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    • Fri Jul 25th 13:44 PM | Rating: 0 0
      Commented on:
      What Are the Prospects for Stagflation?
      If you were correct the FED wouldn't use the FFR as a guide to monetary policy. Quick to point out errors, quick to leave them begging.
      View article »
    • Thu Jul 24th 13:44 PM | Rating: 0 0
      Commented on:
      What Are the Prospects for Stagflation?
      How does the FED follow a "tight" money policy and still advance economic growth.? What should be done?

      The commercial banks should get out of the savings business (REG Q in reverse-but leave the non-banks unrestricted).

      What would this do? The commercial banks would be more profitable - if that is desirable.

      Why? Because the source of all time deposits within the commercial banking system, is demand/transaction deposits - directly or indirectly through currency or their undivided profits accounts.

      Money flowing "to" the intermediaries (non-banks) actually never leaves the com. banking system as anybody who has applied double-entry bookkeeping on a national scale should know.

      The growth of the intermediaries/non-ban... cannot be at the expense of the com. banks. And why should the banks pay for something they already have? I.e., interest on time deposits.


      SEE: Dr. Leland James Pritchard (MS, statistics - Syracuse, Ph.D, Economics - Chicago, 1933) described stagflation 1958 Money & Banking -- Houghton Mifflin,

      “The Economics of the Commercial Bank Savings-Investment Process in the United States” -- “Estratto dalla Rivista Internazionale di Scienze Econbomiche & Commerciali “ Anno XVI – 1969 – n. 7

      “Profit or Loss from Time Deposit Banking” -- Banking and Monetary Studies, Comptroller of the Currency, United States Treasury Department, Irwin, 1963, pp. 369-386.
      View article »
    • Thu Jul 24th 13:33 PM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      Real-GDP Inflation

      11/1/1999 1.73 0.50
      12/1/1999 3.24 1.09 Sell Stocks
      1/1/2000 1.54 0.62
      2/1/2000 -0.32 -0.08
      3/1/2000 -0.43 -0.22
      4/1/2000 -0.13 -0.08
      5/1/2000 0.21 -0.01
      6/1/2000 -0.36 0.06
      7/1/2000 -0.53 0.07
      8/1/2000 -1.81 -0.01
      9/1/2000 -3.23 0.06
      10/1/2000 -1.56 -0.05
      11/1/2000 0.22 -0.07
      12/1/2000 0.55 -0.11
      1/1/2001 0.56 0.16
      2/1/2001 -0.37 -0.1
      3/1/2001 -0.34 -0.11
      4/1/2001 -0.33 -0.21
      5/1/2001 0.13 -0.04
      6/1/2001 -0.03 -0.01
      7/1/2001 0.18 0.08
      8/1/2001 -0.13 -0.16
      9/1/2001 0.11 -0.08
      10/1/2001 -0.02 -0.57
      11/1/2001 0.61 -1.19
      12/1/2001 0.95 -0.36
      1/1/2002 1.13 0.4 Sell the Dollar
      2/1/2002 0.4 0.31
      3/1/2002 0.35 0.19
      4/1/2002 0.28 0.11
      5/1/2002 0.37 0.14
      6/1/2002 -0.15 0.07
      7/1/2002 -0.08 0.15
      8/1/2002 -0.09 0.11
      9/1/2002 -0.16 0.23
      10/1/2002 -0.3 0.18 Buy Stocks
      11/1/2002 0.26 0.19
      12/1/2002 0.74 0.27
      1/1/2003 0.71 0.56
      2/1/2003 0.36 0.43
      3/1/2003 0.41 0.38
      4/1/2003 0.48 0.3
      5/1/2003 0.6 0.38
      6/1/2003 0.34 0.3
      7/1/2003 0.53 0.45
      8/1/2003 0.47 0.34
      9/1/2003 0.17 0.35
      10/1/2003 0.03 0.32
      11/1/2003 0.52 0.26
      12/1/2003 0.72 0.21
      1/1/2004 0.67 0.41
      2/1/2004 0.23 0.33
      3/1/2004 0.25 0.28
      4/1/2004 0.14 0.36
      5/1/2004 0.07 0.43
      6/1/2004 0.09 0.42
      7/1/2004 0.12 0.41
      8/1/2004 -0.05 0.3
      9/1/2004 0.13 0.39
      10/1/2004 -0.14 0.24
      11/1/2004 0.32 0.15
      12/1/2004 0.39 0.15
      1/1/2005 0.25 0.31
      2/1/2005 0.16 0.33
      3/1/2005 -0.05 0.19
      4/1/2005 0 0.16
      5/1/2005 -0.09 0.12
      6/1/2005 -0.2 0.09
      7/1/2005 -0.02 0.04
      8/1/2005 -0.07 0.05
      9/1/2005 0.04 0.16
      10/1/2005 -0.18 0.02
      11/1/2005 0.05 0.05
      12/1/2005 0.31 0.04
      1/1/2006 0.59 0.31
      2/1/2006 0.22 0.11 Bernanke takes office
      3/1/2006 -0.14 -0.03 Sell Stocks
      4/1/2006 -0.19 -0.07
      5/1/2006 -0.22 -0.07
      6/1/2006 -0.3 -0.02
      7/1/2006 -0.13 -0.02
      8/1/2006 -0.43 -0.18
      9/1/2006 -0.4 -0.06
      10/1/2006 -0.85 -0.18
      11/1/2006 -0.29 -0.17
      12/1/2006 0.12 -0.08
      1/1/2007 0.34 0
      2/1/2007 -0.14 -0.11
      3/1/2007 -0.36 -0.17
      4/1/2007 -0.27 -0.09
      5/1/2007 -0.12 -0.15
      6/1/2007 -0.04 -0.07
      7/1/2007 0.16 -0.08
      8/1/2007 0.15 -0.13
      9/1/2007 -0.19 -0.09
      10/1/2007 -0.48 -0.22
      11/1/2007 0.14 -0.18
      12/1/2007 0.44 -0.23
      1/1/2008 0.64 0.08
      2/1/2008 0.22 0
      3/1/2008 -0.46 -0.18
      4/1/2008 -0.09 -0.03
      5/1/2008 -0.14 -0.06
      6/1/2008 0.00 -0.03
      7/1/2008 0.13 0.01
      8/1/2008 -0.10 -0.08
      9/1/2008 -0.1 0.08
      10/1/2008 -0.34 0.06
      11/1/2008 0.13 0
      12/1/2008 0.32 0.02
      1/1/2009 0.73 0.33
      View article »
    • Thu Jul 24th 11:50 AM | Rating: 0 0
      Commented on:
      What Are the Prospects for Stagflation?
      Mason, I look forward to your comments. Your remarks have substance.

      Professional economists have no excuse for misinterpreting the savings-investment process. They are paid to understand and interpret what is happening in the whole economy at any one time.

      For the commercial banking system, this requires constructing a balance sheet for the System, an income and expense statement for the System, and a simultaneous analysis of the flow of funds in the entire economy.

      From a System standpoint, time deposits that represent savings have a velocity of zero. As long as savings are held in the commercial banking System, they are lost to investment. The savings held in the commercial banks, whether in the form of time or demand deposits, can only be spent by their owners; they are not, and cannot, be spent by the banks.

      Savings held in the commercial banks are lost to investment, and deprive the financial intermediaries of loan funds.

      From the standpoint of the economy, the elimination of time deposit banking by the commercial banks will facilitate the orderly and continuous flow of monetary savings into real investment (lowering commercial bank (but not the thrifts) Reg Q ceilings in 1966 brought the U.S. out of a recession and housing crisis. (but the rate was not lowered far enough).

      This "structural" change that you refer to is what I would label disintermediation (as applied only to the non-banks). It is an economist word for going broke. The last period of disintermediation for the commercial banks occured during the Great Depression

      See Banking & Monetary Studies, 1963, Irwin. Dean Carson, ed. Sponsored by the Comptroller of the Currency, pp. 369-386.

      Also, Crutchfield, Henning, & Pigott, Money, Institutions, and the Economy, a Book of Readings 1965, Prentice Hall pp. 125-139 Library of Congress, Catalogue No 65-13574.
      View article »
    • Wed Jul 23rd 16:32 PM | Rating: 0 0
      Commented on:
      What Are the Prospects for Stagflation?
      While interest rates are not determined by the supply of and the demand for money, changes in thee volume of money and monetary flows (MVt), can alter rates of inflation and, therefore, the supply of and the demand for loan-funds.

      The significant effects of these monetary developments are long-term and involve an alteration in inflation expectations. Inflation expectations operate principally through the supply side for loan-funds. Specifically, an expectation of higher rates of inflation will cause the supply schedules of loan funds to decrease. That is to say, lenders will be willing to lend the same amount only at higher rates.
      View article »
    • Wed Jul 23rd 16:26 PM | Rating: 0 0
      Commented on:
      What Are the Prospects for Stagflation?
      With a chronically depreciating dollar foreigners will be much less inclined to invest in the U.S. on a creditor ship basis, thus pushing up interest rates. The rising cost and diminishing volume of imports will contribute to an increase in inflation, and the expectation of further inflation will also push up interest rates. This spells permanent stagflation.

      There are extremely large and permanent leakages in the IS-LM model. And stagflation was described and foreseen before it's coinage - in 1958. S never equals I

      Unfortunately, under the influence of the Keynesian dogma, academicians have been trying for too long to analyze interest rates in terms of the supply of and demand for money. A “liquidity preference” curve is presumed to exist 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.
      View article »
    • Wed Jul 23rd 15:13 PM | Rating: 0 0
      Commented on:
      Bernanke: The New "Death Star"
      How stupid. Volcker used a non-borrowed reserves procedure and ignored borrowed reserves.

      Bernanke uses only borrowed reserves.

      But under Volcker at times 10% of all reserves were borrowed. I.e., Volcker let the commercial banks decide if there was to be an increase in money & credit.

      Under Bernanke borrowed reserves = total reserves. Bernanke has made the decision as to whether there was to be an increase in commercial bank credit.

      Volcker was responsible for 22.4% FFR. Volcker was responsible for eliminating usury rates. Volcker was responsible for + 10% rate of inflation in the first quarter of 1981. Volcker was stupid.
      View article »
    • Mon Jul 21st 18:35 PM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      First, there is no ambiguity in forecasts. In contradistinction to Bernanke (and using his terminology), forecasts are mathematically "precise” (1) nominal GDP is measured by monetary flows (MVt); (2) Income velocity is a contrived figure (fabricated); it’s the transactions velocity (bank debits, demand deposit turnover) that matters; (3) “money” is the measure of liquidity; & (4) the rates-of-change (roc’s) used by the Fed are specious (always at an annualized rate; which never coincides with an economic lag). The Fed’s technical staff, et al., has learned their catechisms;

      Friedman became famous using only half the equation, leaving his believers with the labor of Sisyphus.

      The lags for monetary flows (MVt), i.e. proxies for real GDP and the deflator are exact, unvarying, respectively. Roc’s in (MVt) are always measured with the same length of time as the economic lag (as its influence approaches its maximum impact; as demonstrated by a scatter plot diagram).

      Not surprisingly, adjusted member commercial bank "free gratis" legal reserves (their roc’s) corroborate/mirror both lags for monetary flows (MVt) –-- their lengths are identical. They are as Plancks constant in physics.

      The lags for both monetary flows (MVt) & "free gratis" legal reserves are indistinguishable. Consequently it has been mathematically impossible to miss an economic forecast. There are no inaccuracies, just some non-conforming & unavailable data This is the “Holy Grail” & it is inviolate & sacrosanct.

      The BEA uses quarterly accounting periods for real GDP and deflator. The accounting periods for GDP should correspond to the economic lag, not quarterly.

      Monetary policy objectives should not be in terms of any particular rate or range of growth of any monetary aggregate. Rather, policy should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real GDP. Note: roc’s in nominal GDP can serve as a proxy figure for roc’s in all transactions. Roc’s in real GDP have to be used, of course, as a policy standard. They should represent a rolling moving average.

      Because of monopoly elements and other structural defects which raise costs and prices unnecessarily and inhibit downward price flexibility in our markets (housing being most notable), it is probably advisable to follow a monetary policy which will permit the roc in monetary flows to exceed the roc in real GDP by c. 2 percentage points. In other words, some inflation is inevitable given our present market structure and the commitment of the federal government to hold unemployment rates at tolerable levels.

      View article »
    • Mon Jul 21st 18:34 PM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      yuman:

      M2's lag? Well if it were fixed and predictable then the FED would still be providing its money growth target once required by the Humphrey Hawkins bill.

      The Full Employment and Balanced Growth Act of 1978, known as the Humphrey-Hawkins Act, required the Fed to set one-year target ranges for money supply growth twice a year and to report the targets to Congress.

      Chairman Alan Greenspan remarked in Congressional testimony that "if the historical relationships between M2 and nominal income had remained intact, the behavior of M2 in recent years would have been consistent with an economy in severe contraction." Chairman Greenspan added, "The historical relationships between money and income, and between money and the price level have largely broken down, depriving the aggregates of much of their usefulness as guides to policy. At least for the time being, M2 has been downgraded as a reliable indicator of financial conditions in the economy, and no single variable has yet been identified to take its place."

      In 2000, when the Humphrey-Hawkins legislation requiring the Fed to set target ranges for money supply growth expired, the Fed announced that it was no longer setting such targets, because money supply growth does not provide a useful benchmark for the conduct of monetary policy

      www.newyorkfed.org/abo...

      As I stated: The money supply is unknown, unknowable, & uncontrollable.

      LAG????? well your applying it to the wrong variable. an increase in legal reserves affects all of the money stock classfications, just as bank credit proxy does.

      cepa.newschool.edu/het...

      The analysis of lags was begun by Clark Warburton in the 1940s (see Warburton, 1966) and followed up by Friedman (1948, 1958, 1961) and Friedman and Schwartz (1963). He found the lags to be not only quite long, sometimes up to eighteen months, but also highly variable.

      View article »
    • Mon Jul 21st 18:12 PM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      Using bank credit as a proxy: it’s rate-of-change, continues its inflationary path. Since 1942, money creation is a system process. No bank, or minority group of banks (from an asset standpoint), can expand credit (create money), significantly faster than the majority banks expand. Thus bank credit proxy (in this case loans-deposits) is an accurate measure of the degree of “ease” or “restraint” being pursued by the FOMC.

      Just as Milton Friedman said “inflation is always and everywhere a monetary phenomenon”.

      It seems interest rates have pinched speculation in the housing market. Now monetary flows MVt have been siphoned out of housing, and hot money has been re-directed or channeled back into another segment of the economy - commodities speculation.

      I think that the rates-of-change in (MVt) are still colossal. Bank credit proxy (the flip side, i.e., loans-deposits), has been running at a + 10% annual clip since c. mid 2005. Though recently, in May 2008, has finally fallen to 8.5%.

      “Bank credit proxy” (total member bank deposits) used to be an FOMC target: “The Federal open market committee’s strategy remained essentially unchanged for more than three years, from Sept 66, when the committee first began including a “bank credit proviso” clause in its directive until Dec 1969.”

      Some people prefer the devil theory of inflation: “It’s (Peak Oil’s) fault." This approach ignores the fact that the evidence of inflation is represented by actual prices in the marketplace. The “administered” prices of the oil producing countries would not be the “actual” market prices were they not “validated” by (MVt).

      Thus, bank credit proxy is the most accurate measure of the money stock.

      View article »
    • Mon Jul 21st 18:09 PM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      What goes for M2 also goes for M3. M2 erroneously includes MMFs in its definition (a sizable #). MMFs are the customer's of the commercial banks. They are financial intermediaries/transmi... Monetary savings are never transferred from the commercial banks to the intermediaries; rather are monetary savings always transferred through the intermediaries. Whether the public saves or dis-saves, chooses to hold their savings in the commercial banks or to transfer them to intermediary institutions will not, per se, alter the total assets or liabilities of the commercial banks; nor alter the forms of these assets or liabilities.

      Financial intermediaries (MMFs) lend existing money which has been saved, and all of these savings originate OUTSIDE of the intermediaries (depend on an inflow of savings to finance loans). The utilization of these loan-funds, or the activation of monetary savings held by these financial intermediaries, is captured thru the velocity of their deposits (bank debits/withdrawals), and not thru the volume of their bank deposits. I.e., from the standpoint of the economy, MMF deposits never leave the MCB System. And the growth of the MMFs is prima facie evidence that existing funds/savings have already been saved/invested/spent, i.e., transferred/transmitte... by their owners/savers/creditor... to borrowers/debtors.

      I.e., this currently, (but not forever), represents a double counting, and will continue to be so, as long as these intermediary financial institutions don’t run a transaction’s deposit business.

      View article »
    • Mon Jul 21st 11:36 AM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      Mason didn't tell you but he uses the St. Louis Federal Reserve's figure for legal reserves:
      research.stlouisfed.or...

      See: Alternative Measures of the Monetary Base: What Are the
      Differences and Are They Important?
      research.stlouisfed.or...

      See: A reconstruction of the Monetary Base & Reserves
      research.stlouisfed.or...

      See: Monetary Base - by the guru Richard Anderson
      research.stlouisfed.or...
      research.stlouisfed.or...
      View article »
    • Mon Jul 21st 11:20 AM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      "year-over-year rate of growth of total reserves in the banking system (not seasonally adjusted)"

      One should always ignore the seasonally mal-adjusted data. If the FED wants to save some money, instead of eliminating data series, they should eliminate their seasonal computations

      and everyone should take note that the "monetary base" is not a base for the expansion of money and credit. Mason has it right.
      View article »
    • Mon Jul 21st 11:05 AM | Rating: 0 0
      Commented on:
      China Poised to Pounce on U.S. Coal Suppliers
      the democrats in Colo are keeping us from mining the coal and drilling
      View article »
    • Mon Jul 21st 10:44 AM | Rating: 0 0
      Commented on:
      Federal Reserve Operations: A Six-Month Review
      "supply and demand for money" This mis-statement is an old Keynesian throwback & its meaning is just the opposite of how the author used it

      member bank "free-gratis"... legal reserves are no longer "binding/restrict... But they still demonstrate (as you pointed out) an "easier" or "tigher" monetary policy

      So the rates-of-change in legal reserves, its expansion coefficient, and the resultant increase in the money stock are imperfect, but still correlated

      a large portion of M2 is savings (savings that have already been spent) and does not represent means-of-payment money (so what are we saying? don't save money as it adds to m2, and thus has an inflationary bias? i don't think so)

      anyway, nowadays the "money supply" is unknown, unknowable, and uncontrollable

      this is absolutely the best article, ever written, on the FEDs monetary policy, on seeking alpha
      View article »
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