Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

[krakknisse]

The Fed H3 release is out on October 9th - no one seems to have commented.

The monetary base expanded by 16% from early September to early October (844 billion to 986 billion). Annualized this works out to 600%.

Bank non-borrowed reserves are now -360 billion, down from -158 billion three weeks ago. Total borrowings are 543 billion, up from 268 billion just three weeks ago.

Listen - I may be just a country bumpkin from the Arctic. But this just screams INFLATION.

Here is the most recently updated of the Fed charts on the montary base (BASENS), as the other monetary base charts aren't updated:


Charting the same chart as above, but with year-on-year percent change:

Seems the Fed is out of ammo and there is no way back other than monetizing the debt. They've used up all or most of their balance sheet, and are now expanding the monetary base. They call it the Supplementary Financing Program (comment on SeekingAlpha). I call it the "Welcome Inflation Program".

I'm posting this in News - hoping to get more action (please rank it). There is a thread from last week, and the old one from early 2008 focusing on non-borrowed reserves and bank solvency.

As expected, the monthly Fed BORROW chart (going back to 1919) isn't updated yet - this is up to Sept 1st 2008:


The weekly TOTBORR chart is updated - going back to 1986:

[Supercilious]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

Listen - I may be just a country bumpkin from the Arctic. But this just screams INFLATION.

Yup it screams inflation. But I don't think we are there yet.

The question is that if it's going to be EJ's POOM (the Fed has lost any control and cannot stabilize the dollar anymore or my RA-TA-TA (Fed has a very good control and intentionally creates an inflationary shock destined to propagate with destructive effects in ROW)

(I hope that Fred will not intervene and correct us by saying this is not inflation, but dis-deflation or some other form of misunderestiflation )

Thanks for update krakknisse

[Chomsky]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

The SeekingAlpha article you link to says:

Anyone who suggests that last week's ballooning reserve deposits represent inflationary pressure or the Fed monetizing the deficit simply doesn't know what they're talking about. Banks are sitting on the reserves, not withdrawing them as cash. When markets settle down, the Fed can and will absorb those reserves back in with sterilizing sales of Treasury securities, just as it did in 2001 or after the more modest spike in August 2007. Providing new reserves aggressively is absolutely and unquestionably the way the Fed needs to respond to this kind of development.

Any thoughts on that?

[*T*]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

"When markets settle down, the Fed can and will absorb those reserves back in with sterilizing sales of Treasury securities,"

Yeah right. And cause another implosion.

When I was a kid, half my school was temporary structures built in the 60s and 70s that never got taken down, because they were being used. These things have a habit of becoming permanent.

[bam]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

Right on Chomsky!
I'm not sure what gum these guys are chewing. It's like they never heard that old adage, "you can lead a horse to money but you can't make him lend".

[tombat1913]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

With the severity of this situation and the deflationary effects it inherently has on the economy I don't think the Fed has the option to simply create reserves for banks to sit on. However, even if it is simply reserves now, eventually this money will make it's way out into the world.

[GRG55]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

The SeekingAlpha article you link to says:

Anyone who suggests that last week's ballooning reserve deposits represent inflationary pressure or the Fed monetizing the deficit simply doesn't know what they're talking about. Banks are sitting on the reserves, not withdrawing them as cash. When markets settle down, the Fed can and will absorb those reserves back in with sterilizing sales of Treasury securities, just as it did in 2001 or after the more modest spike in August 2007. Providing new reserves aggressively is absolutely and unquestionably the way the Fed needs to respond to this kind of development.

Any thoughts on that?

The logical extension to SeekingAlpha's argument is that the Fed's liquidity injections and subsequent "sterilization" of same in the late 1990's and 2000/2001 were benign. Therefore the asset bubbles that Greenspan is accused of fomenting must have been someone elses fault.

One has to accept the above if one wishes to believe that the current monetary policy will also have a benign outcome as SeekingAlpha implies.

[jk]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

pq=mv

m is rising sharply but it appears that v is dropping faster. take a look at finster's fdi this week. [ http://users.zoominternet.net/~fwuth...ancialForecast ] it's going straight up.

[VIT]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

The SeekingAlpha article you link to says:

Anyone who suggests that last week's ballooning reserve deposits represent inflationary pressure or the Fed monetizing the deficit simply doesn't know what they're talking about. Banks are sitting on the reserves, not withdrawing them as cash. When markets settle down, the Fed can and will absorb those reserves back in with sterilizing sales of Treasury securities, just as it did in 2001 or after the more modest spike in August 2007. Providing new reserves aggressively is absolutely and unquestionably the way the Fed needs to respond to this kind of development.

Any thoughts on that?

What about if the will be no buyers / less buyers for Treasury securities :rolleyes:

[Rajiv]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

It appears to me that what Finster's graph really reflects is a shrinkage in the "real" money supply of $ -- Yes the monetary base is expanding -- and that is keeping the banks from imploding. However, if the Fed decides to absorb those reserves, that will actively prevent the banks from making new loans -- and that leads to real deflation -- and hence a real depression. Therefore that path by the Fed can be effectively ruled out. Once the situation eases, the banks are going to use these reserves to make new loans -- and the inflation will begin. What is still unclear to me is "How much money is being destroyed right now?" and how will that affect the current economy and its future ability to recover.

[metalman]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

It appears to me that what Finster's graph really reflects is a shrinkage in the "real" money supply of $ -- Yes the monetary base is expanding -- and that is keeping the banks from imploding. However, if the Fed decides to absorb those reserves, that will actively prevent the banks from making new loans -- and that leads to real deflation -- and hence a real depression. Therefore that path by the Fed can be effectively ruled out. Once the situation eases, the banks are going to use these reserves to make new loans -- and the inflation will begin. What is still unclear to me is "How much money is being destroyed right now?" and how will that affect the current economy and its future ability to recover.

starting to think you guys are ineducable.

what, pray tell, are you going to deflate dollars against?

[Supercilious]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

starting to think you guys are ineducable.

what, pray tell, are you going to deflate dollars against?

You know the definition of deflation?

[grapejelly]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

This is highly inflationary. Here's why.

The problem today is completely mis-reported by the press and not well understood because it's so blindingly obvious.

Loans have been made one way or another, many multiples of whatever is security underlying those loans.

That security has plummeted in value.

It's the ol' "leverage is a double edged sword."

This "money" isn't ever going to leave the banking system because the problem isn't that the banks "won't lend" or that the system is "seized up."

I can prove it. Lending through 10-8-08 is UP from last year. I can't get my hands on that chart but I just saw it this morning.

What we have here is simply a collapse of asset values. But the loans (including derivative bets and so forth, broadly I am calling these all "loans" for simplicity sake) remain in place.

It's like you borrowed 5% on a credit card to put "down" on a house for $200,000. Now the house fell to $100,000. You owe $205,000 plus interest. And you try to sell your house when everyone else is trying to sell theirs and you will owe $105,000 if you are LUCKY even AFTER you have sold your house.

The banks hold collateral that is worth a fraction of what is required to secure loans they have ALREADY made and obligations they have ALREADY agreed to pay (CDSes).

That is the real problem. It's called insolvency. The Fed and the Press and the Central Banks are treating it as a liquidity problem. But it is not.

In the above house example, no amount of additional "injections" are going to make you NOT owe $205,000 plus interest to the bank...and if they sell your house in foreclosure they are going to get $100,000 less fees and costs, more like $70,000, and you are going to owe $135,000 you can't pay, and you won't have the house either.

That's the problem the banks have. And this hasn't nearly, not even close to nearly, unraveled.

What the Fed and the central banks want to do is have everyone believe it is under control, that this is just a temporary "need some cash" situation. It is obvious unless you are completely blind that it is not. This money will STAY in the banks and MORE besides.

Otherwise, it is evident that all the banks will go out of business. So the alternative to that is to pretend this is a "liquidity" problem and "inject" money "temporarily" and as Chomsky says, that will be permanent and HIGHLY inflationary. Incredibly so.

We will shortly see interest rates spike to very high levels. Contrary to another widely believed lie, neither the Fed nor any central banks set interest rates. They may try, but that doesn't work for very long.

[Guest]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

Chomsky - Seeking Alpha are making gadfly arguments below. VIT's point is the trump card and final arbiter. US relies daily on massive external credit infusions. US Fed / Treasury monetisation of debt, on a historic scale is cast in stone - must occur without any option otherwise - when external credit spigot shuts down. Seeking Alpha are dropping the ball badly here. Too sophisticated for their own good. We have a few members here arguing that foreign credit has been check-mated into supplying the US through this trajectory, and their suggestions get a little vague as to whether it is a term effect, or "in perpetuity". Don't believe it. iTulip remain dead-on correct, it is just a matter of the length of this interval, but it's unsustainability is clear if you tune out such sophistry as that described below.

The SeekingAlpha article you link to says:

Anyone who suggests that last week's ballooning reserve deposits represent inflationary pressure or the Fed monetizing the deficit simply doesn't know what they're talking about. Banks are sitting on the reserves, not withdrawing them as cash. When markets settle down, the Fed can and will absorb those reserves back in with sterilizing sales of Treasury securities, just as it did in 2001 or after the more modest spike in August 2007. Providing new reserves aggressively is absolutely and unquestionably the way the Fed needs to respond to this kind of development.

Any thoughts on that?

[metalman]

Re: Monetary base increases by 600% (ann.). Welcome, Mr. Inflation.

You know the definition of deflation?

do you know what is is?