M1 Money Multiplier tanking

[Starving Steve]

Re: M1 Money Multiplier tanking

Poom or no poom ahead, I don't think banksters are going to do much risk-taking to-day at current interest rates. Again, this gets back to the way the idiots in the central banks are trying to manage the world economy.

I thought about this question of banksters placing money with the Fed, and I thought of my own I-bond deposit with the Fed. And why do I have I-bonds at the Fed? Answer: There is no place to invest money into bank CDs under the current interest rate regime.

But don't ask the man on the street for the obvious answers to why the world is the way it is, because the putz from Princeton knows all the answers.

So, the man on the street and the banksters in the banks invest with the Fed or invest in gold. Or, we have oil and gas trusts, and we are just waiting for the energy market to turn--- and the energy market will turn because the world needs energy.

At home in East Sooke, B.C, I am building a garage outside of my house with some idle money. After all, I do need a garage, so why put off the addition any longer? After the garage is built, a new roof may be the next home improvement because the old roof is nearing the end of its life. Why put that off any longer?

The ghost of Keynes is making me spend money, but I am spending money now which means that I will not be spending money in future. That is all that Keynesian economics can force me to do: spend a bit sooner than planned.

[Supercilious]

Re: M1 Money Multiplier tanking

I had to revive this thread not only because MULT is again above 1, but I got this clip from a thread opened by Largo Winch. Here Bernspankme basically confirms (in Fed speak, of course) all what we talked about on this thread plus gives some interesting clues about what they are going to do next:



He even acknowledges the part with the illusion of expanding the monetary base by lending money to financial institutions which in turn deposit that money with the Fed.

He also offers another interesting explanation of why it is very important for the Fed to pay interests on reserves.

Bart I would like to know your opinion with that part with placing a floor for lending ... it smells fishy to me.

[bart]

Re: M1 Money Multiplier tanking

He even acknowledges the part with the illusion of expanding the monetary base by lending money to financial institutions which in turn deposit that money with the Fed.

He also offers another interesting explanation of why it is very important for the Fed to pay interests on reserves.

Bart I would like to know your opinion with that part with placing a floor for lending ... it smells fishy to me.

Unless I missed something, he was talking about a floor on interest rates that results from the Fed paying interest on reserves - not about a floor on lending itself.

And Ben mentioning how relatively easy it is to back off on the recent Fed balance sheet growth is important & true... and will likely lead to more volatility in various financial instruments, including precious metals.

[Starving Steve]

Re: M1 Money Multiplier tanking

M1/adjusted monetary base = the velocity of money

Give me a short, sweet, PLAIN TALK, crisp, easy-to-understand, one sentence or two sentence answer to what the adjusted monetary base is, and note that the definition above from the St. Louis Federal Reserve Bank. Read it. :rolleyes:

All that I ask for is plain talk: a short consise subject, then a verb, then any object. End the sentence. Period, done.

And look how they talk above in the post on definitions from the Fed.

Speaking in econometrician mumbo-jumbo or Greenspanese would be fine, but who can understand it? And because no-one could understand their junk economics, here we are now.

After witnessing the Panic of 2008-9, I won't accept mumbo-jumbo, nor snow jobs, nor bull-ship, nor mathematical dribble, nor econometric garbage, nor Greenspanese from anyone; nor should you.

What is the velocity of money in 20 words or less? And if you can't precisely write what it is, then you can NOT measure it. PERIOD. End of story...... Go find another occupation like working at McDonald's.

[blazespinnaker]

Re: M1 Money Multiplier tanking

The below-noted graph has been posted by an investment letter I subscribe to.

The M1 Money Multi is apparently defined as: the ratio of M1 to the adjusted money monetary base. (I assume here it means M1 divided by M3? - but I may be wrong on this).

Having said that here is the graph:




I thus assume that when M1 is re-adjusted to correspond to the "monetary base", it will be highly inflationary?

This just means people are pulling out of banks. As someone said - a good time to be a burglar.

[bart]

Re: M1 Money Multiplier tanking

M1/adjusted monetary base = the velocity of money

Give me a short, sweet, PLAIN TALK, crisp, easy-to-understand, one sentence or two sentence answer to what the adjusted monetary base is, and note that the definition above from the St. Louis Federal Reserve Bank. Read it. :rolleyes:

All that I ask for is plain talk: a short consise subject, then a verb, then any object. End the sentence. Period, done.

And look how they talk above in the post on definitions from the Fed.

Speaking in econometrician mumbo-jumbo or Greenspanese would be fine, but who can understand it? And because no-one could understand their junk economics, here we are now.

After witnessing the Panic of 2008-9, I won't accept mumbo-jumbo, nor snow jobs, nor bull-ship, nor mathematical dribble, nor econometric garbage, nor Greenspanese from anyone; nor should you.

What is the velocity of money in 20 words or less? And if you can't precisely write what it is, then you can NOT measure it. PERIOD. End of story...... Go find another occupation like working at McDonald's.

Adjusted monetary base is currency and coin in circulation, plus total bank reserves (both required and optional) at the Fed. It's also called M0.

The velocity of money is the speed with which money moves through an economy.



Measuring velocity well & with decent accuracy is a major b*tch, and highly subject to interpretation and opinion.
As one small example, here's one of my velocity charts which shows both MULT and two of my calculations of M1/adjusted base. I use numbers directly from the Fed... and yet all three ratios are different even though one of my calculations is supposed to match the Fed definition of MULT.

[cjppjc]

Re: M1 Money Multiplier tanking

[quote=$#*;78274]IHe even acknowledges the part with the illusion of expanding the monetary base by lending money to financial institutions which in turn deposit that money with the Fed.


I am wrong when I think that all that is happening is that the Fed prints the money. Lends it to the banks. The banks park some of it with the Fed. Then using fractional banking the Fed re lends that money to other institutions who then park some of the money at the Fed. Then using fractional bank again..........

Am I correct?

[Supercilious]

Re: M1 Money Multiplier tanking

Originally Posted by $#*

He even acknowledges the part with the illusion of expanding the monetary base by lending money to financial institutions which in turn deposit that money with the Fed.

He also offers another interesting explanation of why it is very important for the Fed to pay interests on reserves.

Bart I would like to know your opinion with that part with placing a floor for lending ... it smells fishy to me.

Unless I missed something, he was talking about a floor on interest rates that results from the Fed paying interest on reserves - not about a floor on lending itself.

And Ben mentioning how relatively easy it is to back off on the recent Fed balance sheet growth is important & true... and will likely lead to more volatility in various financial instruments, including precious metals.

Yes you are correct. It was a mistake on my part. It is a floor on interest rates. I believe this is a very important thingie they pushed through while nobody was watching. I don't think we understand exactly yet it's full significance.

The whole idea still bugs me ... Let's say the Fed has now to rates to play with: FFR and this new Interest On Reserves (IOR), and due to the current state of losses some (most) banks will be in fact at 0% reserve ratio. Right now the FFR-IOR spread is almost 0. A large FFR-IOR spread may be a good tool to make the banks increase their lending even if the FFR is going up. And this can be done at almost no cost for the Fed because it's all circle money and a lot of slave banks will be in Circle Money (TM) situation.

I believe this is pretty big.

[Supercilious]

Re: M1 Money Multiplier tanking

I am wrong when I think that all that is happening is that the Fed prints the money. Lends it to the banks. The banks park some of it with the Fed. Then using fractional banking the Fed re lends that money to other institutions who then park some of the money at the Fed. Then using fractional bank again..........

Am I correct?

No, the situation is different. There is no real printing and almost everything the Fed has done was in fact reserve neutral (so much for "helping" the credit crunch").

As I've said before all this reserve and back lending is an illusion or hypothetical printing. If the Fed lends the banks a gazzilion and the banks deposit that gazzilion back to the Fed, one may argue that no money has been created and in fact it is all a neutral operation to provide governmental guarantees in disguise.

The money will be created when the banks will start taking those borrowed excess reserves and use them for loans. That may not happen, because the banks may simply repay their loans back to the Fed.

Here is a blog entry offering a good picture on how this works:

http://jengafinance.blogspot.com/200...e-of-lies.html

[bart]

Re: M1 Money Multiplier tanking

The whole idea still bugs me ... Let's say the Fed has now to rates to play with: FFR and this new Interest On Reserves (IOR), and due to the current state of losses some (most) banks will be in fact at 0% reserve ratio. Right now the FFR-IOR spread is almost 0. A large FFR-IOR spread may be a good tool to make the banks increase their lending even if the FFR is going up. And this can be done at almost no cost for the Fed because it's all circle money and a lot of slave banks will be in Circle Money (TM) situation.

I believe this is pretty big.

Agreed - it is big. It also doesn't make me a happy camper either, since it gives the Fed yet another tool to prevent or alter normal market responses to interest rates... and will also very likely extend the "healing" period. The wonderful world of apparently unintended consequences.

[cjppjc]

Re: M1 Money Multiplier tanking

I heard a radio show today with Rick Edelman. He at one point said that the Fed backed the commercial paper market for a small percentage. I can't recall what the % was. Then said the taxpayers made 20 billion dollars.

I said "Huh. The taxpayers made money."

This man is a respected money advisor in the largest metropolitan are in the United States. WABC radio is heard by millions. I wonder how many who heard it said "That's great the taxpayer got something out of all this."

[Chomsky]

Re: M1 Money Multiplier tanking

Agreed - it is big. It also doesn't make me a happy camper either, since it gives the Fed yet another tool to prevent or alter normal market responses to interest rates... and will also very likely extend the "healing" period. The wonderful world of apparently unintended consequences.

Can we unpack this a bit?

Just to see if I am following, if the FFR is greater than the IOR, that would mean that the incentive for the banks to lend would be greater, because the amount they are earning on the reserves (IOR) that the Fed parked in their accounts will be less than they could get lending out (FFR). What does this portend? The Fed raising its target rate substantially above the IOR, to get "banks to lend"? And what does that mean?

Please guys, open this up a bit for the rest of us.

[Supercilious]

Re: M1 Money Multiplier tanking

Agreed - it is big. It also doesn't make me a happy camper either, since it gives the Fed yet another tool to prevent or alter normal market responses to interest rates... and will also very likely extend the "healing" period.

I'm stil struggling to understand how exactly this works. On one hand the FFR-ROI spread is a tool for manipulating velocity and make it independent of the FFR. Since the Fed is actuallrs at the fed y more similar to an octopus the question is what is the effect on the other seven hands.? this would be interesting to figure out.

(It would be funny if all the tanking of the M1 was in fact nothing else than thrilled banksters at the Fed playing with their new toy exactly as the guy how gets his first sports car feels compelled to check the minimum stopping distance with a few hard brakes )

The wonderful world of apparently unintended consequences.

This was too deep for me... the part of "unintended" at least. What makes you believe this is an unintended and not a well thought consequence. The Fed had an obsession with interest paid on reserves for a long time.

[bart]

Re: M1 Money Multiplier tanking

Can we unpack this a bit?

Just to see if I am following, if the FFR is greater than the IOR, that would mean that the incentive for the banks to lend would be greater, because the amount they are earning on the reserves (IOR) that the Fed parked in their accounts will be less than they could get lending out (FFR). What does this portend? The Fed raising its target rate substantially above the IOR, to get "banks to lend"? And what does that mean?

Please guys, open this up a bit for the rest of us.

Mostly it's the other way around. It gives the Fed more power to control the Fed Funds Rate, and prevent it from going lower. Before the Fed could pay interest on reserves, the overnight rate for reserves was significantly lower then the FFR and actually pulled the FFR down in an actual market driven move... and the Fed wants as close to absolute control of the FFR that it can get.

So as long as the reserves interest rate is above the FFR, it provides a floor for the FFR itself, and also gets their control fingers much more deeply into banks.
When a non relatively free market based entity can successfully affect something as basic as interest rates and make them ignore real market reactions and reality, its a virtual guarantee that other long term negative problems will pop up and eventually blow up in their and our faces - that's the real message, and who knows what financial element will actually go *pow* next and "force" the Fed into more unusual & unprecedented actions.

As far as encouraging lending, the interest paid on reserves has little to no effect. Lenders want both a return on their investment, and also a return of the principal. There's plenty of money out there available for lending, but there aren't that many folk who can qualify since all the tightening on loan standards. And all that standards tightening results in is just going back to much more sane standards -- not just the capability of a borrow to fog a mirror with their breath.

And again -- the actual stats show that credit is still expanding on a year over year basis. Real estate loans at commercial banks for example are growing at around 5.5% as of last week, and were as low as 3.3% last September. The numbers are similar for commercial bank credit overall. Even credit card debt is growing at over 3%, although it has been continually trending down since about March 2008 when it was growing at 8%.

The wonderful world of apparently unintended consequences.

This was too deep for me... the part of "unintended" at least. What makes you believe this is an unintended and not a well thought consequence. The Fed had an obsession with interest paid on reserves for a long time.

They key is the word "apparently" - it seems like the consequences were unintended, but anyone who knows basic economics and human response could have predicted that interest being paid on reserves would have a huge effect on their ability to control the FFR.
Amen on the Fed's obsession with the FFR - they've been wanting that level of control and more for decades, and all it takes is a crisis and short sighted severely under educated Congress critters.

[Chomsky]

Re: M1 Money Multiplier tanking

I thought the collapse in securitization markets diminished available consumer credit by 40%. At least that's what Geithner said -- is that false?

Thanks MUCH for the thoughtful reply, btw.