to drop which is the only historically reliable way to secure debt of any magnitude. Farm land may be capable of supporting a new bubble perhaps.

[Roughneck]

Re: The Myth of the Exploding US Money Supply

http://www.bloomberg.com/news/2010-1...g-s-p-500.html

By buying treasuries and forcing rates down it is driving money into the stock market
in search of higher returns. But it is also driving money into commodities as well as investors see the writing on the wall with the dollar and seek hard assets. Money is not created or should we say circulated into the system in a debt based economy until it is loaned out by a bank. So far banks have been content to buy treasuries and get a nice return and repair their balance sheets instead of taking on risk and lending the money to business or individuals. Also, with many people out of work and business cutting back due to weaker demand there isn't much demand for credit either. If however the economy improves and the banks decide to take on more risk and resume lending the fed will have to act quickly to try and soak up the excess reserves before they get into the broader economy. Either by raising rates on reserves or by selling assets it purchased. This of course assumes that we will se an economic recovery. With rising oil prices that seems unlikely.

It is clear that the fed is serving their real masters by helping the banks restore profits and boosting stock prices,the effects on the real economy be damned.

[herbkarajan]

Re: The Myth of the Exploding US Money Supply

http://www.businessinsider.com/the-m...-supply-2011-3


If you disagree with this, could you please explain exactly how all this QE is getting translated into the system? Banks are not lending, so how is it getting into circulation? How is it causing the stock market to go ape crazy? People blame "excess liquidity" but I can't seem to understand how this can be.

he misrepresents the point completely, U.S monetary policy *is* the Chinese monetary policy and more broadly, the world's monetary policy. To be precise, it's not really U.S (as a sovereign) policy either, let's call it international capital trying to keep things together.

the point of the latest (what we here call housing) bubble was to supply money for the world wide expansion on a unprecedented scale, that's why JPM or Goldman didn't care what was put in those CDO's, their job was to create money. Everything else is coincidental i.e side effect.

So what's now, someone posted this hedge fund guru Dalio interview recently. He says lower dollar, would fix things. The interviewer had to do a double take, 25% reduction in purchasing power? As long as it's orderly it would be beneficial, says $78 bil man. Proles destiny is to work, not accumulate or preserve capital. Same as it ever was.

[metalman]

Re: The Myth of the Exploding US Money Supply

he misrepresents the point completely, U.S monetary policy *is* the Chinese monetary policy and more broadly, the world's monetary policy. To be precise, it's not really U.S (as a sovereign) policy either, let's call it international capital trying to keep things together.

the point of the latest (what we here call housing) bubble was to supply money for the world wide expansion on a unprecedented scale, that's why JPM or Goldman didn't care what was put in those CDO's, their job was to create money. Everything else is coincidental i.e side effect.

So what's now, someone posted this hedge fund guru Dalio interview recently. He says lower dollar, would fix things. The interviewer had to do a double take, 25% reduction in purchasing power? As long as it's orderly it would be beneficial, says $78 bil man. Proles destiny is to work, not accumulate or preserve capital. Same as it ever was.