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M2 Surges By $30 Billion In Past Week To Highest Ever, Even As Monetary Base Declines

Tyler Durden's picture




 

Another week in which the M2 jumped to a fresh all time high, increasing by $30 billion W/W to just under $8.7 trillion. This was only the fourth largest weekly jump in this broad money aggregate in 2010, with the prior biggest ones clustered just around the time of the Greek "out of court" reorganization and the flash crash in May. This was also the 8th sequential increase in the M2 in a row.

Oddly enough this occurred even as the Monetary Base (NSA) declined by $11 billion to $1.983 trillion. Currently, the M2-MB ratio stands at 4.4x, close to its all time lows, with the recent decline purely a function of the modest contraction in the Fed's balance sheet as MBS had been rolling off for the past 4 months. With QE Lite in play, expect the Fed's Balance sheet to remain flat, which will likely mean that the ratio of the Fed's asset to the Monetary Base will remain more or less unchanged at its elevated ratio of 1.15x (with a tendency toward declining), compared to the historical average of around 1.00. Note the (as expected) inverse relationship between the M2-MB ratio and the total size of the Fed balance sheet, as the monetary base has exploded courtesy of excess reserves, without this number actually hitting M2. Is the recent leakage in M2 higher, coupled with a contraction in MB the critical step that all the inflationists have been dreading (yet at the same time expecting)?

 

 

 

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Sun, 09/12/2010 - 23:17 | 577674 Boilermaker
Boilermaker's picture

Futures going into orbit right now.  Why even think about fighting this shit?

Sun, 09/12/2010 - 23:37 | 577711 UninterestedObserver
UninterestedObserver's picture

OMG hey it's fucking nighttime so of course the futures are up.

Sun, 09/12/2010 - 23:40 | 577716 Boilermaker
Boilermaker's picture

Actually, they at least used to have the common deceny to perpetuate the massive unprecedented fraud pump during the wee hours.  Why wait...I suppose.  Let's get the party started early.

Mon, 09/13/2010 - 01:06 | 577819 PrDtR
PrDtR's picture

yep.. once again, while we slumber while they push this market further to the sky..

then, miraculously hold it there all day long!.. disgusting!

Sun, 09/12/2010 - 23:37 | 577712 Bearish Spirits
Bearish Spirits's picture

Assuming this surge holds into the morning, the financial media will undoubtedly be selling the line that these new global bank regulations are good for the markets.  The Harrisburg, PA bailout will be relegated to a footnote at the end of the financial news rundown. 

The Harrisburg situation is a message that party times will continue for anyone with influence for as long as possible(unions, pension plans, muni brokers, muni holders, politicians who get to act like heroes), and muni debt problems will be solved with fed bailouts laundered through the states.

Sun, 09/12/2010 - 23:53 | 577737 Boilermaker
Boilermaker's picture

It'll hold and 'improve' with some sleepy time pixie dust.  I look for +125 to +150 on the DOW by the time I take my morning dump.

Sun, 09/12/2010 - 23:54 | 577739 Id fight Gandhi
Id fight Gandhi's picture

But don't call it a bailout. Lol.

So the pump monkeys are pushing for a 8 outta 9 day run up? In September?
Phuck me running.

Mon, 09/13/2010 - 00:25 | 577776 rocker
rocker's picture

Wow, I live in Pa, we are much "better than expected" compaired to Californifacation right ???

Mon, 09/13/2010 - 04:48 | 577945 BobWatNorCal
BobWatNorCal's picture

Wait.
H'burg got bailed out? omg....

Mon, 09/13/2010 - 06:50 | 577988 fiftybagger
fiftybagger's picture

Yeah, you can bet that Gubnor got a little call on Sunday from DC.  And how about this little gem? 

"The state will also give Harrisburg $350,000 in grants and a $500,000 loan to hire Chicago-based financial consultant Scott Balice Strategies LLC to develop options for financial recovery, potentially including the sale and lease of assets such as parking garages and meters."

Obongo's pals?  Why don't they pay me 3/4 of a million bucks saving 100k, I could do it.  Everyone's pay?  Cut in half.  Didn't fix it?  Cut in half again.

We are doomed

Mon, 09/13/2010 - 07:26 | 578010 fiftybagger
fiftybagger's picture

FYI:

 

Linda D. Thompson is the current mayor of Harrisburg, Pennsylvania. She assumed office on January 4, 2010. Thompson is Harrisburg's first female and first black mayor.[1]

Born and raised in Harrisburg, Thompson graduated from Harrisburg High School in 1979.[2] She went on to attend Howard University in Washington, DC where she received a B.S. in Communications. While in Washington, Thompson interned at the United States Department of Justice.

Sun, 09/12/2010 - 23:58 | 577748 SheHunter
SheHunter's picture

And no economic news on Monday to (temporarily) rein in the market.  Can't fight it but I'm damned if I'll jump in tomorrow morning without a pullback.  Check out the op ex  levels - we are overbought.

Sun, 09/12/2010 - 23:20 | 577681 Hephasteus
Hephasteus's picture

So. Broke ass FDIC is just handing out cash to banks who are INSOLVENT. Think this is going to cause inflation. Could be wrong but I doubt it.

Sun, 09/12/2010 - 23:30 | 577696 Boilermaker
Boilermaker's picture

Irrelevant.

Sun, 09/12/2010 - 23:33 | 577702 Caviar Emptor
Caviar Emptor's picture

Fed up to now believes in its prescience and ability to marshall prices under any circumstances. But there are black swans in the waters. They can't control the global, dollar-denominated money supply. Fragile situation. 

Sun, 09/12/2010 - 23:45 | 577726 Dr. Sandi
Dr. Sandi's picture

Fed up

Me too.

Mon, 09/13/2010 - 00:03 | 577750 Caviar Emptor
Caviar Emptor's picture

Yup. More stupid Fed trix. One day the rabbit won't be in the hat. 

Sun, 09/12/2010 - 23:45 | 577727 metastar
metastar's picture

Who says it doesn't rain money? It's nothing more than bits and bytes in a Second Life fantasy world.

Sun, 09/12/2010 - 23:47 | 577730 Pillage
Pillage's picture

Does anything make the market go down anymore?

Sun, 09/12/2010 - 23:52 | 577736 Boilermaker
Boilermaker's picture

Yes, GS and MS going short just prior to the plunge.

Mon, 09/13/2010 - 10:07 | 578233 ATG
ATG's picture

Bingo.

Today.

Now...

Sun, 09/12/2010 - 23:57 | 577745 Id fight Gandhi
Id fight Gandhi's picture

Cnbs will be claiming summer vacations on the lack of volume again I'm sure.

Mon, 09/13/2010 - 00:12 | 577760 doolittlegeorge
doolittlegeorge's picture

How can you say "the Fed is done with QE"?  Limiting QE to merely the debt markets is profoundly limited--as if you are saying "the only thing in the interest of finance is government."  Doesn't that say it all?  The LAST thing that finance is interested in is government!  Indeed, "piss off the bankers long enough and they may blow up your government" sounds a lot closer to the truth to me.  Indeed imagine living for moment living in the 70's when the Fed actually had margin requirements!  So therefore it goes without saying there's never been a lack of arrogance or hubris from the "government set."  So perhaps all we're heading towards is the financial equivalent of Clint Eastwood saying "I know what you're thinking, punk.  Did he fire 5 shots or 6?  Well in all the commotion to be honest I don't remember myself.  So therefore all you have to ask is...." 

Mon, 09/13/2010 - 00:36 | 577793 CheapKUNGFU
CheapKUNGFU's picture

all your M2 are belong to us, make your time bitchez

heh

Mon, 09/13/2010 - 00:46 | 577803 RockyRacoon
RockyRacoon's picture

I've got my popcorn ready.  Should be a good show.

Mon, 09/13/2010 - 10:08 | 578238 ATG
ATG's picture

Blast finance over a half hour after opening...

Mon, 09/13/2010 - 01:11 | 577806 Threeggg
Threeggg's picture
The deflationists think that this trend is going to change ? http://www.inflationdata.com/inflation/images/charts/Gold/Inflation_cumulative.mht
Mon, 09/13/2010 - 02:20 | 577861 yabs
yabs's picture

disgusting

If they can pukl this shit off with Vix selll signals, hindenbergs, HS then what hope of even a semblance of a free market have we got

Looks like prechter and Machugh will have to accept defeat on this one

The FEd really are unbeatable it seems

Mon, 09/13/2010 - 10:10 | 578240 ATG
ATG's picture

Ain't over til the fat lady sings.

She may be warming up behind the panorama right now...

Mon, 09/13/2010 - 02:34 | 577871 plocequ1
plocequ1's picture

Wow, Futes up 80. Looks like fed is pumping again. Might as well get used to it. Looks like the M2 issue is already built into the Machines software. Next issue...

Mon, 09/13/2010 - 02:51 | 577878 Miles Kendig
Miles Kendig's picture

Looks like M2 might be the answer to the past 18 weeks of outflows....

Mon, 09/13/2010 - 10:11 | 578244 ATG
ATG's picture

Multiplier and velocity still contracting...

Mon, 09/13/2010 - 04:36 | 577942 chirobliss
chirobliss's picture

Wow, just imagine if they put that into the market, tha'd be awesome.  What was that you said? They did? Oh...

Mon, 09/13/2010 - 04:44 | 577944 yabs
yabs's picture

eurpean shares not far off the all time highs since the crash less than 5 percent off

Its all over for the bears now

Prechter and Machugh, Mish need new jobs

Mon, 09/13/2010 - 10:12 | 578246 ATG
ATG's picture

Time will always tell...

Mon, 09/13/2010 - 05:04 | 577952 Djirk
Djirk's picture

pump and dump...it is options exp week

 

Mon, 09/13/2010 - 10:13 | 578249 ATG
ATG's picture

Bingo

Mon, 09/13/2010 - 06:13 | 577970 Dismal Scientist
Dismal Scientist's picture

Short term dynamics don't favour the bears, not in option expiry week. The driver is also China and India again, not just lax Basel III rules. There will be a better time in the next couple of weeks to short. In the meantime, why give your money to the market ?

Mon, 09/13/2010 - 06:16 | 577979 pachanguero
pachanguero's picture

Copper is showing the coming inflation.  This will not end on a happy note.

Mon, 09/13/2010 - 06:39 | 577983 yabs
yabs's picture

Dismal

I don't think so

Its all over bar the shouting now

its inflation to the moon

we all know what should happen buts its time to accept defeat when you are up against tyhe FED and its computers and fraudulent accounting.

If it was going to roll over then this week would have been it. The wave count is utterly screwed now unless we decline straight away.

Where else would you have your money?

cash with 1 percent interest?I think a good compnay paying good dividends thats cash rich is a abtter bet

than anything else apart from Gold

Mon, 09/13/2010 - 07:47 | 578023 Dismal Scientist
Dismal Scientist's picture

Agree. Am long commodity equities, PMs, and cash. No bonds. When this move blows itself out, I might buy some volatility. Or I might not. But thats the fun of it, Mr. Market invites you to play every day...

Mon, 09/13/2010 - 10:14 | 578252 ATG
ATG's picture

Have the bulls plunged?

Mon, 09/13/2010 - 07:26 | 577998 chrisina
chrisina's picture

Why do people even look at M2 when most of the money is credit money ($52 trillion vs. $8.7 trillion).

Look at a graph of credit from the Z1 flow of funds and you'll see that, despite the Fed's 2 trillion money printing out of thin air and the government increasing its debt like a drunken sailor, overall credit has been decreasing for the last 5 consecutive quarters.

As long as people keep looking at fiat money supply and keep ignoring credit money supply they are going to be looking at the one oak tree that hides a pine forest.

 

When will people finally understand that we don't live in a world of fractional reserve banking where banks multiply reserves to supply credit and money (with fiat money > credit) but in a pure credit banking system where banks supply credit, adjust monetary deposits and look for reserves later (with credit >> fiat money).

 

Here's a question for all the fans of the money multiplier model of fractional reserve banking : how is it possible that credit is 6 times larger than the broad fiat money supply (M2) ?

 

Here's an example of fractional banking explained:

http://en.wikipedia.org/wiki/Fractional-reserve_banking#Example_of_deposit_multiplication

 

Now look at that table and tell me what you see?

Total Amount of Deposits: $457.05 

Total Amount Lent Out: $357.05

Total Reserves + Last Amount Deposited: $100

Now, which one is larger?

Total amounts of deposits (fiat money supply)?

 or Total amount lent out (credit) ?

 

Which one is larger in reality ?

Total amounts of deposits (M2 = $8.7 trillion)?

or Total amount lent out (credit = $52 trillion)?

 

Mon, 09/13/2010 - 07:19 | 578003 yabs
yabs's picture

chrisina

All agreed what we are refering to is though is this ability of funny money to keep stock prices/asset prices  up indefinately and thus create inflation via higher costs. If assets go up I do not care if its because the overall money supply has increased or not

all I care about is the price which is what Mish ect seem to forget. As for prechter saying the Fed cannpt influence stocks that is utter bollocks

they have been doing EXACTLY that every Monday cfor the last 18 months

Mon, 09/13/2010 - 08:45 | 578025 chrisina
chrisina's picture

Stock prices are up for the last 18 months but how are they compared with the peak?

What about house prices?

 

You want to look at a graph of M2 vs stock prices, house prices, commodities prices, CPI, etc...? If you can find some correlations, some causal relations, be my guest. But the simple truth is that there's none. Because M2 is a tiny part of money.

 

If you want to look at the long term trend of where they are heading for, you need to look at the long term trend of credit supply. And that is DOWN. When you have overall credit that is at 370% of GDP and shows signs of contraction because banks can't stuff more loans to already overlevered American households and overlevered businesses, then you know that we have entered a massive unwinding of the credit buuble and that is credit deflation.

 

Now nobody in their right mind has ever said that short term evolution of  asset prices is a consequence of short term credit  evolution. Short term asset prices react to hundreds of other factors.

 

Also, I completely agree with Gonzalo Lira that this massive credit deflation increases the risk of a run on treasuries, the dollar, and a hyperinflationary collapse. But that is a completely different matter alltogether. Whether this protracted credit deflation ends with a bang or a whimper is still very difficult to predict... For that one would need to know, what is the next congress gong to do, what are the Chinese going to do, what are Israel and Iran going to do, etc... There are so many hundreds of different scenarios that trying to predict what will be and when will strike the next black swan is an impossible task.

 

All I know for sure is that credit is going to contract, from $52 trillion down to maybe $25 trillion in the US (and same thing in Europe, Japan, Australia, Canada). So that's a different environment from anything we have lived so far since the end of WWII. A very different and PAINFUL process. In that environment, the only asset I believe can only go up in price, is Gold, because it is the only one that doesn't have liabiilies attached to it from this contracting credit system. All the other ones, whether stocks, houses, bonds, industrial commodities over the long term are going down, which doesn't mean we won't see incredible and crazy rallies for long periods of time for some of these asset classes in markets that are completely rigged by worldwide government interventions and huge mood swings from successive itterations of contradictory worldwide government policy changes. But unless you can know what's in the combined sociopathic heads of the power hungry elites of the world, it's perfectly impossible to predict which scenario of the hundreds of possible ones will actually happen. All I know is that whichever scenario ends up becoming history will be a very painful one for most. How long will that pain last? No idea, 10 years, 20 ? Maybe 50?

 

The last time we had such a credit contraction, the pain lasted for roughly 20 years. My guess is this time will be much longer.

Mon, 09/13/2010 - 08:08 | 578046 spinone
spinone's picture

You aren't alive anywhere like you're alive at fight club.... Fight club isn't about winning or losing fights.  Fight club isn't about words.  You see a guy come to fight club for the first time, and his ass is a loaf of white bread.  You see this same guy here six months later, and he looks carved out of wood.  This guy trusts himself to handle anything.  There's grunting and noise at fight club like at the gym, but fight club isn't about looking good.  There's hysterical shouting in tongues like at church, and when you wake up Sunday afternoon you feel saved.  ~Chuck Palahniuk, Fight Club, Chapter 6

Mon, 09/13/2010 - 08:19 | 578052 yabs
yabs's picture

Chrisiana

we have heard this argumnet for how long now?

18 months? Actually in the UK house prices went back up

with the low interest rates etc and peak tpo trough are less than 10 percent down. Its crazy with the size of the bubble but thats how it is.

Everyone with any sense has said that stocks will go down but the rally has lasted a year and a half and shows no sign of being allowed to go down

I do not see this ever ending as with the touch of a key pad they can have more money to throw at it.

Applying what happened in 1930 may prove to be worng

back then they couldn't credit banks all around the world a the touch of the keyboard to get stocks pumped up.

Prechter says the FED cannot control anything

I say bullshit they have for the last 18 months and that is not short term

Mon, 09/13/2010 - 09:11 | 578101 chrisina
chrisina's picture

"Actually in the UK house prices went back up"

And now they are back down. How are they compared with the peak ?

You want to bet on which long term direction they are heading for?

 

Same thing with stocks. Since the peak they've gone down, up, down, up, down,... but overall, they're still down as far as I know. You want to bet which long term direction they are heading for? I have not the vaguest idea where they'll be a the end of the year, maybe Bernanke will do another dose of QE? Maybe not? What will the algos do? Will Israel attack Iran? Nobody (well at least nobody amongst us small investors with no connections with the sociopathic power hungry elites) can predict the short to medium term girations of completely rigged markets. All I can tell you is that the long term is DOWN.

Mon, 09/13/2010 - 08:23 | 578059 fiftybagger
fiftybagger's picture

Ya just can't make this stuff up:

http://www.idvl.org/harrisburglivinglegacy/Bio137.html

Mon, 09/13/2010 - 08:31 | 578075 tom
tom's picture

"Is the recent leakage in M2 higher, coupled with a contraction in MB the critical step that all the inflationists have been dreading (yet at the same time expecting)?"

No, not yet. It wasn't even a real surge in M2, it was mostly seasonal adjustment. Unadjusted M2 gained only $6 billion. Besides, week-to-week changes in M2 are very sloppy.

Where you really need to be looking are the asset and cash lines in the Fed's commercial bank credit reports, and the currency in circulation line in the weekly Fed balance sheet numbers. Any overall credit expansion will be clearly visible in at least one of those places before you'll see anything certain in M2.

http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/

Mon, 09/13/2010 - 08:31 | 578076 old naughty
old naughty's picture

Spinone,

Thanks for the remind. I sometimes lost in the mountainous proverbial and forget what ZH is. +1.

 

Mon, 09/13/2010 - 08:58 | 578114 DavidC
DavidC's picture

I agree with yabs's comment above.

What worries me is that the Fed will continue with its reckless actions by doing things such as 1) printing ever more money, 2) making rates at the Fed negative to try to get banks to lend out money rather than parking it at the Fed, 3) start buying stocks (if it's not already) and more, different assets and 4) intervene directly in the forex markets to force the dollar down, increasing inflation.

And all this, without any thought to the fact that it's pushing on a string. This is not a normal recession and the Fed seems determined, by any and all means available, to proceed as if it is.

As I say, it worries me.

DavidC

Mon, 09/13/2010 - 09:27 | 578165 yabs
yabs's picture

chrisina
I ma referring to the direction since march 2009

that dcirection has been up and away for both stocks and UK house prices

yes they are still down from the peak which is what you would expect after a crash but since last march we have seen RISING prices and inflation.

I have already made a bet that they will go down and lost badly

I really do think people are understimating what lenghts TPTB will go to

to keep the illusion of recovery up with stocks prices

Look at all ythe tech indicators and tell me how they keep the baby afloat.

The market seems to be like Michael Myers and refuses to die

Mon, 09/13/2010 - 12:29 | 578540 chrisina
chrisina's picture

"that dcirection has been up and away for both stocks and UK house prices"

that direction has been up and away for stocks until April. This was a 13 months bear market rally engineered by TPTB to give an illusion of recovery via $2 trillion money printing by the Fed and similar deficit by Govt.

Similar with UK house prices that have now (see August data) resumed their downward trend. You'll see that the downward trend will continue.

"I really do think people are understimating what lenghts TPTB will go to to keep the illusion of recovery up with stocks prices"

 

 

Correction : TPTB want you to believe that they will go to incredible lenghts to reflate assets and keep the illusion of recovery. The name of the game for TPTB is to try to create inflation expectations on the part of investors.

But TPTB would need to accelerate the money printing and the deficits in order to counter private deleveraging if they wanted to maintain the illusion of recovery. You' can bet that instead of accelerating, they are going to decelerate. Instead of $2 trillion per year, they are going to be forced to go to half or even a third of that, which means it'll work even less.

TPTB would have to show their willingness to increase Govt debt by $25 trillion, or 200% of GDP (paid for by freshly printed dollars created out of thin air) to counter the deflationary forces from a rapidly deleveraging private sector. Obviously, if they did signal this, it would mean an immediate run on treasuries, the dollar, and an hyperinflationary collapse. That means a reset of the system : debtors win all, creditors loose all, and tyranny. 

Mon, 09/13/2010 - 09:32 | 578181 yabs
yabs's picture

Lets look at what the experts say though as well

I think faber has been the most accurate and whilst he says we are all doomed

he still thinks stocks are a better place to be than cash

If you want to bet gainst him then go ahead

I thought Machugh and prechter would be proved correct but they are obviusly wrong

Machugh has been harping on about catestrophic wave C for over a year but still stocks go up

Mon, 09/13/2010 - 12:18 | 578558 chrisina
chrisina's picture

"I think faber has been the most accurate and whilst he says we are all doomed he still thinks stocks are a better place to be than cash"

 

Nope, Faber has been saying that for the coming year TPTB can put a floor to how low stocks can fall. He maybe right, but it won't hold for long. TPTB are building dikes of sandbags ($50 billion here and there) to counter a private debt tsunami of $25 trillion.

Mon, 09/13/2010 - 18:43 | 579468 Geoff-UK
Geoff-UK's picture

Faber also says buy arable land and put barbed electrically-charged wire around it.

If it's that bad, how the hell do I get my broker on the phone to send me my monthly statement by Pony Express?

Equities are a rigged casino game right now.

Mon, 09/13/2010 - 10:39 | 578308 RecoveringDebtJunkie
RecoveringDebtJunkie's picture

The deflationists have been "wrong" to this point simply because of timing. Every time the economy comes under pressure the government/Fed steps in to extend and pretend. When the money starts to wear off, we see renewed pressure immediately and the government attempts to step in again. The one phrase people should memorize here is "diminishing marginal returns".

There are limits in this world, and right now it's the end of credit, and most likely not the end of the dollar. NOT YET. That limit is father down the line. Of course no one can predict exactly how the collapse dynamic will play out because there are too many interacting variables. You can throw a ball up in the air and know it will come back down, but it would be very difficult to predict exactly the trajectory it will take and what location it will end up.

http://peakcomplexity.blogspot.com/2010/09/limits-to-complexity.html

Mon, 09/13/2010 - 10:54 | 578340 yabs
yabs's picture

I'm not sure about that this latest ramp up from 1040 has gone ballistic in a shorter time frame than last. We are getting higher highs and higher lows

Mon, 09/13/2010 - 12:47 | 578617 chrisina
chrisina's picture

The only chart that matters: S&P500 priced in ounces of Gold

http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=D&yr=3&mn=0&dy=0&id=p98695644552

 

Does that look to you as if we are "getting higher highs" ?

Mon, 09/13/2010 - 11:12 | 578388 Grand Supercycle
Grand Supercycle's picture

Updated DOW weekly chart:

http://stockmarket618.wordpress.com

Mon, 09/13/2010 - 14:47 | 578940 bart.naf
Tue, 09/14/2010 - 05:49 | 580168 yabs
yabs's picture

chrisina

How do you know that a reset of the system with hyperinflation is not the desire of TPTB?

Think one world currency and government

Tue, 09/28/2010 - 02:51 | 609278 Herry12
Herry12's picture

Thank u, i found this for a long time.
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