This page has been archived and commenting is disabled.
M1+M2 Update, Or Does The Deflation/Hyperinflation Debate Hinge On The Propping Of Shadow Monetary Aggregates?
Together with the Fed's balance sheet, we are now convinced that the second most important developing metric for the economy is a granular analysis of the key public monetary aggregates: M1+M2. Within a month we also hope to develop our own definition of M3, to supplement such work elsewhere, in order to provide an independent opinion on what the true monetary growth is, now that increasingly more people are discussing the threat of outright hyperinflation. But before we get there, here is our first breakdown of M1 and M2 data. As a reminder, M1, or the monetary base, consists of the i) Currency in Circulation, ii) Demand Deposits, and iii) Other Checkable Deposits (technically it also includes roughly $5 billion worth of Travellers Checks each week, but this is merely a remnant of a bygone era and it rarely if ever changes). In the most recent week, total M1 was $1,700.7 billion, a modest decline from the prior week mostly due to a $12 billion drop in Other Checkable Deposits. Beyond pure M1, there are also i) Savings Deposits at Commercial Banks, ii) Savings Deposits at Thrifts, iii) Total Small Denomination Time Deposits and iv) Retail Money Funds. All these, in addition to the items listed under M1, make up M2, which closed the week ended September 8 at just over $8.7 trillion for the first time in history. For those who look at M2 as an indication of just how much liquidity is sloshing in the system, and use it as a proxy for inflation, the attached chart must be rather troubling.
The next chart shows the historical change in M1 and M2 by sub-components.
Of the non-M1 metrics, the biggest YTD move is in Savings Deposits at Commercial Banks (which includes money market deposit accounts), which despite the pleadings of Huffington Post's "move your money" campaign has grown from $3,999.1 billion to $4,287.5 billion. The comparable increase in Thrifts is much smaller, or only $44.6 billion. On the other hand, total small denomination time deposits have dropped substantially since the beggining of the year, or a total of $150.6 billion, split between a decline of $120 billion at commercial banks, and the balance from Thrifts. In other words, smaller deposits (under $100,000) have been withdrawn from the system, even as nearly double the amount was put right back in. Somehow we don't think banks will be too concerned about any more Pull Your Monay Compaigns (as for pull your stock trades, well, that's another matter altogether).
For those curious about the rate of weekly change by the various components, we present the following chart which shows the change in the 7 key M1+M2 categories.
Altogether, the M2 change since the beginning of the year amounts to $168 billion. Yet the biggest drop has been recorded in the Institutional Money Funds category, which declined by just under $300 billion YTD, yet which is not included in either M1 or M2 (oddly, as Retail Money Funds are part of M2). Obviously this, together with various other shadow banking components, such as Asset-backed Commercial Paper, which Russell Napier will excuse us, but just plunged to nearly the lowest reading in the past decade at $399 billion, all appear to be plunging.
In other words, as we have highlighted before, the debate over hyperinflation vs deflation will most likely revolve around just how effective the Fed will be to prop up the traditional monetary aggregates, in the form of M1 and M2, but rather the shadow banking aggregates, such as ABCP, which are plunging (and which as we pointed out previously, had a record drop of $1.3 trillion in Q1).
We will continue keeping a track of this data, and hope to expand into other additional monetary tangents in time. For the time being, M2 is at a record, yet this is offset by collapsing money aggregates elsewhere. If and when that collapse is stabilized, then run for the hills.
- 9172 reads
- Printer-friendly version
- Send to friend
- advertisements -





...can we really tell what is going on? seriously....I'm not sure anything is what it seems. The Matrix of the economy. I think it is so convoluted at this point, the numbers are false. Things are much worse. it is just at what point do 30-40% realize that...and want to do something....that is the turning point.
The answer to your question is.... no. We can't tell what is going on.
So, if you are driving your only car (metaphor = life/investment/retirement/money) down the road in the dark with no headlights in the driving rain, what do you do?
Pull off to the side, far enough not to get hit, wait for the storm to stop and the sun to come up. On the other hand, if you drive REALLY FAST and make the turn at EXACTLY the right time, you might just pull into the driveway of a newly widowed billionairess, who finds you incredibly attractive.
Amazing how many people take the long odds and keep going, isn't it?
funny... i'd pull over because i never thought of that outcome.
Everybody wants to win the lottery. The guy at the gas station told them (we might call him their.. "driving advisor") exactly what to do to arrive at the heiress's driveway.
Of course, he is..... safe at the station, selling gas.
the thing about turning off the path and finding the BB heirairess, was that John F. Kerry?
- Ned
End game. Hopefully this end game lasts a little while longer.... I like my current gas guzzling, iPad surfing, movie watching, couch potato ways.
"the debate over hyperinflation vs deflation will most likely revolve around just how effective the Fed will be to prop up the traditional monetary aggregates, in the form of M1 and M2, but rather the shadow banking aggregates, such as ABCP,"
I agree but suggest that rather than looking at total amounts you look at spreads between the various levels of 'risk' in the 'money' markets.
The quantity theory of money is bogus.
Who is holding all the shadow banking aggregates.. the Fed right ? I don't see how a reflating of those debt-backed securities would be inflationary to the real economy if they're all encapsulated within the Fed balance sheet (and the Fed basically marks to whatever model they wish).
It's continued debt defaults of loans held by banks, and continued deterioration of the real economy (the two tend to reinforce each other), that they should be worried about.
You are such a deflationist. it has nothing to do with what the Fed can or cannot reflate.
Deterioration of the real economy is inflationary.
No. The deterioration of the economy is caused by private credit deflation.
As the deterioration progresses this causes further private bankruptcies as well as transfers of bad debts from the private to the sovereign. None of this is inflationary. Private bankruptcies is deflationary (destruction of private credit). Transfers of bad debts to the sovereign is neither inflationary nor deflationary as the volume of credit stays the same but it causes credit holders to loose confidence in the sovereign's ability to meet its payment obligations and to sell. This in turn causes the sovereign to print money to (temporarily) stop the sell off from turning into a fully fleged hyperinflationary collapse..
As the credit deflation progresses this will increase the risk of further hyperinflationary events (sell offs/money printing) until :
. either the credit deflationary environment reverses itself (as it did in 1945 after a massive war destroyed half of Europe and Japan and when the level of credit left is collaterized acceptably to the surviving creditors so that private credit starts growing again)
. or we'll see such massive hyperinflationary event that cannot be averted by any amount of money printing end abruptly the credit deflation, with also tragic consequences (tyranny/revolutions/civil wars/global wars).
We are living now in a maniaco depressive deflationary/hyperinflationary environment and not in an inflationary one. What will be the end game is still far too early to say. All I know is that is is going to be very painful for most.
Right there with ya, until the last sentence. While this remains a potential outcome, the FED and other CB's around the world are continuing to manage deflation with a targeted monetary growth figure of 2%.
It has created a perverse stagflation event where some items rise, others fall and many stay the same. Hyperinflation is not a monetary event, it is a psychological one. Until the general population loses complete confidence in the currency, it will continue to tolerate wealth destruction through the inflating of the money supply.
I think this is why, for all the predictions of collapse being imminent, it continues to loom somewhere out past the horizon. I further postulate, that this is exactly what the elites want- it is the perfect combination of fear and security that encourages a wait and see attitude and stops all action of the part on the electorate/population.
Humans appear to have an endless well of hope to draw upon in the face uncertainty. Many would call it cowardice, but let's be charitable and ascribe it to primal instincts.
The likely result of ongoing high unemployment, exhaustion of UE benefits, continuing decline in residential property values is deflationary pressure, imho. However, that said, the real issue is whether or not oil, gas, gasoline, food, medicine, games, gadgets and gizmos will remain in good supply at prices people can manage; or, whether shortages, rationing and/or hording will ensue. In a situation where critical shortages emerge, the alternative label of "inflation/deflation" might result in a distinction that does not make a difference
The fed is an unstoppable juggernaught. At this point any outcome they control-unless the Chinese cut bait and dump all treasuries--but I think that the Chinese have shored up their gold and are watching with bemused interest.
check out Rosie today re: cut bait. Others stepping up. we'll see - Ned
Well, I applaud your effort TD. Velocity, Velocity, Velocity.
Silver, bitchaez ! I just really wanted to say that. But really, why bother having a deflation / inflation debate; as far as the precious metals are concerned; it's "off topic"; and I'm not about to get concerned with anything other than silver bullion until further developments; so why bother ?
vonMises said that inflation of the money supply was the very act itself of printing the money. Of course today, far more is created by the click of a computer mouse than by the printing press, but the principle is the same. If all that happened was that newly created money was stashed away in a warehouse, and never used to buy goods and services, it would only show up in the various M's (and thus send a misleading signal to people like us), but it would never distort prices or wages.
That is exactly what I think happened when the Fed swapped nearly worthless bank paper that the banks had been using as the reserves upon which they were making loans, for 100% good (non-discounted) Fed paper. There was supposed to be no net change in reserves. This newly created Fed paper showed up in some M, but it did not result in a change in the price level of wages or goods.
IMO, what has prevented the ocean of M (liquidity) from changing the price level has been the fact that the appetite for borrowing has greatly diminished. Part of this is by circumstance: no more NINJA loans. But also people are intent upon paying down their loans and the same holds true for most businesses. However, this has not stopped the Federal Government from creating air-backed money and using it to fund social programs and silly spending, like $188,000 to study how to freeze mouse sperm.
The real danger comes when some way is found to either get people to substantially increase their borrowing, or government spends the money we won't individually spend. Until then, inflation (as manifested in rising prices) will be realtively tame.
There will ALWAYS be a trigger to release whatever money the Fed thinks they have bottled up. Have money, will spend. Have crisis, will spend everything and more.
And I really don't think it matters if the money is bottled up anyway. The act of printing money and throwing it at the banks so they could lock it away did have massive inflationary effects. Those banks should have all died and taken their money with them. But now they still exist and still have money to loan. As far as we know, the market had been forecasting the bank collpase for ten years and that is why didn't do anything since 2000. Maybe now the system sees that cash as permanent and will make up for lost time.
I agree with Mises. Once it is printed, it is inflation. The market participants always see it. Why are stocks going up? Because the bankers can afford them.
Mises certainly would not agree with your notion that printing money causes stocks to go up!
The linear quantity theory of money (i.e. double the money supply = double the prices) is Friedman, not Mises.
In the Austrian school, you have to do the analysis of the marginal buyer and the marginal seller. This is easier said than done. Who is the marginal buyer of stocks?
The stock thing was my spin on an effect of our current money printing. I am pretty sure that I read Mises saying that inflation was the increase in the money supply and nothing else, or something close to that.
Actually, double the money=double the price goes back long before Friedman, as both the english and french schools of economic theory understood this. It is best explained by Cotillion and Bastiat, but Mises would agree.
However, prices in a FREE market are set by the marginal buyers and sellers as you so eloquently stated. Further, the marginal buyer has given priority to his purchase over others and this might not be the same as the actions of bank prop desks and HFT traders. Once the speculators operate outside the market, all bets are off.
Ask Richard Pryor about unforseen trigger points. Will one day Ben be saying "Other people debase but I blow up"
The legendary Richard Pryor joins Johnny Carson for this September 5, 1980 edition of "The Tonight Show" - his first appearance back after being hospitalized.
http://www.youtube.com/watch?v=G3VlYhDnETg&feature=player_embedded#!
Another titan Redd Foxx - Classic
http://www.youtube.com/watch?v=1QoyQwfarn0&feature=related
You have no idea where inflation comes from. Have you read any of Gonzola's posts ?
The Euro fell from 1.50 to 1.19(inflation) before any money was printed. And it was not from an increase in wages or an increase in borrowing
Apples and oranges. Inflation is a result of the debasement of currency seen with the rise of prices. Changes in currency values are the result of many effects: speculation, perceived risk, desirability of products priced in that currency, etc.
DEBTONATOR
http://williambanzai7.blogspot.com/2010/09/debtonator.html
I'm declaring October 1st to be everyone donate to ZeroHedge Day. The date is perfect, even the binary code geniuses can read it
10/01/10=100110
Thanks for all the great material, hard work, and laughs for these unbearable times.
Spread the Word to Everyone. We need this site up and working. Donate Day October 1st 2010
good luck in ur zar trading...lord knows you need it
wow i'm having some binary deja vu'
38
I'm declaring October 1st to be everyone donate to ZeroHedge Day. The date is perfect, even the binary code geniuses can read it
10/01/10=100110
Thanks for all the great material, hard work, and laughs for these unbearable times.
Spread the Word to Everyone. We need this site up and working. Donate Day October 1st 2010
good luck in ur zar trading...lord knows you need it
I suspect M2 growth is mostly related to the Fed's monetization which is aimed at filling the gaping black-holes in banks' property related asset values.
Money aggregate growth is peanuts compared to the decline in total asset values since 2008, its just that GAAP failitates the extend and pretend.
Hmmm, $4.2T in deposits- more buying power for Treasuries!
Does that make savers...enablers?
Unwittingly of course. It is all a part of the crowding out process. Follow the money all the way to the MIC and all the other varied crony corporatism. Banks, Government-Government, Banks whatever.
Coming up with your very own m3 model eh? Congrats…i recall commentors ridiculing TD as a basement dweller etc..glad I hung around.
RE xxflation; does it matter anymore? Is any one foxhole better than the other once the bombs do fall?
I am expecting things to continually be more expensive. Stay neutral, my friends. But get small.
TD seems to fancy John Williams, who does awesome M3 tracking, so I'm not sure why they need yet another model, but I'll be curious to see how the two differ anyway.
John Williams: A Hyper-Inflationary Great Depression Is Coming
there are really only two forms of money, funny money, and sweat money. so far they haven't messed with the sweat money, (see Fast Money tonight, the CHINESE are raising the price of their goods.) this is a good thing
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
[12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).]
So it seems as if the "Printing Press" and the ongoing Treasuries auctions that are undercutting the value of money, therefore forming this bizarre feedback loop of lower employment (the reason we are getting cooked UE numbers is to keep the Fed Res in control) and "moderate long term interest rates" are not in th offing according to the bloom showing in these M1 and M2 graphs.
So the Fed Res is NOT paying attention to their main Policy and Guidance mission required under the Federal Reserve act of 1932 and the subsequent update of 2000 on this particular section.
Funny how it is when you read the law, the Fed Res is operating way illegally.
bravo zh for getting on top of the money supply especially m3....john williams does stellar work on this but independent confirmation is the essence of true science....without m3 you cannot predict inflation....
so let's see....the lying sack of shit fed shuts down m3 because it's too expensive to produce....john williams produces and zh will start doing so out of a garage in leichenstein....sounds to me like the fed sticks its head into a bucket of cow shit anytime it wants to talk....
i am sure that bernankrupt has had an extra pair of horse intestines surgically installed into his ass so he can shit at 10x the rate of everyone else....
need to watch base money, deposits at fed (h.4.1), m3...
My question is a follows..... Per one of the previous posts by Mr. Lira, I responded in his blog, that I was trading in Manhattan as a partner at a boutique IB/TH and in the gold, silver and sugar rings at the CEC during the period he referred to, 1978-1982....
He refers to inflation in the mid teens during this period.... I remember reading those numbers. What I don't remember is feeling those numbers, of course, I was long of gold, silver and sugar and thus never felt the impact of inflation and feel like if I never saw it...
My question is as it relates to hyper inflation, do we recognize it for what it is at the moment of commencement, or do we design a narrative and define it as a past event.
If it's the former, then the only thing that I have to say is....
Hyper-inflation is here and now bitchez....
Best regards,
Econolicious
Up, up and away... to a sub 2
http://www.youtube.com/watch?v=G8NzjzXF0D8
Biflationistas, you need to know nothing more than this:
-The Fed is trying like heck to create inflation in a post-bubble deflation world. That's why there are inflationary and deflationary forces co-existing side by side. The trouble is that despite both being only modest so far, the additive effect is already prominent (as a double whammy) and quickly becomes exponential in a reflexive and self-reinforcing manner (deflating assets encourage money to seek inflating ones).
Moreover, the Fed is competing with gargantuan international imbalances created and growing since the Nixon administration: tsunami upon tsunami of petro-,euro-, and sino-dollars and debt all of which threaten price balance at any given moment.
The concept of M1/M2 money supply is quaint in a world awash in a vast ocean of dollars. Perhaps M4 could take that into account. It's important because when foreign held dollars seek return in capital markets, they blow huge bubbles because of the sheer size of liquidity.
Im not a dumb fuck, But i play one on TV. All these Macro economics lessons and charts are giving me a fucking Brain cramp. The Dow Futes are now up 39. Rimm blew away estimates. Screw the charts and party like the Isrealites worshiping the Golden calf.
The mixed conflicting market signals return. It reminds me of periods in 2007/2008 during the market uncertainty and dislocation in addition to market intervention or rumours of market intervention (like the QE chatter now).
http://stockmarket618.wordpress.com
Gold wins either way
Why? you ask?
Becuase I and 19 other people who actuallly own physical metal said so
The whole exercise is somewhat moot since the best we can is be a mobile trader and not an investor and trade in and out by Friday so if the world comes to an end on Sunday we are in cash.
Deploy on Monday. Not a perfect world and the notion has holes but at least you're soemwhat liquid and not caught in a dead trade once the matrix leaves the building.
So the stock market is going up because M2 is going up because people are saving more? Wow, thats so fucked up it might be right.
I have been watching the in/deflation debate for a while and have decided there will be inflation. The Fed will not allow deflation because
Deflation will increase the value of US debt to the debt holder and at the same time increase the government liabilities to the debt holders.
Deflation will decrease tax revenues across the board.
Deflation will seal the deal on the bankruptcy of the US government
The FED MUST cause inflation in an “attempt” to avoid default and they are willing to risk hyperinflation to avoid default!
Let me know if I can help in your M3 reconstruction effort.
I'm the one who reconstructed and published (and still do) weekly M3 way back in April 2006, months before anyone else. My reconstruction tends to lead John Williams work by 5-8 weeks, for what its worth.
http://www.nowandfutures.com/images/m3b.png
Full M3 record, going back to 1867:
http://www.nowandfutures.com/download/m3b.xls
http://www.nowandfutures.com/download/m3b.zip
It sounds like you are heading in the direction of the Austrian TMS. Anything that can be liquidated immediately (or very close) at par should be considered. There are a myriad of categories that are highly uncovered that could cause huge problems if another panic ensues.
If I wasn't fully convinced Ben (and most of the Fed presidents), Timmy G and the Obama administration weren't so zealous in their Keynesian, pseudo-religious belief that inflation causes prosperity, I would be inclined to believe the deflationist argument. But, when you consider every type of base money substitute out there and the percent that is uncovered, combined with Benny's ideology, massive money printing/electronic adding of many zeroes lies ahead.
I found lots of interesting information here. I love zerohedge.
virtual server hosting
windows 2008 vps hosting
mssql hosting
windows vps server