Wednesday, December 3, 2008

This is why I like Bernanke

Although he probably started a little late, Bernanke initiated quantitative easing to avoid a contraction in the money supply. Now let's hope that he announces it to the public.

Rebecca Wilder


  1. I watched William McChesney Martin, Arthur F. Burns, G. William Miller, Paul A. Volcker, & Alan Greenspan. All were ignorant, though most egregious, all were arrogant.

    I agree that, Ben S. Bernanke, is of the highest caliber, a leader, and skilled.

  2. M2 erroneously includes MMFs in its definition (a sizable #). MMFs are the customer's of the commercial banks. They are financial intermediaries / transmitters. 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 loan-funds, or the activation of monetary savings (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/transmitted by their owners/savers/creditors to borrowers/debtors. I.e., this represents a double counting of the money stock.

  3. It is a succulent irony that professional economists, (those who confuse the supply of money with the supply of loan-funds), thus conclude that increases in the monetary figure “M2” are inflationary.

    The conclusion is tantamount to saying, “don’t save money” as savings (which we don’t have enough of) adds to M2, and therefore has an inflationary bias, when in fact, savings (a large portion of M2, is evidence of money that has already been saved/spent/invested.

    Savings-investment accounts have been lumped into the Keynesian inspired concept of the money stock.

  4. stephen saines here:

    The drop in the UK is alarming, and yet they are paddling furiously, all the time having the Massive Egotist Brown telling the World how he is leading them.(The World, not just the UK! His ego knows no bounds)

    What the graph displays, in effect, is the amount of Oxygen available to a runner.

    What is surprising, in a positive way (and I have to question the lag in the stats) is Canada's showing. Canada is in very good shape in relative terms, but there has been a massive political vacuum here, to the point of the Government being ready to fall. (And I hope they break their nose or worse when they do, the present Neo-Cons are a pathetic joke when it comes to economic management...sound familiar?).

    Housing remains stable here, a report worth noting:

  5. "Quantitative easing" is a phrase of rhetoric.

    On Quantitative Easing

    Saying "quantitative easing" is another way of saying inflating by Accreting Money.

    Japanese central banking shows quantitative easing to be a failed action.

    Quantitative Easing is akin to Food Stamps, Cash Aid Welfare and Unemployment Insurance payment.

    Those receive such welfare, such taxpayer largess, have little incentive to change their ways and thus risk.

    In short, welfare recipients adjust their mind set downward to the level of welfare, never growing, never betting on a bigger future.

    On Betting and Economic Growth

    Without betting, no growth can happen.

    When investors and speculators cannot see where potential future payoffs shall take place.

    Thus, they refuse to bet (take capital position) on any future.

    This is where investors are today.

    They are not exchanging money for future payoffs.

    Until investors can see where to bet (what things of worth have the greatest likely payoff in the future), betting shall not take place, regardless of Money in Circulation Accretion (quantitative easing).

    Bettors must see futures with higher payoffs.

    Bettors must see higher returns to rented cash (increasing rates to their money for their interest in taking capital).

    Bettors must see growing calls for swapping now money for things of worth (material goods).

    On Bernanke
    Ben Bernanke is failing.

    Bernanke failed with cutting interest rates and now he shall fail by money accretion.

    Cutting interest rates (a huge mistake, Bernanke should have raised them) has not increased the Efficiency of Money (the ratio of the Growth in New Commerical Credit to Money in Circulation (notes, coins)).

    Now, with Quantitative Easing (accretion of Notes, Coins into circulation), Bernanke erodes further the Efficiency of Money.

    When commerical credit is flat or falling and more notes and coins chases this, money becomes less efficient.

    On Money

    Buyers and sellers act and swap Commodities, one for the other.

    Money is a commodity. It's the thing you trade for another thing, say money for wheat.

    Man must depend on the graces of nature to deliver wheat, even with his science of farming, while he can wily print as much money as he thinks he can scam others with until credit relationships break down.

    Where you find offers of money (supply), you find calls for money (demand). What gets swapped (sold) is money down now for a promise to pay more money through time.

    Said another way, notes and coins that you can spend now get swapped for the right to collect more notes and coins in any future.

    What becomes key, is that NEW money down now cannot arise unless attached to some claim on money of a future.

    Folks only take on new money now when they know they can pay it back in any future.

    Folks only give up new money down now when they know that they have the right to claim that money back in the future.

    On Inflation and the Efficiency of Money

    Inflation is a process used by those who control the economy to increase the Efficiency of Money.

    The goal of inflation is to increase the growth of Commerical Credit for NEW OUTPUT of manufactured, mined and farmed goods. When this happens, we call this growth Economic Expansion.

    Under Central Bank systems, Central Bankers cheapen the price of money hoping to expand Capital Opportunties (inflate) through cash renting for manufacturing and production (mining, farming) purposes.

    Inflation happens when those in power (Central Bankers) want to increase internal trade (Home Economy) through these: increased number of opened contracts, increased rate of cash payment for transaction settlement.

    A wanted increase in Commercial Credit relative to Money is the wanted EFFECT of inflation.

    On Money and Capital

    When Money Men swap money for the right to collect more notes and coins in any future, money buys capital.

    Capital comes from cash rented (money down now) put to use for manufacturing, mining or farming.

    Capital is not a thing that you have that you invest.

    There is only money, a commodity, which can be swapped for rights to other commodities -- wheat, corn, gold, shirts, pants, brake pads, future money.

    When men swap now money for rights to future money, we call those rights -- CAPITAL.

    The man who buys capital, buys a right to claim either a stream of payment -- a bond -- or the payoff of a bet -- expected dividend. Capital comes from cash rented used for manufacturing, farming or mining.

    The Cash Rentee who sells his rights to future income (Capital) gets cash down now sold to him from the Now Money Seller. Next, the Cash Rentee buys resources -- workers and their labor capital, metals, fuel.

    Money is the highest form of Credit and Credit is another word for Debt.

    Credit and Debt are other names for Capital.

    Quantitative Easing Effects
    Accreting money (adding notes and coins to Money in Circulation) does nothing to expand growth in New Commerical Credit.

    Investors have yet to see where payoffs might arise and thus have no good cause to place bets.

    Bernanke's mimcry of the Japanese shows more Keynsianism ignorance.

  6. Yes finally, currency , demand deposits, other checkable deposits, small denomination time deposits have started expanding (from H.1 non-seasonally adjusted, tables 5 & 6, or M1 componets).

    Smack MacDougal:

    As Smack pointed out: Commercial bank credit (loans-deposits) has not expanded since 10/22/08. This is a concern.

    And during this period, since 9/10/08, total reserves have increased 6 fold. This growth can represent (1) "pushing on a string" or (2) the payment of interest, on an increasing volume, of excess reserves (3) or offsets to the Fed's policy tools "liquidity funding".

    The growth in required reserves should be considered significant. An increase in required reserve balances, reflects a growth reservable liabilities, (or a growth in transactions accounts, or in components of M1).

  7. MZM has expanded from $8629b on 10/06/08 to $8853b on 11/17/08

  8. RW: A technical question as per the M2 graph displayed:

    Is that M2 measure *directly* equivalent between the nations displayed?

    It is my experience that the M measurements aren't the same, especially the UK v. US, wioth the others somewhere in-between.

    Any comments most welcome.
    I'm a bit concerned about the move to moderation. I hope I'm not partially guilty of having some miscreants follow me to this site, and their atrocious habits with them.

    Are you in a position to reveal to the blog if the move is pre-emptory, or due to some problems?

    I have recommend this blog to a chosen few (by private message) at a forum I participate(d) in, but the forum (an early offshoot of the Financial Times Forums) has deteriorated I leave any more for private discussion if need be.

    I think this blog is of the very highest order, and I feel honoured to participate. What is especially refreshing is the ability to dig and search, and present findings to a receptive audience who will hopefully do the same.

    I suspect a large amount of 'The Truth' is hidden in corners out of the light. I suspect an even larger amount of 'Non-Truths' are also hidden there!

  9. Smack writes:
    [qt]Ben Bernanke is failing.

    Bernanke failed with cutting interest rates and now he shall fail by money accretion.[/qt]
    I disagree, quite vehemently.

    There is an argument to be made on that point, and I find it far too easy a scapegoat. Why should people of modest means be denied the opportunity to improve their lives by virtue of credit? The key to making this work is *oversight*, not *denial*!

    Experimental lending programs in the Third World have clearly shown the advantages of lending to the poor...*EVEN ON TRUST*!!!

    Don't mistake poor regulation with the need for cruel usury to control poor consumption habits.

    Some nations have performed remarkably well with the same interest rates as in the US and the UK.

    I cite Canada and Australia as excellent cases where *legislated mandated review* of financial services has produced a markedly better result than in the US and the UK.

    And note, the societies are all very similar.

    The New Deal worked magnificently for the US until it was contorted and mutilated in the sixties. It was not faultless, by any means, but we are now seeing news reports of how the US Gov't *WAS* advised by her own departments of what was in-store with the incredibly lax regulation, especially as that pertained to mortgages.

    That has *nothing* to do with interest rate policy as adminster4ed by the Fed.

    Make no mistake, Greenspan has a fair amount to answer for, but IRs in themselves are not the culprit.

    Do *you* wish to pay more than necessary to keep your bank/mortgager in business, Smack?

    Where is the benefit of the Capitalist System for Joe Sixpack? I thought it was supposed to be of value to all, not just the Rich!

    Bad road signs make for accidents. Drivers are not always at fault.

  10. Hi Stephen,

    Is that M2 measure *directly* equivalent between the nations displayed?

    No, they are not. As you state, there are varying definitions of M2 between the countries. However, they are likely comparable.

    You also say, I'm a bit concerned about the move to moderation.

    What do you mean by this?


  11. I said "Ben Bernanke is failing. Bernanke failed with cutting interest rates and now he shall fail by money accretion."

    This is fact.

    Stephen Saines says "I disagree, quite vehemently."

    And yet, Stephen offers no counterfactual proof that Bernanke is not failing.

    Next, Stephen Saines says: "Why should people of modest means be denied the opportunity to improve their lives by virtue of credit?"

    Where in my first post did I mention anyone should be denied credit, and specifically, Commerical Credit?

    Good Commerical Credit built the world folks.

    When the focus of credit becomes Consumer Credit or Speculative Credit, moneyquakes follow.

    The Many confuse gambling with investment, that is, secondary market speculation that hopes for price appreciation (e.g., houses, stocks) with cash rented for return, aka capital paid in primary markets for building business.

    Speculating men corrupt capital. Gambling men pervert capital.

    Only Investors and Shopkeepers grow wealth and prosperity.

    Stephen Saines goes on to say: "The New Deal worked magnificently for the US until it was contorted and mutilated in the sixties."

    The New Deal was a RAW DEAL for Everyday Street Level Americans. FDR and his gang of pirates looted the buying power of Everyday Americans, stealing their gold and sticking them with pieces of paper worth ever less with each passing day.

    Stephen Saines says: "[interest rates]" are are not the culprit."

    Right. Federal Bankers and Corporatists who agitated for inflation of Consumer Credit through Fed Reserve interest rate action that made consumer lending profitable are the culprits.

    Instead of needing savings of cash from Everyday Americans, bankers and corporatists borrowed cheap money at the Funds Rate and earned a return above it at a mad rate, much faster than they could from the old-fashioned way of allocating savers' money into risk-takers hands who pay wages of workers.

    Oh and credit comes from trust, Stephen.

  12. Other Fed officials are publicly saying "quantitative easing."