Kudos to MMs

[nitro]

Quote from Daal:

Didnt you go to the uni of Chicago?They are doing the standard correct response that prevents a 30's type outcome, as people delever and paydown debt the money supply decreases, the fed HAS to lever up to prevent a 30's type M2 collapse. Otherwise we see massive deflation

They purchased $1.7T in assets, $1T became excess reserves, $700b became money supply, without that M2 yoy would have been deeply negative and interest rates would gone down ANYWAY, as everyone and their wifes would buy USTs. If you want higher rates then you want to see more QE, cuz thats the only thing that will get US CPI up a lot again in your lifetime

Dude, you just described what is happening!

 

[Daal]

Quote from nitro:

Dude, you just described what is happening!

I dont understand your criticism of Fed policy(specially if you did go to chicago uni), unless you think massive deflation when people has debt to their eyeballs is a good thing

 

[nitro]

Quote from Daal:

I dont understand your criticism of Fed policy(specially if you did go to chicago uni), unless you think massive deflation when people has debt to their eyeballs is a good thing

Everywhere I read that if home prices go down, we double dip. So instead of flushing the system out, we have slow moving recessions. The FED obviously agrees, so I am saying that the FED is reactionary ultimately making things worse, and it has the wrong master imo. The FED imo finds itself confused by it's two mandates, price stability (lower home prices if it let IRs go naturally where the market would take them) and "full" employment. In this environment, I claim those two things are at odds with each other! I am not even sure the FED is protecting any of those things anymore, but may in fact be defending the interest of banks who would see defaults and repossessions triple if IRs were allowed to float naturally.


"...Alas, the Fed and Treasury’s current actions are not so clear. The Fed and Treasury are essentially running the world’s largest hedge fund: short treasuries and long a lot of obscure6 credit risk, in Wall Street parlance...."

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/fiscal2.htm

 

[Daal]

Quote from nitro:

Everywhere I read that if home prices go down, we double dip. So instead of flushing the system out, we have slow moving recessions. The FED obviously agrees, so I am saying that the FED is reactionary ultimately making things worse, and it has the wrong master imo. The FED imo finds itself confused by it's two mandates, price stability (lower home prices if it let IRs go naturally where the market would take them) and "full" employment. In this environment, I claim those two things are at odds with each other! I am not even sure the FED is protecting any of those things anymore, but may in fact be defending the interest of banks who would see defaults and repossessions triple if IRs were allowed to float naturally.


"...Alas, the Fed and Treasury’s current actions are not so clear. The Fed and Treasury are essentially running the world’s largest hedge fund: short treasuries and long a lot of obscure6 credit risk, in Wall Street parlance...."

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/fiscal2.htm

I dont believe the two objectives are at odds with each other. Lets say the Fed does nothing, delevering continues and M2 starts to decline by 5% a year. At that point prices and employment would start to drop(ala 30's), in order to prevent that, the Fed will almost surely start Q2

I dont believe John Cochrane, if he was running the Fed, would ever allow the money supply to collapse. Its not even about IRs anymore, its all about not allowing private delevering from sending prices into tailspin. In theory they could do that with 1% or 2% fed funds(by using IOR while they do QE) but I can't see any real argument on why interest rates would have to go up if they are trying to fight deflation

 

[nitro]

Quote from Daal:

...I dont believe John Cochrane,...

Then maybe you believe another UoC professor

Bernanke must end era of ultra-low rates
By Raghuram Rajan

Published: July 28 2010 23:34 | Last updated: July 28 2010 23:34
Before the Senate banking committee last week, Ben Bernanke, the Federal Reserve chairman, hinted that, with fiscal policy reaching its limits and “unusual uncertainty” in financial markets, interest rates will need to remain ultra-low for the foreseeable future to boost America’s flagging economy....

http://www.ft.com/cms/s/0/2a19a706-9a7a-11df-87fd-00144feab49a.html

 

[Daal]

Quote from nitro:

Then maybe you believe another UoC professor

Bernanke must end era of ultra-low rates
By Raghuram Rajan

Published: July 28 2010 23:34 | Last updated: July 28 2010 23:34
Before the Senate banking committee last week, Ben Bernanke, the Federal Reserve chairman, hinted that, with fiscal policy reaching its limits and “unusual uncertainty” in financial markets, interest rates will need to remain ultra-low for the foreseeable future to boost America’s flagging economy....

http://www.ft.com/cms/s/0/2a19a706-9a7a-11df-87fd-00144feab49a.html

I see no indication that he would favor allowing the money supply to decline. He wants a modest increase in rates to prevent some kind of bubble. He doesnt criticize QE or the size of the balance sheet

 

[nitro]

NFV 1085.56. SPX 1080.65.

 

[nitro]

NFV 1086.55. SPX 1073.92.

Nearing long edge. What is more, 1072 is strong (although not as strong as it was) support. So 1072 is a relatively safe entry.

 

[nitro]

NFV 1081.38.

 

[nitro]

NFV 1083.49. SPX 1066.34. Therefore long edge > 14.

Next support is 1050 which is mostly psychological, and then 1042. So entering here is not as simple as it was yesterday at 1072.