Friday, March 13, 2009

Another fallacy: Fed "printed too much money from 2001-2008"

We hear this all the time, but it is just not true!

Growth in the monetary base (Federal reserve notes, coins and bank reserves), or the monetary aggregate the Fed has the most direct control over, collapsed to near zero in the period from 2001-2008.

Private sector "money" (credit) was created in the private financial system (banks, intermediaries), while the Fed and the government was limiting the issuance of its own money.

See chart.


googleheim said...


i see the stimulus response to the dot com fallout in the form of an spike of expanding money supply, then teeters out in just 2 years and finally almost to zero as you show.

is the late 2008 data showing a big spike during the run TO the dollar ?

applied elastic currency theory.

makes me now wonder if Dr Lauffer was really hoping for destroyed financial institutions that would have been to his savoring delight as if to have picked them apart at the expense of the shovelled share holders and to the profit of his junkyard machine ...

instead he is buying dirt in Kentucky ...

That makes sense - but it would have made him no more than a house vulture waiting to pick up a bunch of foreclosed homes, albeit the foreclosed homes would have been analogous to the dumped bank assets which would have been for sale - but again to the complete expense and ruin of shareholders.

cuOnTheOtherSide said...

MZM is close to M3 is it not?
If so, it seems the FED is either unwilling or unable to control Money as indicated by MZM.

Tim said...

You have created a classic straw man. Classic. Why would the Fed print money when everyone's asset values are going up? Who's arguing that? Yo really ought to change careers, seriously.

Mike Norman said...

Who's arguing that? Yo, "Elmo," take the wax out of your ears, man!

But seriously, Tim, can you explaion to us how the Fed "prints" money? We're all eager to hear your explanation!

googleheim said...

I don't get Tim's remarks. Sesame street actually would be a good place for Tim to start his reading comprehension.

Norman is explaining that the Fed did not print money whatsoever.

The reason why I asked if the Fed printed money (see post just before this one in comments) was because some of all the doomsayers for the grandchildren debt-club-thing usually say the government is printing money.

Now I might be starting to see again why "printing money" is different than Norman's mantra that "deposits to institutions from the Treasury" is not a form of spending from a "fixed" tank of money because a dollar created is a dollar saved, a dollar invested could be more than a dollar spent, a dollar of debt creates bonds which are "lent", and all this is part of a double sided ledger where debt is a fraction of the total GDP.

The run TO the dollar last fall was a run FROM other currencies and other investments.

By listening the former Mike Norman show, I was able to short my IRA rollover into the Vanguard money market Tbill fund and make sure all bank accounts were correctly labeled separately and uniquely for FDIC.

There is always an olive branch available for the others.