The Credit Crisis Financial Stocks Short Journal

Now the dude is trying to discredit M2
"M2 as a measure doesn't even distinguish between assets and liabilities. Don't you think this is important? Don't you think this might just have some bearing on what's been going on in Japan since 1985, or why Fed policies to date have been ineffectual? At this stage in the game, aren't you at all curious about how money is actually supplied before using the term "money supply"?"

M2 is not perfect but there is a 10y relationship between it, NGDP and inflation. I provided him the data, I suspect he will just end the discussion instead of admitting his years worth of blogging where wrong.

Thats why I dont like to label myself, I'm not a Keynesian, Monetarist, Austrian, Neoclassical or anything else. I simply try to shape my views based on what the evidence tells me, some of my positions might end up aligning with some schools more than others but that is coincidental, its not based on admiration for dead economists or trying to prove a certain school or model of the world is "right". Those sort of biases can only hurt you, if you are a blogger it doesn't matter but if you are trading for a living(specially in Global Macro) you can't afford to not understand how things work because of biases
 
Quote from ralph00:


Yes, he can print trillions and literally destroy the dollar (although i believe he might be removed from office should he try it). The question should be can he be successful without destroying society as we know it. The answer to that remains no.
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I disagree. The Fed doesn't have to destroy the dollar to accomplish their goals. The extreme examples I give sometimes(mailing trillions of dollars in checks or monster QE programs) is simply to point out the absurdity of the 'Fed is impotent, we are Japan' camp. Krugman is back again at saying something to that affect in his blog lately, claims the Fed can't control M2, maybe thats correct technically but they sure hell can raise it to as much as they want through large asset purchases. He acts as if the BOJ had executed a QE program 50 times as large as they did, the effect would have been zero in their M2
 
The measure of success should be whether QE can increase true, non-inflationary economic growth in the country. The answer to that is no.

Your behavior brings to mind that of a bureaucrat from the old Soviet Union. You seem to believe that if M2 can be made to be a certain number, than the economy will be just fine. M2 rising can't magically create a growing economy - it can't make worthless retail establishments have value again, it can't give ideas to entrepreneurs to start new companies, it can't make thousands of POS exurban housing developments solvent again, its not going to bring back TV manufacturing to Ohio again. Its a growing economy that creates a rising M2, not the other way around.

As for QE and Japan, Dylan Grice has made an excellent argument that nothing would have worked in Japan because the demographic shift (older society) would have (and has) overwhelmed any sort of policy response. Its just a thought, but perhaps there are larger forces at work in this country that the central planners at the Fed can't see.

You could make the argument that QE will actually be harmful to the economy - it has assisted an explosion in commodity prices which will hit the poor and middle class especially hard, it has assisted a compression in yield spreads which is hurting financial industry profits.

I know this is difficutl for you to accept. You seem to ascribe some sort of magical Oz-like power to Bernanke (and Greenspan before that). You have these numbers of M1, M2, MZM in front of you. Perhaps even a real cool chart of M2 vs. GDP. Being human, you see that they move kind of together. Being human you mistakenly confuse commanality with causality. Somehow, being human, you fail to see that decades of machinations by these two jokers have given us a lost decade (now going on 2) and a gold price that has vastly outperformed equities (since Nixon closed the gold window in 71). Now you want more machinations. It reminds me of the folks who still believe in communism, they just think the Soviets didn't do it right.
 
The Dec11 FF future is now at 99.77. The nearby contract at 99.83. This is a pretty remarkable (dare I say Japan-like) compression, and an interesting short possibility.

However, is it possible for the Fed to do something on Tuesday that could result in the upper bound for this contract moving from 99.83 to 99.90 or higher?
 
Quote from ralph00:

The measure of success should be whether QE can increase true, non-inflationary economic growth in the country. The answer to that is no.

Your behavior brings to mind that of a bureaucrat from the old Soviet Union. You seem to believe that if M2 can be made to be a certain number, than the economy will be just fine. M2 rising can't magically create a growing economy - it can't make worthless retail establishments have value again, it can't give ideas to entrepreneurs to start new companies, it can't make thousands of POS exurban housing developments solvent again, its not going to bring back TV manufacturing to Ohio again. Its a growing economy that creates a rising M2, not the other way around.

As for QE and Japan, Dylan Grice has made an excellent argument that nothing would have worked in Japan because the demographic shift (older society) would have (and has) overwhelmed any sort of policy response. Its just a thought, but perhaps there are larger forces at work in this country that the central planners at the Fed can't see.

You could make the argument that QE will actually be harmful to the economy - it has assisted an explosion in commodity prices which will hit the poor and middle class especially hard, it has assisted a compression in yield spreads which is hurting financial industry profits.

I know this is difficutl for you to accept. You seem to ascribe some sort of magical Oz-like power to Bernanke (and Greenspan before that). You have these numbers of M1, M2, MZM in front of you. Perhaps even a real cool chart of M2 vs. GDP. Being human, you see that they move kind of together. Being human you mistakenly confuse commanality with causality. Somehow, being human, you fail to see that decades of machinations by these two jokers have given us a lost decade (now going on 2) and a gold price that has vastly outperformed equities (since Nixon closed the gold window in 71). Now you want more machinations. It reminds me of the folks who still believe in communism, they just think the Soviets didn't do it right.
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I'd make a few points
-The fact that I believe that QE can 'work' is grounded on the belief that I have that the evidence supports Fisher's theory of debt deflation, that a collapsing money supply would lead to negative feedback loops(or Reflexivity) that would lead to unnecessary declines in REAL GDP. It has nothing to do with support for communism. I'd say I support capitalism and small government 90% of the time, it just so happens that the 10% of the time that I don't are critical moments where markets are too scared to act rationally, among other problems
-With regards to Japan, no doubt demographics played a role. Problem is some of the demographics problem might have been induced by the bad economy(why have a large family if everything is so stagnant?)
 
Quote from ralph00:


I know this is difficutl for you to accept. You seem to ascribe some sort of magical Oz-like power to Bernanke (and Greenspan before that). You have these numbers of M1, M2, MZM in front of you. Perhaps even a real cool chart of M2 vs. GDP. Being human, you see that they move kind of together. Being human you mistakenly confuse commanality with causality. Somehow, being human, you fail to see that decades of machinations by these two jokers have given us a lost decade (now going on 2) and a gold price that has vastly outperformed equities (since Nixon closed the gold window in 71). Now you want more machinations. It reminds me of the folks who still believe in communism, they just think the Soviets didn't do it right.
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A society will always have a monetary policy and the government will always either control it or oversee it(because those policies can have huge impacts). So a choice needs to be made, if you are not in favor of a Fed then you must be in favor of some kind of gold standard. I fail to see how the country would avoid periodic times of debt deflation and unnecessary collapses in real GDP(That helps all kinds of social programs and welfare mentality to take place) under a gold standard, there is just too much debt to allow that to occur, this ain't 18xx. The true socialists are the free marketeers that want deflation, indirectly but they help that outcome nonetheless
 
I happen to believe monetary policy is one of the critical government functions(Along with the army, legal system, police, etc). And I dont think a reasonable libertarian can disagree. Sure one might say 'leave it to the market' but what if we find out later(with reasonable certainty) that its a flawed way that can hurt economies big time?The leave it alone guy is operating under the assumption that he is never wrong thats why he says the government ought to stay out of the money business but in the real world people are always learning and changing their minds. Therefore the government ought to be in the monetary policy business even if as an observer with the option to intervene(With is sort of what a central bank system is, although is a weak version of that)
 
I find the various forms of fiscal and monetary stimulus to be excessive, however I accept your point that deflationary collapses / banking panics are not pretty.

In terms of "what would you have done" or "what should have been done", I strongly believe that the bailouts provided to the likes of Citigroup, Bank of America, AIG, GM and others should have been provided on terms that were more favourable to the US Government.

I find it repulsive that BAC and C now have market caps of over $100 billion, but only carry these "values" as a result of their bailouts.

The US Govt could have and should have provided capital in 2008 and 2009 at much lower prices, and should have taken 79.9% stakes in C and BAC, just like they did for FRE and FNM and AIG.


Quote from Martinghoul:

Well, again we're arguing counterfactuals, which, basically, means we could in theory go back 'n forth in the same vein endlessly. However, let me just point out that there have been cases where not responding to panics ended rather sadly for lots of people involved.

So the dilemma for policy makers is, basically, that of a russian roulette player. The probability of blowing your brains out is very low, but it ain't zero. If you were them, would you play or would you put the gun away?
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Quote from m22au:

In terms of "what would you have done" or "what should have been done", I strongly believe that the bailouts provided to the likes of Citigroup, Bank of America, AIG, GM and others should have been provided on terms that were more favourable to the US Government.

I find it repulsive that BAC and C now have market caps of over $100 billion, but only carry these "values" as a result of their bailouts.

The US Govt could have and should have provided capital in 2008 and 2009 at much lower prices, and should have taken 79.9% stakes in C and BAC, just like they did for FRE and FNM and AIG.
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Abso-friggin'-lutely, 100% in agreement with you there... C is a disgrace that shouldn't be allowed to exist in the first place. Generally, what happened with the bailouts underscores the need for an orderly bank unwind mechanism. I have almost no hope that the US political system is capable of coming up with a solution.
 
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