The impact ,of the M1 velocity going below 1, on the USD is what interests me.
We're About To Get Hit With A Sh**storm: Bernanke Has Lost Control of Velocity *Chart
- Thread starter ByLoSellHi
- Start date
Good....ByLoSellHi
Let´s simplify the view a little....
Once upon a time there were 1 million people ....
These people had 1 Trillion in equity, $100 billion in cash....
Credit availability was $700 billion....
...........................................................................
Then one day equity had a valuation adjustment of $500 billion to the downside....and credit availability was reduced to $200 billion....
..........................................................................
Thus what happened to collective prices after the downward equity adjustment....
............................................................................
A few items....
Derivative losses.....unknown.....perhaps greater than worldwide stock losses of $30 trillion....
Residential real estate losses..... maybe over $7 Trillion
Commercial real estate losses...unknown
Business valuation losses....unknown
Additional government debt incurred...over $7 Trillion
Known equity in major banks....mostly insolvent...lost the majority of over $7 trillion in domestic deposits....
Insurance derivatives to actual insured assets ratio....unknown....
perhaps three to one....
Unfunded but promised government obligations ....
Perhaps over $30 trillion....
.........................................................................
Key recovery points.....
Should focus on asset valuations improving fast as possible....
Valuations are revenue stream dependent....even to the individual.....
Revenue streams form the highest valuations when free of tax....
Assets that can improve dramatically..... stocks.....
..................................................................................
Key recovery focus.....
10% consumption tax only
New Worldwide Stock and Debt Exchange.....boilerplated....
Current rating firms banished and replaced by boilerplate internet reports....
..........................................................
And no...I am not joking.....
Bankable valuation increases via tax structure and stocks would
eliminate 70 percent of recovery time.....and could be the only viable solution....
A key point being that the stocks need to represent firms that are truly winning in the free market....
...................................................................
What is currently happening.....government is adding to debt....making equity drop further....and wanting to tax more....further eroding valuations..
Let´s simplify the view a little....
Once upon a time there were 1 million people ....
These people had 1 Trillion in equity, $100 billion in cash....
Credit availability was $700 billion....
...........................................................................
Then one day equity had a valuation adjustment of $500 billion to the downside....and credit availability was reduced to $200 billion....
..........................................................................
Thus what happened to collective prices after the downward equity adjustment....
............................................................................
A few items....
Derivative losses.....unknown.....perhaps greater than worldwide stock losses of $30 trillion....
Residential real estate losses..... maybe over $7 Trillion
Commercial real estate losses...unknown
Business valuation losses....unknown
Additional government debt incurred...over $7 Trillion
Known equity in major banks....mostly insolvent...lost the majority of over $7 trillion in domestic deposits....
Insurance derivatives to actual insured assets ratio....unknown....
perhaps three to one....
Unfunded but promised government obligations ....
Perhaps over $30 trillion....
.........................................................................
Key recovery points.....
Should focus on asset valuations improving fast as possible....
Valuations are revenue stream dependent....even to the individual.....
Revenue streams form the highest valuations when free of tax....
Assets that can improve dramatically..... stocks.....
..................................................................................
Key recovery focus.....
10% consumption tax only
New Worldwide Stock and Debt Exchange.....boilerplated....
Current rating firms banished and replaced by boilerplate internet reports....
..........................................................
And no...I am not joking.....
Bankable valuation increases via tax structure and stocks would
eliminate 70 percent of recovery time.....and could be the only viable solution....
A key point being that the stocks need to represent firms that are truly winning in the free market....
...................................................................
What is currently happening.....government is adding to debt....making equity drop further....and wanting to tax more....further eroding valuations..
Denninger is an unemployed crackpot - go to his youtube posts for evidence of this.. His argument is full of holes and incorrect definitions. Amateur wannabe economist who basically is BSing stuff he doesn't understand...
Mainly that M * V = GDP is the correct equation. V is derived as a function of GDP versus money supply, after the fact. Look at the 'St Louis Monetary Base' for an explanation of why V is collapsing. If the recent increases monetary base were distributed directly to the citizenry versus the banks , I think GDP would amp up more directly, thus the V would not be falling so quickly.
V is a function of economic activity, and this 'M1 multiplier' is the wrong variable to be looking at. It is merely a function of monetary base vs M1. It is not the broad 'money multiplier' concept he is actually alluding to, or the concept of $$ ratio of GDP improvement returned by deficit spending...
Formal definition from St Louis Fed of this chart:
http://alfred.stlouisfed.org/series?seid=MULT
The M1 multiplier is the ratio of M1 to the St. Louis Adjusted Monetary Base. For further information on monetary aggregates, please refer to the Definitions, Notes, and Sources at http://research.stlouisfed.org/publications/mt/.
I could barely get through his tirade. It reads a la Jack Hershey ... This guy has been outside direct human interaction for quite too long.
Mainly that M * V = GDP is the correct equation. V is derived as a function of GDP versus money supply, after the fact. Look at the 'St Louis Monetary Base' for an explanation of why V is collapsing. If the recent increases monetary base were distributed directly to the citizenry versus the banks , I think GDP would amp up more directly, thus the V would not be falling so quickly.
V is a function of economic activity, and this 'M1 multiplier' is the wrong variable to be looking at. It is merely a function of monetary base vs M1. It is not the broad 'money multiplier' concept he is actually alluding to, or the concept of $$ ratio of GDP improvement returned by deficit spending...
Formal definition from St Louis Fed of this chart:
http://alfred.stlouisfed.org/series?seid=MULT
The M1 multiplier is the ratio of M1 to the St. Louis Adjusted Monetary Base. For further information on monetary aggregates, please refer to the Definitions, Notes, and Sources at http://research.stlouisfed.org/publications/mt/.
I could barely get through his tirade. It reads a la Jack Hershey ... This guy has been outside direct human interaction for quite too long.
This multiplier is not the same fractional lending multiplier, or the investment multiplier. It is a different animal. Go to my previous post. Denninger's post is totally pontificated bullshit from someone who has his nomenclature mixed up.
Nonetheless, maybe the way to slow a contraction or get out of a recession is to print money but to get out of a credit freeze up.... I don't think so. The non-visibility of the toxic debt is the problem and throwing money at it won't make it visible...
All this BS is backward looking. Velocity of money has already picked up. Look at the rate of re-financing in December. As mortgage rates fall further, you will see a further surge. The fed is injecting money directly into the economy via lower mortgage rates, which is a levered instrument. Therefore, 500 billion of MBS should equal 5 trillion flowing directly to consumers by the end of 2009.
Here's the big red flag in KD's article =
<picture of hand waving goes here>
"I could go through the derivation of how money supply works in a fractional reserve monetary system (any), but won't, because most readers would have their eyes glaze over."
=
Quantum Mechanics maybe, but banking/economics?
LOL
<picture of hand waving goes here>
"I could go through the derivation of how money supply works in a fractional reserve monetary system (any), but won't, because most readers would have their eyes glaze over."
=
Quantum Mechanics maybe, but banking/economics?
LOLQuote from W4rl0ck:
Here's the big red flag in KD's article =
<picture of hand waving goes here>
"I could go through the derivation of how money supply works in a fractional reserve monetary system (any), but won't, because most readers would have their eyes glaze over."
=
Quantum Mechanics maybe, but banking/economics?
yeah i didn't get that bs either. it was a dick thing to say that discredits him.
Sorry, Chairman Ben S. Bernanke, But Quantitative Easing Won't Work.
In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0.
Hence, the Keynesian paradigm I = S is not verified.
The purpose of Quantitative Easing being to lower the yield on long-term savings it doesn't create $1 of investment.
It does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on savings.
This and other issues are explored in my tract:
A Specific Application of Employment, Interest and Money
Plea for a New World Economic Order
Abstract:
This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.
It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.
It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Stagflation, Greenspan Conundrum, Deflation and Keynes' Liquidity Trap...
It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.
A Credit Free, Free Market Economy will correct all of those dysfunctions.
The alternative would be, on the long run, to wait for the physical destruction (through war or rust) of most of our productive assets. It will be at a cost none of us can afford to pay.
A Specific Application of Employment, Interest and Money
In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0.
Hence, the Keynesian paradigm I = S is not verified.
The purpose of Quantitative Easing being to lower the yield on long-term savings it doesn't create $1 of investment.
It does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on savings.
This and other issues are explored in my tract:
A Specific Application of Employment, Interest and Money
Plea for a New World Economic Order
Abstract:
This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.
It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.
It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Stagflation, Greenspan Conundrum, Deflation and Keynes' Liquidity Trap...
It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.
A Credit Free, Free Market Economy will correct all of those dysfunctions.
The alternative would be, on the long run, to wait for the physical destruction (through war or rust) of most of our productive assets. It will be at a cost none of us can afford to pay.
A Specific Application of Employment, Interest and Money