Economagic doesn't have any data before 1959 - would be interesting to compare against what happended 1925-1945.
Posted on 01/08/2004 2:47:19 PM PST by Starwind
U.S. M-2 money supply fell $11.1 bln Dec 29 week
Thursday January 8, 4:31 pm ET
NEW YORK, Jan 8 (Reuters) - U.S. M-2 money supply fell by $11.1 billion in the December 29 week to $6,023.2 billion, the Federal Reserve said on Thursday. The Fed said the four-week moving average of M-2 was $6,040.8 billion vs $6,048.7 billion in the previous week. Following are the details of the money supply report, and the Fed's H.3 and H.4 reports: . One week ended December 29 (billions dlrs) . Latest Change Prev week Rvsd from M-1....1,289.8 up......1.8 vs 1,288.0.....1,288.2 M-2....6,023.2 down...11.1 vs 6,034.3.....6,034.5 M-3....8,781.3 down...10.5 vs 8,791.8.....8,798.0 M-2 Avg 4 wks (Vs Wk ago)..6,040.8 vs ...6,048.7 Monthly aggregates (Adjusted avgs in billions) M-1 (Nov vs Oct)..........1,281.7 vs.....1,286.9 M-2 (Nov vs Oct)..........6,070.8 vs.....6,091.8 M-3 (Nov vs Oct)..........8,856.2 vs.....8,895.9 . Federal Reserve's H.3 and H.4 report: . Two Weeks Ended January 7 daily avgs-mlns (H.3) Free Reserves.1,557 vs..rvsd....1,893 Bank Borrowings..45 vs.............54 Seasonal Loans...22 vs.............35 Excess Reserves..............1,602 vs..........1,947 Required Reserves (Adj).....40,818 vs.........40,231 Required Reserves...........41,533 vs.........40,679 Total Reserves..............43,135 vs.........42,626 Non-Borrowed Reserves.......43,090 vs.........42,572 Monetary Base (Unadj)......743,166 vs........737,355 . Two Weeks Ended January 7 daily avgs-mlns Total Vault Cash............45,803 vs.........44,285 Inc Cash Equal to Req Res...32,877 vs.........31,847 . One week ended January 7 (H4.1) Bank Borrowings...23 down..........42 Primary Credit....12 down..........20 Secondary Credit.nil vs..........unch Seasonal Credit...11 down..........22 Adjustment Credit...............nil vs..........unch Float..........1,349 up...........169 Balances/Adjustments.........12,021 down..........88 Currency.....721,162 down.......2,551 Treasury Deposits.............5,319 down.........531 . One week ended January 7 - daily avgs-mlns Fed bank credit.............743,299 down.......3,268 Treasuries held outright....666,704 up...........302 Agencies held outright..........nil vs..........unch Repos ........34,679 down.......4,000 Other Fed assets.............40,544 up...........302 Other Fed liabilities........20,125 down.........464 Other deposits with Fed.........647 up...........328 Foreign deposits..95 down...........4 Gold stock....11,043 vs..........unch Custody holdings..........1,072,660 vs.....1,066,742 . Factors on January 7 Bank borrowings...11 vs............63 Float..........2,144 vs..........-315
H.3 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND THE MONETARY BASE
H.4.1 Factors Affecting Reserve Balances
H.6 MONEY STOCK MEASURES
H.8 ASSETS AND LIABILITIES OF COMMERCIAL BANKS
| Rank | Location | Receipts | Donors/Avg | Freepers/Avg | Monthlies | |||
|---|---|---|---|---|---|---|---|---|
| 47 | Norway | 50.00 |
1 |
50.00 |
14 |
3.57 |
|
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Economagic doesn't have any data before 1959 - would be interesting to compare against what happended 1925-1945.
Grab your ankles. The Feds will tell you when to release them.
Perhaps Tauzero or OwenKellogg can do justice to this question. I don't fully understand the various economic schools myself to do justice to their (the economic schools) viewpoints.
However, the Fed has been very public about its efforts to inflate the money supply to stimulate or reflate the economy. If the Treasury reports of bonds purchased by the Fed (monetizing the debt) are to be believed then the Fed is serious about printing dollars to achieve reflation.
But recently, the money supply has been contracting, in spite of the Fed's efforts - i.e. the Fed's reflation plan is begining to fail.
This is significant because during the Depression the Fed was accused (falsely) of not inflating, but it did inflate then, but the money supply contracted then anyway - as it appears to be now - and deflation and depression ensued then.
Will deflation and depression likewise ensue now?
I've seen no crystal clear arguments on any side explaining the mechanics of their view.
But the outright contraction of the money supply does seem to be a harbinger of a faltering economy, then and now.
Why or why not. Please and thank you.
Why or why not. Please and thank you.
FWIW, here's an expanded chart of the last four years.
And here's the data points for 2003:
2003 01 8525.995 2003 02 8572.852 2003 03 8599.348 2003 04 8617.594 2003 05 8711.700 2003 06 8780.203 2003 07 8916.866 2003 08 8956.490 2003 09 8953.644 2003 10 8896.071 2003 11 8861.540 2003 12 8791.8 (from above report - but not charted)
With todays report, M3 of $8791.8 B is where it was in June '03.
But if the money supply contracts yet faster, then we will have a deflationary recession.
What might be a practical definition of 'faster', or the tipping point into deflationary recession?
The strong GDP numbers in the face of a contracting money supply must mean the velocity of money is increasing.
Just a caveat. Most of the strong GDP was in Q3 while most of the M3 contraction is Q4.
Also, until the Fed release the Q3 Flow of Funds report, and we see the effect of removing hedonic pricing in the Q3 revised and Q4 GDP, the 'strength of the GDP' is perhaps, subject to revision, shall we say?
Any thoughts on how the velocity of money could be measured directly?
Yes, we must ask "faster than what?" I say, faster than a declining rate in GDP.
The tipping point is defined by GDP itself: is it contracting or not? Then we ask "what is the nature of the contraction?" If M3 is declining as GDP declines, we can be fairly confident we have at least some credit deflation. If M3 declines faster than GDP, we can be certain we have a credit deflation.
" Any thoughts on how the velocity of money could be measured directly?"
ATM fees. ;)
Seriously, measurement, or rather difficulty thereof, is the most serious vulnerability to the claim of economists that they are scientists, rather than philosophers.
We know that at any given moment in time, there's a quantity of currency and a quantity of credit extended, but measuring anything on this scale is damn difficult.
Intrinsically so. Were it otherwise, central planning would be easier. That's the whole point of free markets, and why the fed is a bad institution.
The Cold War was ended. Peace was possible with former mortal enemies. Our military was downsizing and taxpayers expected their peace dividend. Optimism was high.
It was the beginning of the internet era. PCs were becoming commonplace. Cellphones were hitting the streets in a big way. The digital age was causing huge productivity gains that helped force downward pressure on prices on many goods for the first time in 2 generations. Even the Detroit automakers were pricing new cars less than the year before.
Prosperity was breaking out all over the US in spite of recent huge tax increases.
Washington claimed that inflation was dead and budget surpluses could be seen far into the future. Interest rates had come down from the Carter era highs to a level which was near what some believed close to an unmanipulated free market rate.
But that decrease in the money supply spooked the central bankers. Having only heard about deflation in conjunction with the Great Depression, they panicked and concluded that a decreasing money supply was something to avoid at all costs.
The central bankers went bonkers and began increasing the money supply to reverse our plunge toward what they believed was certain doom. Their manipulations instead fueled a historic stock market bubble, which we now see was a worse fate than a gentle deflation that was occurring in a time of peace, productivity, and prosperity.
They screwed up, big time. Their inflation efforts began pumping the stock markets into bubble mode, giving rise to the irrational exuberance speech. Fearing a public backlash if he popped the bubble, Greenspan took every chance he could to keep the bubble going. But, it was of no use. The bubble he created popped.
Now the Fed has nothing left in its toolkit to manipulate the economy. They pushed monetary credit creation to the limit.
Now, with interest rates at historic lows and economic uncertainty ahead, there is little risk premium for the lenders. The money supply will shrink as lenders forego loans with high risks and low risk premiums. The money supply will fall until the risk premiums (interest rates) are in line with the lenders risk.
It could go on for a short time or a long time. It could result in a mild economic contractions or a sharp contraction. But the Fed has shot its wad. It has nothing left to do as far as normal monetary policy goes (jawboning the fed funds rate, setting the discount rate, and open market operations).
So here we are, 9 years since the money supply last headed downward, and it's going down again. The Fed, although it created a lot of millionaires during the bubble and created a lot of bankruptcies in the bust, is powerless to stop the monetary contraction. They never should have put us through the last 9 years.
One thing is for certain. Last time the money supply was falling, the Fed decreased interest rates to stimulate the economy and ward of deflation.
Now with the money supply falling, they can only raise rates, which would (by implication, but not by law) cause the economy to contract. They can't do anything conventional.
Central banking is futile. So off to Mars we go...
Could someone more financially astute than I explain what this means to the average working guy?
It probably means that the government will continue to intervene in the economy through tax and spend policies to get the economy going the way they want. There will be winners (NASA) and losers (taxpayers). Taxes and deficits will increase, further compounding the problem.
Interest rates will eventually go up some. Loans may dry up for short periods of time.
The Fed will probably search for abnormal ways to affect monetary policy, which could do more harm than good.
In other words, it's a little bit of a mess. Not a disaster, but it could be one with further government interference. We have achieved a state similar to the Japanese economy: prosperous, productive, but paralyzed by too much debt (from central bank intervention) and too big a deficit (from the nanny state).
When the going gets tough, the tough go shopping.
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