Now if Thatcher had said as she should have, that the government has actually got all the money but has no labour which it has to hire in, that would have been correct.
But the neoliberal financialisation of our society might have been stopped in its tracks.
The deification of her misunderstanding has been Conservative philosophy ever since and I’m pretty certain that subsequent Labour oppositions and indeed governments, were persuaded to believe much the same thing.Progressive Pulse
The government has no money of its own?
43 comments:
For Matt Franko
I pestered the life out of that group on seeking Alpha and finally
Without any riddled or smoke and riddled this is their view
What are your thoughts Matt... What do you agree with and disagree with ?
" OK, then listen up:
What the banksters don’t want you to understand:
To begin with, the monetary base [sic] has never been a “base” (money multiplier), for the expansion of new money and credit. Flawed as the AMBLR figure is (Adjusted Member Bank Legal Reserves), it was superior to the Domestic Adjusted Monetary Base (DAMB) figure, which is generally cited. The DAMB figure included AMBLR (interbank demand deposits held at one of the 12 District Reserve banks, owned by the member banks, as well as “applied” vault cash, traditionally ->”prudential” or a part of a bank’s liquidity reserve balances before 1959), plus the volume of currency held by the private-sector’s non-bank public (Nobel Laureate Dr. Milton Friedman’s misnomer: “high powered money”).
Any expansion or contraction of DAMB is neither proof that the Market Group’s “trading desk” intends to follow an expansive, nor a contractive monetary policy (adding or draining interbank demand deposits, IBDDs).. Furthermore, any expansion of the non-bank public’s holdings of currency, the “cash-drain” factor, merely changes the composition (but not the total volume) of the money stock. There is a shift out of demand deposits, NOW or ATS accounts, into currency. But this shifting does reduce member bank legal reserves by an equal, or approximately equal, amount.
In other words, we have a “managed” currency system, not a “fiat” one. In a fiat system the volume of currency issued is dictated by the deficit-financing requirements of the issuing government (like the Civil War Greenback, like today’s quasi-MMT). Whereas in a managed-currency system (formally ours), the volume of currency in circulation is impersonally determined by the public, and the amount which meets the needs of trade.
The basic process by which currency is put into and taken out of circulation is through the banking system. The volume of currency held by the public needs no formal or specific regulation since it is impossible for the public to acquire more of a given type of currency (or even less given current operating policies), without giving up other types of currency, or else bank deposits. In other words, under our managed system it is impossible for the public to add to the total money supply consequent to increasing its holdings of currency.
An expansion of the public’s holdings of currency will cause a multiple contraction of bank credit and “total checkable deposits” (relative to the increase in currency outflows from the banks) ceteris paribus. To avoid such a contraction the desk typically offsets currency withdrawals with open market operations of the buying type (e.g., purchases of government securities for the portfolios of the Reserve Banks, an increase in the Central Bank’s System Open Market Account, SOMA). The reverse is true if there is a return flow of currency to the banks. Since the trend of the non-bank public’s holdings of currency is up (ever since 1930), return flows are purely seasonal and cannot therefore provide a permanent basis for bank credit and money expansion.
And all currency gets into circulation, directly or indirectly, through the liquidation of time deposits, by the cashing of demand deposits. There is one exception in demand deposit creation; those historical instances when the U.S. Treasury borrowed from the Federal Reserve Banks (its prior, and given sequestration, too-long since abandoned “overdraft privilege”). However, it cannot be said (as of time-savings deposits), that increases in the public’s holdings of currency reflect prior commercial bank credit creation. It is more appropriate to say that expansions of currency are accompanied by concurrent expansions of Reserve Bank Credit (Manna from Heaven).
Although the DIDMCA of March 1980 made all depository institutions maintain uniform reserve requirements (but placed no restrictions on non-bank, MSB, CU, and Savings and Loan Associations), correspondent clearing balances, or “pass thru” accounts), thereby expanding the “source base” from 65% of the member commercial banks to 100% of the money creating depository institutions; Paul Volcker’s unconventional reserves-based-operating-procedure” was not unsuccessful. It was untried; because the BOG attempted to target merely non-borrowed reserves, when at times, 10% of all required reserves were borrowed. I.e., $1b of legal reserves in 1980 (borrowed or otherwise), supported $16b of M1, ergo the M1 money multiplier was 16:1 (not as the FED erroneously reported: 2.5-2.6 in 1980). Monetarism has never been tried. Monetarism involves controlling total reserves, not non-borrowed reserves as Paul Volcker found out. Volcker targeted non-borrowed reserves (@$18.174b 4/1/1980) when total reserves were (@$44.88b).
I say Chairman Volcker “attempted” because legal reserves grew at a 17% annual rate-of-change, from April 1980, until the end of that year (contrary to Dr. Richard G. Anderson’s a posteriorir maligned required reserves’ reconstruction, viz., rewriting history). This, accompanied by the “time bomb” (the widespread introduction of ATS, NOW and MMDA bank accounts), presaged a 19.1% surge in N-gNp (American-owned, as opposed to a country’s geographic boundary), in the 1st qtr. 1981 (a twentieth century high “blowout”).
Dissenting was Lawrence K. Roos, past President, FRB-STL and former part time member of the FOMC as cited in the WSJ’s “Notable and Quotable” column 4/10/86: “I do not believe that the control of money growth ever became the primary priority of the Fed. I think that there was always and still is a preoccupation with stabilization of interest rates”.
The Fed's monetary transmission mechanism is non sequitur, it presumes that a “liquidity preference” curve exists which represents the supply of money. In this system, interest is the cost which must be paid, if lenders are to forgo the advantages of liquidity. All of this has little or nothing to do with the real world - a world in which interest is paid on checking accounts (the elimination of Reg. Q ceilings for commercial bankers, and the complete deregulation, “suppression” [sic] of interest rates).
Contrariwise, this so-called “experimental operating procedure” (monetarism), was never “abandoned”, it was never tried. Monetarism involves more than watching the aggregates, it involves properly controlling them. Monetarism is not identical to smoothing percolating reserve position pressures (see factors affecting reserve balances, H.4.1 release), or what Paul Meek’s (FRB-NY assistant V.P. of OMOs and Treasury issues), stated objective in his 3rd edition of “Open Market Operations” published in 1974: of “gauging the general availability of non-borrowed (interbank) reserves in the commercial banking system (which predates Paul Volcker’s rhetorical and “experimental” [sic] couched approach in Oct 1979.
One dollar of borrowed reserves provides the same legal-economic base for the expansion of the money supply as one dollar of non-borrowed reserves. The fact that advances had to be repaid in 15 days was immaterial. A new advance could be obtained, or the borrowing bank replaced by other borrowing banks. That's before the “discount” rate (perversely below the FFR during Volcker’s inflation) was made a “penalty” rate (perversely during Bernanke’s deflation), in January 2003 (see: Walter Bagehot in his book Lombard Street: "lend freely and at a penalty rate). And the Federal funds "bracket racket" was simply widened, not eliminated. Contrary to “Naked Capitalism’s” Yves Smith, monetarism has never been tried:
On October 6, 1979 Paul Volcker, Chairman, Board of Governors of the Federal Reserve System promised that the Fed was going to mend its ways. Hereafter the Fed would deemphasize the control of the federal funds rate and concentrate on holding the monetary aggregates in check. We were advised to “watch the money supply”. For approximately the first four months following this pronouncement the money supply increased at an annualized rate of 20 percent...up from the 8 percent increase in the prior five months...obviously there had been no significant change in monetary policy.
And Paul Volcker’s version of monetarism (along with credit controls: the Emergency Credit Controls program of March 14, 1980), was limited to Feb, Mar, and Apr of 1980. With the intro of the DIDMCA, total legal reserves increased at a 17% annual rate of change, and M1 exploded at a 20% annual rate (until 1980 year-end).
Between 1942 and September 2008, member commercial banks operated with no excess legal reserves of consequence.
However, legal reserves were only “binding” between c. 1942 until 1995. By mid-1995 (a deliberate and misguided policy change by Alan Greenspan), legal (fractional) reserves ceased to be binding – as increasing levels of vault cash/larger ATM networks, retail deposit sweep programs (c. 1994), fewer applicable deposit classifications (including allocating "low-reserve tranche" & "reservable liabilities exemption amounts" c. 1982) and lower reserve ratios (requirements dropping by 40 percent c. 1990-91), and reserve simplification procedures (c. 2012), combined to remove reserve, and reserve ratio, restrictions (i.e., Chairman Alan Greenspan spuriously reduced legal reserve requirements by 40 percent to speciously / artificially counteract the July 1990-Mar 1991 recession precipitating the real-estate boom, the precursor of the GFC). This year Powell has made the same mistake.
This unleashed unrecognized asset inflation, money illusion (not factored into the CPI), the real-estate bubble and the dot.com boom. This growth was largely a velocity phenomenon driven by financial re-engineering, innovation, and new money substitutes (accelerating Vt – something the FOMC doesn’t discuss).
Subsequent to this period (in conjunction with the Emergency Economic Stabilization Act of 2008), Regulation D was amended, and the Board gave the District Reserve Banks the authority to pay the member banks quarterly interest on their (1) required and (2) excess reserves. As a result of the FOMC’s initiatives, QE programs, unused excess reserves expanded dramatically (absent credit worthy borrowers and a paucity of existing safe-assets, e.g., new Treasury short-term T-bill issuance, viz., Treasury-Federal Reserve corroboration). This new policy instrument (remunerating IBDDs), was contractionary and induces dis-intermediation within the non-banks (where the non-banks shrink in size, and savings are idled, and the commercial banking system’s size remains unaffected, and new money is used as a monetary offset to an errant policy induced deceleration in AD).
In our Federal Reserve System, 92 percent of “MO” (domestic adjusted monetary base) was represented by the currency component prior to Oct. 6, 2008. There is no “expansion coefficient” assigned to the currency component. And the currency component of MO is so prominent, and the proportion of legal reserves so negligible (and declining); that to measure the rate-of-change in currency held by the non-bank public, to the rate-of-change in M1 (where 54% was currency), is, yes, to measure currency vs. currency (cum hoc ergo propter hoc); in probability theory and statistics, not a cause and effect relationship.
Complicating the measurement of the monetary base is the fluctuation in the percentage of foreign currency circulation, to domestic currency circulation. The FED’s research staff estimates that foreigners hold one half to two thirds of all U.S. currency (this spread can result in a wide margin of error). Inflows and outflows of foreign-held U.S. currency (e.g., seldom are untaxed earnings ever repatriated) are attributed to political, and price, instability (as well as to seasonal flows), and all are immeasurable in the short run. I.e., the domestic monetary source base equals the monetary source base minus the estimated amount of foreign-held U.S. currency.
The “shipments proxy” estimate of foreign-held U.S. currency uses data on the receipts and shipments of currency, by denomination, at the Federal Reserve’s 37 cash offices nationwide (note: > 80 percent of foreign-held U.S. currency are $100.00 bills). Because of its influence on the DAMB, quarterly estimates of foreign-held U.S. currency are reported in the Feds “Flow of Funds Accounts of the United States” & in the BEAs estimates of the net international investment position of the United States.
The volatility of the (1) K-ratio, the public’s desired ratio of currency to transactions deposits (or currency-deposit-ratio), and the volatility in (2) the ratio of foreign-held, to domestic U.S. currency, both influence the trend rate for the cash drain factor (the movement of the domestic currency component of the DAMB). And the evidence points to sizable (& unpredictable), shifts in the money multiplier (MULT – St. Louis), for the constantly changing shifts in the composition of the “M’s”.
The Federal Reserve Bank of Chicago uses legal reserves (“t”-accounts), exclusively, to explain the creation of new money and credit in the booklet “Modern Money Mechanics”. The booklet is a workbook on bank reserves and deposit expansion (changes in a bank’s deposits-loans resulting from open market operations). The stated purpose of the booklet is to “describe the basic process of money creation in a "fractional reserve" banking system” - the monetary base plays no role at all in this analysis.
It is therefore both incorrect in theory, and thus inaccurate in practice, to refer the DAMB figure as a monetary base [sic]. The only base for an expansion of total bank credit and the money supply is the volume of legal reserves supplied to the member banks by the Fed, in excess of the volume necessary to (1) offset currency outflows from the banking system & (2) offset fluctuations in the level of member bank’s reserve balances (diverted & detained via the remuneration rate), in the 12 District Reserve Banks. The adjusted member bank legal reserve figure is that base.
End...
The FED pegs rates (uses a price mechanism to ration credit), so that any demand for reserves is automatically accommodated. This has been the case since 1965.
Legal reserves are not "Manna from Heaven". Excess reserves are. Legal reserves were a credit control device. And since Alan Greenspan dropped reservable liabilities and reserve ratios to jump start the economy in 1990-91, dropping requirements by 40 percent.
The FED has allowed the banking system to determine its own size.
Foot,
Seems like Monetarists tbh.... talking a lot about the M1, M2,etc....
I don’t believe in any of that.... it seems to me that they (Monetarists) are reifying abstractions of Accounting Science....
Monetarism/QTM to me is a Theory advocated by improperly educated people making reification errors... it’s a cognitive error... an error in cognition... they are not adequately trained in applying abstractions...
I look at regulatory constructs/abstractions and try to extrapolate from changes in the govt policies (Fiscal and Monetary) that effect the regulatory readings...positive or negative to economic activity...
Thanks Matt.
Very kind of you to come back so quickly. As there is a lot of stuff to digest.
That's what is driving me up the wall Matt.
These guys aren't they hate the monetarists with a passion. Can't stand them. They are saying the exact thing as us about the M numbers they are useless.
The 12 district reserve banks is where the truths can be found.
“ The FED has allowed the banking system to determine its own size.”
I don’t agree with that ... the Fed determines the amount of risk free assets on bank balance sheets either by directly adding Reserve Assets to banks or indirectly by requiring a % of risk free assets to total assets ...
It somewhat appears that what the system operations result in is that EITHER the central bank has to provide credit OR the member banks can provide credit but not both..
So lately e.g. there was a credit problem in foreign exchange where there was a “USD shortage”...
Fed added about $500bin Reserves at Depositories from Sept 15 thru February or March and US banks had to stop providing forex credit as they didn’t have the capital to do BOTH cover the new Reserves the Fed was adding AND provide forex credit...
So Fed opened up anemergency USD credit line and provided about 500b that was needed... this also added to reserves and was crashing asset prices into the March 23rd low until Treasury came in an increased issuance of USTs by $500b to reduce reserves at the banks and th7ngs stabilized...
Now treasury has ran TGA up by another 500b ... TGA is at like 1.7T ... drained 500b more reserves at depositories and Fed is backing out of the forex swaps I assume banks are taking that business back... as they have the capital now to cover the forex financing now again thanks to treasury TGA policy...
Treasury is planning to run TGA back down to 800b soon and those reserves will probably go back on depositories balance sheets so thrn they’re going to create another forex problem... banks are going to have to get back out of those international financings as they won’t have the capital again...
Nobody there knows what they are doing...,
Look this is what Dudley just wrote in Bloomberg 2 weeks ago:
“ The Fed can adjust the interest rate it pays on bank reserves, controlling the cost of credit and influencing whether the reserves are lent out. If there were ever a surge in bank loan demand, the Fed could restrain it by raising the interest rate it paid on banks’ excess reserves.”
Guys an idiot..., thinks the accounting abstractions are REAL....
The only people beliving MMT are brainwashed 20 something commies with no munnie or influence.,,,
Thanks Matt,
I listened to Mike's Dudley podcast.
Best one I've heard on this issue.
They say the exact same thing about Dudley he is a clown.
They say you and Mike are correct with the leverage ratio theory on lending even though very few agree with you.
On Top of that..
a) Adjusted Member Bank Legal Reserves was better than Domestic Adjusted Monetary Base. That the monetary base everyone uses is flawed. If they don't get the monetary base right from the get go then the mistakes flow from that. Therefore, it can't be used to monitor the flows regarding for the expansion of new money and credit.
b) The only base for an expansion of total bank credit and the money supply is the volume of "legal "reserves supplied to the member banks by the Fed, in excess of the volume necessary to (1) offset currency outflows from the banking system & (2) offset fluctuations in the level of member bank’s reserve balances (diverted & detained via the remuneration rate), in the 12 District Reserve Banks. The adjusted member bank legal reserve figure is that base.
c) They are agree in part with the "juicing the market guys "Mike has been attacking for a week now. However, with one very important distinction.
Fiscal is important. They measure the fiscal to make sure there is enough in case the FED stops juicing for 3 months.
d) Foreign and domestic capital flows are the Daddy of the flows and take 8 quarters to show up. Government expenditure takes 5 quarters to effect the price and Core inflation takes 5 quarters to show up as a by product of GDP. Other short term flows take 30 days.
Sunak is frustrating. So easy to move from Furlough to Full Employment
"banks are going to have to get back out of those international financings as they won’t have the capital again..."
Why won't they have the capital again now that the regulatory ratios have been altered? Bank reserve adds to a bank balance sheet don't affect any regulatory ratios any more.
Now they've stopped treating Bank Reserves as "loans to the central bank", ISTM that a smart bank can match reserves against insured deposits and treat that entire chunk as though it wasn't there on the balance sheet.
Which is of course how the rest of the world has been doing banking for ages.
“ Why won't they have the capital again now that the regulatory ratios have been altered? Bank reserve adds to a bank balance sheet don't affect any regulatory ratios any more. ”
That is true maybe it won’t...
But that regulatory mod is only TEMPORARY... it expires March 2021...,
Nothing I’ve seen out of banks saying they’ve accepted the new regulatory rubric.... the May 15 mod was worded as if the banks have a choice...
If they accepted the mod thrn dividend frozen and no more share buybacks...
Current system stability may be result of TGA policy which has reduced reserves at depositories by about 500b since May 15...
Then what happens April 1????
Possible scenario: Trump loses... Dems seated in January 2021... banks come in in Feb/Mar to make reg mod permanent by April 1... Liz Warren sez "no way Jose!" and then April 1 comes and the whole market crashes....
They may have to operate as if the mod will not become permanent just to be safe... they have to plan for either political scenario...
I’m thinking about writing to shareholder relations at JPM to ask what their official position is on the May 15 reg mod... I’ve seen nothing in the press...
“ Which is of course how the rest of the world has been doing banking for ages.”
I don’t think that is true they all have to comply with total leverage ratio... you’re thinking of Reserve Requirement Ratio... R/D >= CsubReserves. Where R is Reserve Assets and D is Deposits C is regulatory constant...
I’m talking about (A-L)/A has to be maintain >= CsubLeverage. Where A is Total Assets and L is total Liabilities... C is regulatory constant...
There are more than 1 regulatory ratios... banks have to comply with all of them at all times...
Neil when MMT sez “outside US there is no reserve requirement !” they are talking about the RRR... Reserve Assets/Deposits... Reserve Requirement Ratio... Reserves divided by DEPOSITS... yes most have that set to zero...
BUT EZ has Leverage regulation too look at how the ECB Reserve additions have been bankrupting Deutschbank in the EZ surplus nation for years now...
ECB keeps adding bazillions of Reserves “to lend out!” (the morons think abstractions are REAL as usual) and is collapsing the (A-L)/A making the big bank in the surplus nation Germany constantly insolvent and capital deficicient...
Everybody has Leverage Ratio...
Neil look at Australia... they avoided GFC1 in 2008 because they were in trade surplus and were doing pretty well cranking it out and AUS CB never added reserves “to lend out!” due to a slowdown...
So AUS got thru that pretty unscathed...
Now tho recently they are starting some asset purchases to create “reserves to lend out!” and it’s going to shit this time...
Here:
https://www.reuters.com/article/us-health-coronavirus-rba/whatever-is-necessary-australia-dives-into-qe-to-save-economy-idUSKBN2160GK
They might be fucked this time....
Matt
"At its meeting on 20 September 2017, and following consultation, the FPC recommended to the PRA that its rules on the leverage ratio:
(i) exclude from the calculation of the total exposure measure those assets constituting claims on central banks, where they are matched by deposits accepted by the firm that are denominated in the same currency and of identical or longer maturity; and"
https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/policy-statement/2017/ps2117.pdf?la=en&hash=80814EA4BC51C46ACE51C7CEBF1859CC9AA2452C
"Central bank claims for these purposes include reserves held by a firm at the central bank, banknotes and coins constituting legal currency in the jurisdiction of the central bank, and assets representing debt claims on the central bank with a maturity of no longer than three months."
The UK PRA specifically excludes reserves, etc.
EU banks are at a competitive disadvantage - and Basel has responded.
"The finalised Basel III reform package explicitly permits national authorities to exempt central bank reserves from the leverage ratio. More countries could therefore follow the BoE in granting capital relief to banks. "
Inevitably in a world ramming permanently into the 'zero lower bound', anything that raises bank costs has to be eliminated. At least until Inflation targeting finally dies as a concept and is replaced with fiscal auto stabilisers.
Yes BOE led on this .. I reported it here at the time...
. US Fed just put in a similar TEMPORARY mod on May 15th... at 5:45 pm on a Friday during apex of viral pandemic... mfers....
It looks like it helped stabilize things since .. I agree it’s a good sign... no complaints...
BUT.... at same time.... Treasury has increased rate of issuance and increased TGA balance to 1.7T and thus reduced Reserves at depositories by 500b or so... so it MIGHT be that doing it... I leave open this possibility...
Since it is temporary banks MIGHT be operating as if it won’t become permanent... they MIGHT.... there are political uncertainties in election year...
I’ll feel more confident if Treasury proceeds to now reduce TGA by 800b and thus increase the reserves at depositories by same amount and we don’t crash... if we don’t crash again if Reserves at depositories skyrocket I’ll feel a lot better..,
I just don’t trust any of these people I think they are all incompetent and unqualified and shouldn’t be in the positions they currently occupy... been burned too many times by them...
Neil this is how stupid these people are:
They have THEIR OWN Reserve Requirement Ratio of 10%... ok? ... THEIR OWN NUMBER! THEY THEMSELVES SAY WHAT IT IS...
Ok... ok...
Then... you watch THEIR OWN H.8 report every week the Deposits are going up to 13T in September....
Ok...
So THEIR OWN requirement is 10% of Deposits... 10% ok?
So 8th grade Algebra you multiply the 13T by 0.1 to get x right?
Then just make sure Reserves at your Depositories never falls below x AT LEAST right?
So x = 1.3T so what do these incompetent assholes do?
They run the f-ing Reserves at Depositories down below 1.3 down to 1.2 something and the whole f-ing thing blows up!!
THAT IS ALL YOU HAVE TO KNOW ABOUT THEM....
You don’t need to know A-N-Y-T-H-I-N-G else....
That is all you need to know...
You have all the information you need...
“Hey! were gonna fly from NY to LA over the Rocky Mountains those thing are really high they are like 13.000 feet!... ok what altitude do you want to cruise at? ... hey let’s fly at 10,000 feet!”
LOSERS!
My irony meter will explode when the ECB starts QE'ing Bank capital bonds.
Don't bet against it happening.
Is NeilW the one only Neil Wilson?
"They run the f-ing Reserves at Depositories down below 1.3 down to 1.2 something and the whole f-ing thing blows up!!"
But then the Fed QE's the Treasuries away from whoever is holding them (pension funds?) at a higher price than issued, which restores the reserve position at the depositories.
And leaving a nice tidy capital gain in somebody's back pocket.
Surely the "Issue Treasuries to the primary market and drain reserves. Whoops we've drained too much better buy them back at a higher price in the secondary" game has been running for years now?
Anything We Can Do, We Can Afford
http://jwmason.org/slackwire/keynes-quote-of-day-2/
No Neil the bonds took a dive... yields went UP...
The Treasurys GSEs had some reserves in their account and the banks under the 10% went to them to borrow some reserves and THE F-ING TREASURYS OWN GSEs offered them AT 4% !!!!
When the govt target rate was like 1.5% !!!!
There is NO EXCUSE for these morons...
LOL
Here I’m not making it up:
https://mikenormaneconomics.blogspot.com/2019/09/gses-loan-sharking.html
Chimpanzees pulling levers, hoping to get it right.
I know you're not Matt. The insanity of a failing paradigm provides endless amusement. Epicycles heaped on Epicycles.
Probing the gang of 5 on seeking alpha more.
This is how they calculate the flows. Why they harp on about "savings"
so much and treat savings as if they are the devil. How they predicted the financial crash.
a) Total deposits tell you nothing and M1 tell you nothing.
b) Total deposits consist of bank loans and savings.
c) So you have to calculate the amount of savings within deposits and subtract them from M1 to get the correct value for the money supply.
As shown below with equations.
http://www.philipji.com/riddle-of-money/
Thus you get the corrected M1.
:)
Here's a question the MMT gang can't or won't answer:
If fiat is inexpensive and easy to create then why can't all citizens use it in account form and not be forced to use the deposits of private banks instead?
Obsolete Gold Standard mentality much? Elitist corruption much?
This is how the gang of 5 use that model above.
What they call the corrected M1.
Using an example from 2018.
No one has established any unique price effect of federal outlays, as compared to state and local government outlays, or expenditures by the private sector. Of course, the shifting of funds to, and out of, one of the 12 District Reserve banks has, depending upon the distribution of IBDDs, at its upper limit, a dollar for dollar impact on complicit reserves, but that is another problem that can be, and is dealt with, via the FRB–NY’s “open market operations”.
An injection of IBDDs, a member banks’ clearing balances, introduces market liquidity. Draining IBDDs, as in quantitative tightening, QT, withdrawals market liquidity. This is observable in both asset prices and bid/asked spreads for these assets.
What’s entirely overlooked in performing the seasonal outlook’s tests, is the fallacious use of measuring seasonality by one of the Gregorian calendar’s 12 whole months, as opposed to delimiting one of the 52 weeks during the yearly cycle.
These are the c. seasonal inflection points (they may vary a little from year to year):
#1) 3rd week in Jan.
#2) mid Mar.
#3) May 5,
#4) mid Jun.
#5) July 21,
#6) 2-3 week in Oct.
These are all driven by the Fed's "trading desk". And any week coincides with “bank squaring day”, bank’s adherence to reserve maintenance obligations.
As I previously explained: the upcoming weekly NSA category: “Total Checkable Deposits (WTCDNS)” on the FRB-STL’s “FRED” database, will determine the 5th seasonal inflection point.
The 2 #’s are respectively:5/28/18 $2,2037 & 6/4/2018 $2,1601. While it may appear from these figures, that money flows RoC has fallen, one cannot ignore the prospect that velocity is more than offsetting, as the cash-drain factor is bullish.The "Δ" in large CDs on BOG's: "Assets and Liabilities of Commercial Banks in the United States" - H.8 release points towards higher money velocity (esp. prevalent this time of the year):
https://fred.stlouisfed.org/data/LTDACBW027NBOG.txt
The "Δ" in the ratio of “total checkable deposits”:
https://fred.stlouisfed.org/data/WTCDNS.txt
to “total savings deposits:
https://fred.stlouisfed.org/data/WSAVNS.txt
is largely unchanged.
Just so you get a more complete understanding how their minds work.
Finally we are cutting through the BS..
Drill down to how they calculate the flows.
How their minds work.
A lot of it is still BS mind you.
Rather than "their printing money "
Or
" their juicing the markets"
Printing, juicing, juicing printing.
They spend a bell of a lot of time and energy on bank lending.
Ignore fiscal mainly and come up with a flow.
Watch that flow closely.
Foot, the regulations have changed significantly over time...
So they are not examining the present system if they are doing historical studies....
You have to look at the current regulatory functions they are the only one that matter if you are trying to make predictions...
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