M1 Money Multiplier tanking

[Supercilious]

Re: M1 Money Multiplier tanking

I thought FFR cannot be increased.

The FFR can be increased. Right now the FFR actually doesn't matter very much, because it is as important as determining the speed of a dead cat (not a bouncing one). Interbank lending now is chocked in many respects.

If there are no credit worth borrowers, why would any bank borrow reserves(high powered money) from one another at this high rate.

Currently the rate is zero and the risk perception is huge. There is no incentive whatsoever to give any loan. Only the goners need money while the healty/friendly banks sit on excess reserves and if they need more they can get anytime at little cost from the Fed.

Also Savings are increasing and people are paying down debt and I am not seeing any change in this direction.

Exactly, people are paying down debt, investors are out of the market waiting mostly in cash (as I do) ... why do you think the non borrowed reserves are increasing? Those CDO's didn't become overnight profitable.

So why would banks borrow at higher FFR from one another. Only if there are signs of inflation, will borrowers emerge from their shell and start taking risks and banks can lend. Assets price inflation + tax_advantage have be greater than FFR+bank_profit

Exactly, and all what the Fed did recently was actually reserve neutral (with few small exceptions). Basically everything the Fed did since last summer is to bring the banking system to the current situation, and letting Lehman fall was essential to stop interbank lending.

All I see is deflation getting stronger. No one wants to borrow to buy any house or start business. Banks have stored all that ammo but cannot use them since there are no good targets.

Exactly, and with this perception no wonder they just hoard reserves and M1 multiplier was tanking. Add to that the Circle Jerk Finance (TM) virtual technology and you have the complete picture.

How can the FED frighten people to take more risk ?

I believe the people, investors and banks are already frighten creditless Maybe what they need is to calm them down, by making the FED take more risk. Remember that the high risk picture was manufactured and it not exactly real. The real effect is derived only by the self-reinforced perception of risk, doom and gllom. There are people who panic and drown in four feet of water. That can happen, although nobody should drown (or have a heart attack in fear of drowning) in waist deep water. One of the thing the FED can do is extending risk guarantees. So far they did that in a very selective way and with a lot of restraint.

The only way I see it is by causing HIGH inflation.

So far they hinted they are going to create inflation, when in fact they used largely only neutral operations, and those who believed the inflation line got cleaned during the last quarter. Maybe now they will hint they will create a huge inflation and they will inflate very little, just to get the FIRE started again.

It will force people with money stashed, to start investing. But then the elites(creditors) who have wealth will be destroyed. Only after the rich have moved to inflation hedges can this threatening happen.

Exactly That is why I believe a huge inflation is a no-go, at least in the next future, although the FED may want to create the artificial perception huge inflation is just over the corner.

I agree, high inflation is bad for creditors unless they climb to inflation hedges first. Likely inflation hedges are stocks, Gold, commodities. Definitely away from Bonds. But if bonds start loosing, then interest rates rise and borrowing becomes costly. I don't see a way out of this mess unless we start asset bubbles again, where assets rise faster than inflation.

Well, ... I don't think the normal mechanism of rates rising borrowing becoming costlier is entirely valid in the current paradigm. What the Fed actually did, was the borrowing rates arbitrage and they started with sectoral targeting in money markets (if you remember that funny 666 paper). Borrowing at 2-5% is much better and less deflationary than not being able to get one dollar at 0.25% and being forced to accept Uncle Warren's fondling at 12.5% interest.;)

Symbols keep posting so that novices like me can understand what is happening.

Sishya thanks. That was very flattering, but i have to disappoint you. I'm struggling myself to understand what exactly is happening now and I'm not sure my hypothesis is correct. That's why I was trying to convince bart or anybody else with a good understanding of what is happening now to help me with some answers.

Right now we are almost like in China. Market fundamentals don't matter very much. What matters now is how the FED commies (as opposed to the Chinese commies) will intervene next. And guessing what the FED is going to do next (regardless of their official position) is more of an art than a science.

The end goal is clear: obtaining more power, more control and facilitating a larger targeted wealth transfer from everybody to those few that matter. The key to success this days is to be able to figure out how exactly are they going to achieve their goal and what intermediate steps will they take.

[Supercilious]

Re: M1 Money Multiplier tanking

Originally Posted by LargoWinch
$#*, can you please clarify this?

Do you mean the real Poom is linked to something else or that Poom is a myth?

:rolleyes: The upshot here is are they in control or not? I would suggest that within the US sphere of influence this are to a degree proceeding as planned. the unpredictables are Europe, Asia and the Ruskies, China at least temporarily has conceded that symbiotic survival is preferable to mutual destruction.
If they're in control we're on a slow burner for the foreseeable future, if not...............get the tin hats out!!!!!!!

Let me put it clear with respect with Ka-Poom . I prefer to focus on the inflation-deflation link (the Poom-Ka mechanism), but the Ka-Poom theory is valid no doubt. The deflation/disinflation- inflation/hyperinflation transition is correct and EJ did a great job explaining its mechanism and details.

If the Fed is not able to pass the losses to the rest of the world and and things get out of its control, then, I agree it is going to be a huge textbook Ka-Poom.

If the Fed maintains control and ROW (China, Russia, GCC, Japan, India, ..... Zambia) are left holding the bag for all the Wall Street garbage, there will be no real Ka-Poom (although a brief controlled bout of inflation may take place). This may sound good and hopeful for the people living in North America and some European countries, but actually it is not, because the Fed will be left with more influence and power to continue the technology of fraudulent wealth transfer from all of us to those few pulling all the strings.

If a Ka-Poom brings a real change in the financial system, the Fed is abolished, and a return to sound money is implemented, I personally believe the first option is much better in the long run.

If the Fed succeeds to financially ambush ROW, people in a few western countries will fare better, but that will last only until today's lucky survivors, will become the victims for the next cycle of fraudulent wealth transfer.

[FRED]

Re: M1 Money Multiplier tanking

Let me put it clear with respect with Ka-Poom . I prefer to focus on the inflation-deflation link (the Poom-Ka mechanism), but the Ka-Poom theory is valid no doubt. The deflation/disinflation- inflation/hyperinflation transition is correct and EJ did a great job explaining its mechanism and details.

If the Fed is not able to pass the losses to the rest of the world and and things get out of its control, then, I agree it is going to be a huge textbook Ka-Poom.

If the Fed maintains control and ROW (China, Russia, GCC, Japan, India, ..... Zambia) are left holding the bag for all the Wall Street garbage, there will be no real Ka-Poom (although a brief controlled bout of inflation may take place). This may sound good and hopeful for the people living in North America and some European countries, but actually it is not, because the Fed will be left with more influence and power to continue the technology of fraudulent wealth transfer from all of us to those few pulling all the strings.

If a Ka-Poom brings a real change in the financial system, the Fed is abolished, and a return to sound money is implemented, I personally believe the first option is much better in the long run.

If the Fed succeeds to financially ambush ROW, people in a few western countries will fare better, but that will last only until today's lucky survivors, will become the victims for the next cycle of fraudulent wealth transfer.

Who knows. Maybe they've had enough:

Asia Agrees on $120 Billion Currency Pool Amid Crisis (50% more than was proposed last May)

[Supercilious]

Re: M1 Money Multiplier tanking

Who knows. Maybe they've had enough:

Asia Agrees on $120 Billion Currency Pool Amid Crisis (50% more than was proposed last May)

I don't know Fred, this remind me too much of that foretelling paper in Foreign Affairs I linked in a previous post on this thread:
http://www.foreignaffairs.org/200705...-currency.html

The right course is not to return to a mythical past of monetary sovereignty, with governments controlling local interest and exchange rates in blissful ignorance of the rest of the world. Governments must let go of the fatal notion that nationhood requires them to make and control the money used in their territory. National currencies and global markets simply do not mix; together they make a deadly brew of currency crises and geopolitical tension and create ready pretexts for damaging protectionism. In order to globalize safely, countries should abandon monetary nationalism and abolish unwanted currencies, the source of much of today's instability.
[...]
But the world can do better. Since economic development outside the process of globalization is no longer possible, countries should abandon monetary nationalism. Governments should replace national currencies with the dollar or the euro or, in the case of Asia, collaborate to produce a new multinational currency over a comparably large and economically diversified area.

So let me guess, for a safe globalization we need only three currencies: the dollar, the euro and the ... asio . If the new asian currency will be like the euro, not a real independent currency but an extension of the dollar (since the yuan and the yen are bonded to the dollar) as you very well said, in the end there will be only three currencies: the dollar and two dollar surrogates.

Since everything will be controlled by the FED .. there will be no more currency crises.... just plain global dollar seignorage.


By the way... bart what are you doing, your comments are required here at least to the IOR game of interbank lending. Any help would be appreciated.

[LargoWinch]

Re: M1 Money Multiplier tanking

Likely inflation hedges are stocks, Gold, commodities. Definitely away from Bonds.

sishya, I assume you mean commodity-related stocks and gold stocks, because equities are not an inflation edge.

See the S&P performance during the 70s. Now look at the same data without energy and gold stocks and you will notice that equities get hurt bad as they cannot pass along the increased input costs fast enough, hence reducing their margins.

[sishya]

Re: M1 Money Multiplier tanking

sishya, I assume you mean commodity-related stocks and gold stocks, because equities are not an inflation edge.

See the S&P performance during the 70s. Now look at the same data without energy and gold stocks and you will notice that equities get hurt bad as they cannot pass along the increased input costs fast enough, hence reducing their margins.

Yes, I would think that commodity-related related stocks should do better in a pure dollar devaluation. But if commodities go up too much and wage spiral happens, then certainly a person like Volker will step in to raise interest rates and cause recession. Everything looks so complex.. Don't know what to infer from all this.

I tend to root for the FED's here because I don't want any social disorder and anarchy in USA, hoping that the FED's have everything under control. Symbols on the other hand does not want any dollar seingorage for the FED and I guess is rooting for the FED's to loose control.

[junkacc]

Re: M1 Money Multiplier tanking

The FED works not for the benefit of mankind but for the elites. It may be that they are defending US elites from foreign elites or defending a global collection of elites against the mob, but they do not do it with the interest of the common man at heart.

[Supercilious]

Re: M1 Money Multiplier tanking

I tend to root for the FED's here because I don't want any social disorder and anarchy in USA, hoping that the FED's have everything under control. Symbols on the other hand does not want any dollar seingorage for the FED and I guess is rooting for the FED's to loose control.

sishya, I think you got me wrong. I'm not rooting for the Fed to lose control. That will be like rooting for having your house burned down because you have a serious FIRE ants and bankster cockroach infestation. Yeah, you get rid of the pests but you also end up homeless.

What I was saying is that if Fed loses control and the economy has a major crash, then at least, we have a chance to rebuild the system in a healthy way and get rid of the FED.

Also rooting for the FED to succeed in scamming the rest of the world is not a good idea, because we will remain stuck with the infestation for a long time (especially if in US the economic situation improves by comparison to the rest of the world.)

The whole idea is to get rid of the Fed anyway and return to sound money and banking system. We shouldn't need a crash to do that.

What puzzles me is that the Fed has loaded and primed all its financial guns, for starting a massive and aggressive lending in the system, but I don't understand what are they waiting for?

This is another piece of the puzzle we are missing.

They also have everything put in place to stop any hyperinflation move:

http://cn.reuters.com/article/compan...51O5GT20090225

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said on Wednesday that he had an exit strategy from the U.S. central bank's recent massive monetary expansion that will keep inflation under control as the economy recovers.
[...]
"We are quite confident that we can raise interest rates, reduce the money supply and do that all in a timely way to avoid any inflationary consequences," Bernanke told the House of Representatives Financial Services Committee in a second day of testimony on the Fed's monetary policy report.
[...]
"It is very important for us, once the economy begins to recover -- as usual, the Fed would have to begin to tighten policy -- it is very important for us to begin then to unwind our monetary expansion," he told lawmakers.
[...]
"We also have other tools, such as our ability to pay interest on reserves, which will help us raise interest rates, even if we don't get the amount of money outstanding back down as quickly as we otherwise would like."

I believe he is misleading only in one aspect. Actually the Fed hasn't done any massive monetary expansion yet. The Circle Jerk Finance (TM) has created only the potential of massive monetary expansion.

Once the monetary expansion starts (when the Fed opens the credit flood gates) the credit deluge will restart the economy, and immediately after that money will be withdrawn from the system fast, and the rest of the recovery will be fueled by capital inflows from abroad.

[bart]

Re: M1 Money Multiplier tanking

I agree with that. Now there is a solid floor under the FFR, and offers an absolute control over the overnight lending, but I suspect there is much more to it.

Right now it seems we are in an initialization moment. The IOR, FFR and discount window are all basically zero (~0.25% ). This can't stay like this for long. The question is how the game will be played in the future.

Right now a 35bp spread between FFR and IOR, basically has killed interbank lending.
Why would a bank take any risk in lending to a bank for only 35bps when it can all be deposited safely with the FED? Since the discount rate is also 0.25% and only 35bp above the IOR, if you are on the Fed's list of good boys you can get money through the alphabet soup or discount lending, if not you can't get money from other players unless at some obscene (Warren Buffet deals) rates. Therefore everybody rushes to hoard excess reserves.
By playing all these three rates and selectively choosing who gets access to various forms of discount borrowing, the Fed effectively decides which bank lives and which one dies.

As far as interbank lending, the actual data shows that it has bounced back since the Fed started paying interest on reserves, plus a bit of a lag.




And although its true that the Fed has life or death powers over banks, and that anyone who gets "out of line" will likely not survive (like Bear Stearns who wasn't on board during the LTCM period), I think they have way bigger fish to fry.

The real problem remains that the majors and many other banks are just plain insolvent by any reasonable measure, and that the line the Fed & Treasury & various politicians are walking is mostly about trying their damnedest to keep confidence in the system up.
All the various programs like the PDCF, CPFF, TAF, TSLF, etc. can do is deal with symptoms and although they have actually achieved change towards the positive in things like LIBOR and liquidity in the commercial paper markets, confidence and real insolvency (aka, the bankrupt but still walking due to Fed supplied canes) remain the real problems... and have as of yet to be realistically addressed.
In plain English, much more SHTF is ahead in the financial and confidence areas.


I do have a nagging feeling that I'm missing something about the high level of "excess" reserves...

"You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before." -Rahm Emmanuel

Give that man a trendy new kewpie doll, complete with tinfoil hat. ;)

[bart]

Re: M1 Money Multiplier tanking

I suspect that some of the temporary alphabet soup facilities will become permanent and in the future borrowing from the Fed will become more common and acceptable.

Indeed... and its part of the power game of more & more Fed & government control.

In Microsoft-speak, it's like "embrace & extend".

[bart]

Re: M1 Money Multiplier tanking

So far the Fed seems preoccupied only to provide ammo for the banks without giving any firing orders. I believe that in this environment banks will start lending only if the FFR is increased :eek: the discount rate is increased and the IOR is kept to the floor at near 0.

Yes, that's part of the additional power the Fed has gotten from the ability to pay interest on reserves.

But there are many more factors that affect banks lending, a few being that many are insolvent, credit standards are much tighter now and many fewer qualify, and there's also just plain demand -- as in why borrow at any interest rate when we're in a deep recession/depression, deflation exists and there are so very few places to invest that will produce a positive real return.

[bart]

Re: M1 Money Multiplier tanking

They also have everything put in place to stop any hyperinflation move:

http://cn.reuters.com/article/compan...51O5GT20090225

I believe he is misleading only in one aspect. Actually the Fed hasn't done any massive monetary expansion yet. The Circle Jerk Finance (TM) has created only the potential of massive monetary expansion.

Once the monetary expansion starts (when the Fed opens the credit flood gates) the credit deluge will restart the economy, and immediately after that money will be withdrawn from the system fast, and the rest of the recovery will be fueled by capital inflows from abroad.

Lots of wiggle room & opinions here, but I generally agree.

Out of the roughly $9.7 trillion that has been allocated to be spent by the Fed &Treasury, "only" about $2.7 trillion has actually been spent... and of that, about half is pretty easy to reverse... and the other half is real money creation.

It's not a huge surprise from here that we're still in overall deflation - $1.35 trillion is just plain not enough to offset debt deflation or losses in the shadow banking system.

By the way... bart what are you doing, your comments are required here at least to the IOR game of interbank lending. Any help would be appreciated.

Sorry - been severely under the weather, and also working on new charts, etc.

[gwynedd1]

Re: M1 Money Multiplier tanking

ASH, I don't think what you say it is going to happen... there will be a future inflation spike, but I don't think it will be a real Poom

Hi $#*,

I agree. The money is already floating about the ether if its in default. All this new money is simply bank accounting rule repair. Its not making new loans. What new balloon-able asset will take the place of housing to act as a vector for new bank credit? I just don't know what it is.

[cjppjc]

Re: M1 Money Multiplier tanking

Hi $#*,

I agree. The money is already floating about the ether if its in default. All this new money is simply bank accounting rule repair. Its not making new loans. What new balloon-able asset will take the place of housing to act as a vector for new bank credit? I just don't know what it is.

Yes. It seems to me the money is just replacing money that died and went to bad debt heaven. It's like I fasted for a week, then ate 5,000 calories. I wouldn't gain any weight. Or inflate if you like.

[Supercilious]

Re: M1 Money Multiplier tanking

What new balloon-able asset will take the place of housing to act as a vector for new bank credit? I just don't know what it is.

This is pretty obvious. It will be everything related to the economic "miracles" performed by the Chosen One after the New New Deal sermon in the Rose Garden: infrastructure, renewables, reindustrialization.

It will be like is written in the Book of Greenscam 666:15-21:

15Now when Depression came, the tax-cheat bankster buddies went to him and said, “Wall Street is a deserted place, and it's already bled dry. Send the banks and the hedgefunds away so that they can go into the country and loot taxpayers for themselves.”

16But The Chosen One said to them, “They don't need to go away. You give them something to re-capitalize”

17Turbo Tax Timmy told him, “We don't have anything here except five credit facilities of the alphabet soup and two clowngress approved bailouts.”

18He said, “Bring them to me.” 19Then he ordered the crowds of hungry investors to sit down on the Wall Street grass. Taking the five alphabet soup facilities and the two bailouts, he looked into Ben Bernanke's eyes and blessed them with Hope and Change. Then he broke the credit facilities in pieces and gave them to his Fed cronies, and the cronies gave them to the capital hungry crowds. 20All of them recapitalized and were filled with taxpayer money. Then the cronies picked up what was left of the credit facilities, twelve baskets full of AAA marked-to-market securities. 21Now those who had pocketed the taxpayer money were about 5,000 banksters, besides pension funds and small accredited investors.