M1 money multiplier below 1

Hi Breen, great comments...

Is there any particular book(s) you'd recommend for a good relevant analysis of money supply - > economic effects / relations?

Thanks
 
Those would be pretty dry books...I think you might rather skim papers. NY Fed has good paper on money supply and excess reserves written last August...Regional Fed sites are good places to look for papers. Google, Japan academnic papers on Money Supply as they have been on forefront of deflation money supply phenomena. I like Mundel always, have been recently reading Wilmeth and Rutledge. Just finished book, 'Econoclasts' by Dimitrov. Now reading Rogoff and Rhienhard, 'This time its different.' Recommend former ML economist David Rosenberg, I follow Malpass, David Goldman at First Things...Alan Reynold, Wanniski's, 'The Way the World Works.' Is a classic for a non aggregated demand persepctive. Check out posters at www.supplysideforum.com Chek out Micheal Rulle's blog, 'The law of the bad premis' for links to cutting edge economic thought, austrians and others... although Mikes comments tend to be cultural.
 
Quote from Ed Breen:


This is what is happening....what do you think the Fed should do? Do you think the Fed can really create a context for Growth by iteslf? What do you think will happen to the excess debt situation if the Fed allows interest rates to rise?
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Obviously, the Fed isn't the only player. So whatever the Repubs or Dems or any other deficit hawks say, we are not self imposing a hari-kari austerity program. Period. Fiscally, we will spend a trillion plus deficits for a decade.

So what will the Fed do while Congress/White House does its thing? I see more QE in the works. One way or another, directly or as has been done last year - indirectly thru agency purchases/quid pro quo Treasuries purchases.

I don't care what these policy wonks at the Fed say - I look at what they do - what they feel they have to do, not what they want to do. Ben will figure out a way to get the excess money into the hands of the people. The Banks got theirs, now that helicopter is going to have to visit some other neighborhoods.

What do you think Ed?
 
Quote from Ed Breen:

This is what is happening....what do you think the Fed should do? Do you think the Fed can really create a context for Growth by iteslf? What do you think will happen to the excess debt situation if the Fed allows interest rates to rise?
More...
In my view, it's not about the Fed, ultimately... As I have said before, IMO all we're doing is pushing leverage arnd the system, trying to decide who takes the utlimate haircut. In the end, the only way out of the mess is geopolitical and has to do with the the correction of global imbalances, whichever way that's actually achieved.

In general, everything is, as usual, about politics. Economics is a red herring.
 
Quote from Martinghoul:

In my view, it's not about the Fed, ultimately... As I have said before, IMO all we're doing is pushing leverage arnd the system, trying to decide who takes the utlimate haircut. In the end, the only way out of the mess is geopolitical and has to do with the the correction of global imbalances, whichever way that's actually achieved.

In general, everything is, as usual, about politics. Economics is a red herring.
More...

Geopolitical meaning war?
 
Ed -

Thank you for understanding this subject far better than anything or anyone I have read in the last 2 years.

I have been trying to clear up thoughts about deflation and the multiplier for a few years. thanks.
 
Ed, I could read what you wrote about 10 times and I still wouldn't be able to follow the paper trail completely but I can come to one quick conclusion (which I knew before I read what you wrote): The Entire US Monetary System is one gigantic shell game that will eventually look the way Hiroshima did on August 6, 1945. I can't pay off my credit cards with more credit cards so it shouldn't come as a surprise that a nation with excessive debt can't solve its problems with more debt. The key is income and with money circulating so slowly there will be no extra income. The Day of Reckoning is coming.

Quote from Ed Breen:

Of course paying off debt is deleveraging...that is a tautology...'deleveraging means paying off more debt than you initiate. Observe aggegate private sector debt in the U.S. which is declining in an accelerating curve at historically unprecedented rates right now.

The fed has assets on its balance sheet becuase it recieved the money from Treasury to buy those assets. It was called TARP. The Treasury borrowed the money it loaned to the Fed by auctioning off Treasury securieties. In some cases the Treasury loaned Treasury securieties directly to the Fed. The Fed in turn, think TARP again, bought 'toxic', i.e. illiquid securites from the banks...exchanging money from treasury for securities that had no market demand. In some instance it swapped treasury instruments for illiquid paper. This removed the threat of write down of the illiquid assets that would have undermined bank balance sheets and destroyed thier capital ratio's making them technically insolvent. In contrast the Fed does not have any capital reserve requirement and it does not have to write down any assets. Now the Fed bought these assets at a discount depending on thier particular nature and we really still don't know what these assets are really worth, but the Fed carries them on its balance sheet at its purchase price and at its discretion with no risk to its continued operation (So long as the Treasury remains credit worthy). So, the banks got the new money and good securietes and they inturn deposited the money at the Fed as excess reserves. This was of course the same money the Fed gave them for the illiquid assets. So, now both are in the Fed balance sheet...ie. TARP funding times 2, becuase there is no loan demand in the private market and short term rates are at practicle zero basis so banks might as well leave excess reserves on deposit at the Fed...since they get the same rate or more than they would get on short term paper. As a consequence of borrowing money from the Treasury at very low interest and using it buy high yield securities from the banks at a discount and then recieving the proceeds of the purchase from the banks back as low cost deposits that they in turn use to purcahse longer term treasuries at a spread the Fed earned a profit of 48 Billion last year...most in its history....see, this is what Dodge was talking about...you can't solve a debt problem with debt.
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The day or reckoning is here. It isn't coming. Those who are in debt, those who have zero hard assets (Metals, Oil, Land or RE they bought a lows) are in for a huge surprise.

The system isn't just gona collapse. It will slowly bleed...band aids will be put on the system....politicans will play their games and the idiot economist, who never get it right or predict anything proper, while talk away.

more money will be printed..(Jobs Bill) and jobless benefits will be extended once again, etc.

Only the individal will really feel the pain as they sink into poverty.

There is nothing anyone can do to save the system You have to save yourself and those you love. I feel for all those that work for public companies...who will start to lay off again, cutting not the fat but into the muscle of their companies... I feel for those in careers that actual do nothing....to produce goods. They will find out they have no job as the "Service" sector of useless paper pushers, lawyers, accountants, Financial Brokers (stocks/bonds, Planners etc), Call centers, support staff, all start loosing their jobs.

State and gov. will follow with Services and state employees.

The spiral down will continue until some sort of support is found.

But once again, this will slowly come to. Not a shock over night.

But like during the first depression, there will be plenty of opportunity for the smart and strong to make money. The weak will fall into gov aid or revert to crime.

This is not a doomsday thought, nor a end of the world thought. But a transition from "Debt" to unleverage of such Debt.

Our economy will come back strong...with new ideas, new techonology and new industry that will boom. But first...we need to allow all the "Shit" to float to the top, then wipe it clean.

Such is life.
 
Isn't the cream supposed to float to the top? Let the shit fall to the bottom so at least we can flush it down the drain :D

Kidding aside, I agree with one thing you said....all this will occur very slowly like the frog being boiled. By the time he feels the heat it will be too late. Anyone who is carrying unserviceable debt is doomed.

It's not so much that the banks aren't lending as much as it is the borrowers aren't borrowing. Who in their right mind would lever back up with the psychological damage still fresh in their mind? Even the willing will be escorted to the door.
 
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