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M2 Update: 12th Consecutive Weekly Increase, The Seasonal Adjustment Inflection Point, And The FDIC's "Free Capital Transfer" Plan Is Working

Tyler Durden's picture





 

M2 continues its seemingly endless rise higher...at least on a seasonal adjusted basis. In the week ended September 27, M2
rose to a fresh record of $8,741.9 trillion: a$30.9 billion W/W jump which was the 4th largest weekly rise year to date. This was the 12th sequential increase in M2,
which in 2010 has increased by over quarter of a trillion dollars. 

Not surprisingly, the biggest swing factor in the weekly change was the $20 billion rotation in Demand Deposits, which switched from an outflow of ($9.2) to $12.8 billion. Surely, this is precisely as the administration had intended: some may recall that last week we noted that the broke FDIC had decided to increase the insurance on demand deposits from $250,000 to infinity, precisely in hopes of achieving this effect. And while in the case of a bank run all these deposits will be lost as the FDIC's DIF is negative, it is all about perception. And for now, the government is once again on top. The impact of the demand deposit contribution can be seen in the yellow bar in the chart below.

The full breakdown of M1 and M2 can is presented here:

And now, time for a slight detour: for some odd reason the government presents the M1 and M2 data on a Seasonally and Non-Seasonally Adjusted basis: as if a particular checking account withdrawal will be necessarily offset in the future due to seasonal factors this year as it has in the past.Well, that's what the government would like us to believe. As the chart below shows, the NSA M2 is quite jagged, and while it does trend higher, it does so in a far more volatile fashion than the SA M2.

What is notable from the chart, is that we are now at that point in the year, when the SA vs NSA delta is highest: roughly $125 billion. And typically, as the next chart shows (which shows the historical M2 SA/M2 NSA ratio), from here on until the end of the year, it is the NSA M2 that surges, as it catches up with "deferred" monetary flow into the economy.

We are not sure what the real reason for the surge in "real" money is (and not magically seasonally adjusted money) in Q4 is, when the NSA "deficit" catches up with the SA numbers, but whatever it is: liquidations, pick up of spending into the holidays, etc., we think "this time may be different." Which means that the next several weeks will be very critical to confirm if the actual priced in surge in NSA M2 will actually occur. And since this is real money that goes into the economy for a variety of GDP boosting endeavors, this may serve as yet another accrued source of weakness. Because should not only the $125 billion in NSA monetary aggregates (that already are priced in by the government), but an additional pick up into EOY not occur, then the impact to GDP, from a monetary basis, may be quite severe, and amount to as much as 1% of GDP. We will keep a close eye on this differential and confirm or deny whether this hypothesis is playing out.

 


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Fri, 10/08/2010 - 00:21 | Link to Comment RockyRacoon
RockyRacoon's picture

We are not sure what the real reason for the surge in "real" money is (and not magically seasonally adjusted money) in Q4 is, when the NSA "deficit" catches up with the SA numbers, but whatever it is: liquidations, pick up of spending into the holidays, etc., we think "this time may be different."

A lot of things are different this time.  "Liquidations" and holiday shopping are some pretty flimsy hooks to hang our economic hats on.  There isn't much in the way of good news -- is there?

Fri, 10/08/2010 - 00:21 | Link to Comment Gen X Gen Y Hybrid
Gen X Gen Y Hybrid's picture

Duh.  Of course "NSA M2" is going to surge.

M1 Currency finally cracked 900 billion this week (seasonally adjusted).  Over under is 3 weeks on non-seasonally adjusted cracking 900.  

I'm taking the Under.


Fri, 10/08/2010 - 00:27 | Link to Comment chopper read
chopper read's picture

the increase of insurance on demand deposits from $250,000 to infinity had the exact opposite effect on me.  I feared the worst as it is clear that banks are running out of working capital to service daily outflows (into gold?).  

from $100,000 to $250,000 was a milestone.  anyway, my vote is that this is a short-term blip that caused withdrawals to pause (for a deep breath), but that outflows will resume again soon.


Fri, 10/08/2010 - 00:49 | Link to Comment Hephasteus
Hephasteus's picture

10 ounces of gold rapes the system of a million dollars. You've never been so powerfully levereaged in your life. Taking 100k out of a 401k is nothing. Buying gold with it you become a monster.

Fri, 10/08/2010 - 09:44 | Link to Comment chopper read
chopper read's picture

its my protest, my friend.  fuck them.  i've been doing it all night long until six in the morning.  "fractionally reserve lend" my gold in a safety deposit box, banksters.

Fri, 10/08/2010 - 02:22 | Link to Comment gwar5
gwar5's picture

Good explanation of what's going on with M2, thanks.  Wonder what's going on with M3 these days...

 

Fri, 10/08/2010 - 04:57 | Link to Comment MarketTruth
MarketTruth's picture

We are not sure what the real reason for the surge in "real" money is...

Ben Shalom Bukkake is warming up the helicopter and coming to a neighborhood near you! Run to Home Depot now before they sell out of rakes! Get yours today! 

 

Fri, 10/08/2010 - 10:18 | Link to Comment michigan independant
michigan independant's picture

Must punish the fungible Chinese. All, I see you increased the IV drip increased. Central IV lines carry risks. Core Competency's is another issue. The desease has already killed that patient, we need its organs transplanted. Then we unplug it..... That class can be reduced since we have more.

The word comes from Latin fungibilis from fungi, meaning "to perform", related to "function" and "defunct".

The High Priest has waved his hand.....

Fri, 10/08/2010 - 13:19 | Link to Comment boogey_bank
boogey_bank's picture

I may be wrong but it seems to me that the unlimited fdic insurance on bank accounts will work against average people (a bank crash with a small fdic insured capital would diminish the concentration of wealth in the population) and will raise the probability of an hyperinflationary event.

Fri, 10/08/2010 - 14:10 | Link to Comment chopper read
chopper read's picture

it works against average people because the bank can take unlimited risk, keeping the profits when it goes well, or go bankrupt when it does not leaving the taxpayer (the 'average' person) to guarantee the deposits.  

privatization of profits, socialization of losses.  thanks, FDIC.

don't forget that your friendly banker can achieve this with FREE money via "fractional reserve lending".

Oh comrad, the joys of centralized money planning. 

 

Wed, 10/27/2010 - 08:42 | Link to Comment daniel
daniel's picture

 

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