http://seekingalpha.com/instablog/4...bernanke-agenda-it-isn-t-what-you-think-it-is Comments please. OC
There are thousands of these types of things out there, everybody and his dog theorising on possibilities, what makes you think this one is worth commenting on? I'm asking because it is really long and I need some justification to spend my time on it.
Just read the first couple of paragraphs and stopped to comment. The Fed isn't build excess reserves, the banks are (ie Goldmann etc). The Fed was largely converting previously monetised assets on the banks books (eg the MBS') because they turned "toxic" and by exchanging them near face value for official US$ the banks remained solvent. As I've mentioned elsewhere this wasn't really a bad thing in and of itself, the problems come later. Anyway, once converted to Tier 1 cash -an asset which banks traditionally hate to hold on their books (lazy capital and all that) - they failed to FRB lend most of it out. Two main reasons. First, SFA places to put it (share market and the bond bubble have been the main beneficiaries). Second, the Basel III requirements are gradually kicking in. You may remember Bernanke tried Operation Twist to get the excess reserves out into the economy (and fractionally reserved) which largely failed. If this is the set up for the rest of the article I won't bother reading further.
I reckon his thesis has real merit. And how funny would it be if he was right, and it turns out that Bernake has out-smarted them all. :lol: Some will say it is outrageous, but I don't think it's any more outrageous than a lot of other stuff I've read.
The Fed ..... those that have been gratifide, served food upon, to provide as food or nourishment .... yep they have been well and truly fed alright ... like pigs at the trough ...
If the thesis is that Bernanke has been working on a secret plan all along and that he is a kind of misunderstood super-hero, then I would say that is just the author's biases kicking in hoping it to be true. It can be a hard thing for some people realising that the people they thought were in control aren't. They will concoct all kinds of elaborate things sometimes to pretend otherwise. You see the same kind of thing on the political threads on this forum all the time. People want Labor or (more often on this forum) Liberal to be their wise masters. When it's really just a bunch of ordinary guys and girls standing behind the curtain pulling levers.
Thanks for your comments. I have long felt that Ben Bernanke's #1 goal is to generate inflation, and thus inflating away the debt burden of the US. 'Stimulus' is just an excuse and maybe a side benefit. I have also always felt that 'printing' a zillion dollars and buying US Treasuries, eventually channels that zillion dollars into the US economy via the US Treasury spending on goods and services provided to the US people sucking at the teat, and US companies such as Boeing etc. The FED is damned near the ONLY buyer of those US Treasuries that keep the budget going, that MUST be sold somehow. And as far as I know a banks 10% of reserves IS productive, in that it earns interest in various Bonds/shares purchased with it. It does not sit in a vault waiting for a run to happen. Too much unproductive money - "float", is a sin to a bank. The author is a bit too glib for me in his theory. SJ
Actually I'm happy to read an article wondering about that extreme amount of excess reserves. The central planners like Bernanke aren't stupid. They learnt alot from the past. All the media attention to the Quantitative Easing. Near total ignorance for those excess reserves. And, as proved since 2008, we indeed did not see the general price increasings many (including me) expected. Simply because all those new dollars stayed on member bank accounts at the Fed's electronic depositories and/or were compensated for by shifting them from required reserves to excess reserves. The latter is not hard since required reserves is since a decade or so nearly a same scam as those Quantitative Easings, due to being ridiculously low, for ex the ECB's required minimumreserve ratio was just 2% on 1 january 1999, and since last year even lowered to 1% http://www.ecb.int/mopo/implement/mr/html/calc.en.html#res So the days of an 8-10% minimumreserve ratio, are long gone. You can find them now only in old books about economy. And this has a remarkable consequence, being that the minimumreserves serve no real purpose anymore. These days they act just like silly small buckets that floods over in excess reserves managed by the central bank. In other words: when you deposit money at a bank, it goes to the central bank located pool of excess reserves, the word 'excess' meaning as much as 'reserves': nothing, since the latter is just new money that represents no new production, the spending of the new money can only replace spending of existing money. The reason for this entire construction? To be able to sterilize existing money so that they can continu their spending of new money without facing competition of existing. Essentially, the fraction of the fractional reserve system, was moved from the individual bank level to the central bank. And this should make you ponder about those Quantitative Easings and Excess Reserves, like the articles author did. I can recognize a smart plan in it, to fight general price risings by routing out existing money in a series of big marketwide fluctuations during a certain amount of years. And you know what a fluctuation does, it moves money from those that buy later to those that bought earlier. If those that bought earlier were govt entities (such as institutionals) then have the chance to flush existing dollars right there. Take for ex again that IMF gold purchase-from-market in 2008 at lower price and sale in 2010 at higher price. Why selling gold for dollars if any institution could get new dollars from the Fed/ECB, as much they wanted? Simple: to sterilize dollars that speculators pumped in the gold market in order to avoid the Fed/ECB inflationbased theft. This all together smells like a smart plan. All they need is to repeatedly scare people with bank accounts into buying products whose prices have been driven up first by their institutionals. That includes stocks, bonds, gold, silver. To then scare them again away by their institutionals dumping and driving the price back down, bringing all those that bought after them in the red, disencouraged, selling low, upon where their institutionals buy back in, to start the next 'sterilisation round' of existing dollars.
Isn't it the opposite? They don't want excess reserves into the economy. They want to keep those dollars sterilized, to then be able to destroy them easily (no angry banksavers like after a devaluation or confiscation) Operation Twist was a bond swap, being the purchase of 10 years term bonds and the sale of 3 year term bonds, as to drive down the intrest of the 10 years term bonds (and thus lower the yield, thus cheaper debt for govt), especially since it is the 10 year term bonds rate that determines alot other indexes such as the one upon which wages and pensions are based, thus the rate that would cost govt / its institutionals the most if it would increase. And by the way, this is exactly what is happening now at the ECB, the excess reserves drop, and the base money drops too, meaning destroying the euro's they created last year.
Technically they were trying to encourage corporate/household borrowing by bringing down long term interest rates (and increase short term rates) - borrowing that would have increased the FRB loans which probably would have gotten the banks to use the excess funds. The benefit to the US Treasury of rolling over their debt/take out new debt at longer maturity profiles was probably also a noticeable factor (but they've been monetising the govt. debt anyway). It failed as we know. Ideally, yes but I think they would prefer the money in the economy now and somehow get them back and destroy them later. In either case, as Peter Schiff argues - likelihood of success is probably nil. As we know, the Fed's influence on money supply is currently only a fraction of the total supply. The private banking system would have to collapse much further for their influence to return at which point they would most likely be repeating Weimar/Zimbabwe. Interesting if true. I haven't gotten around to finding the relevant data series from the ECB to calculate true money supply. Can you point me in the right direction? (Also Japan if you happen to know that as well.)
The monetary reset is going mainstream. Interesting. The spin is that people will be better off. Now that's funny. Currency devaluation / gold re-valuation was always the objective, from way way back. They were always gonna use this bankruptcy re-organization to create a supra-national numeraire.
What if those 'technical' objectives weren't their real objectives? What if what you name 'failure' was simply due to that? Hence I thought of another much more straightforward objective, QE's being a scam, only to make people expect general price increasings so willing to pay more for stocks/bonds/gold/silver/crude/everything where the central planners entities bought themselves in first, causing those after them to receive less for their dollars. Why would they want the money in the economy/being spent? It would drive up prices, and such price inflation hurts everybody including themselves. Instead, they were smarter by shifting new bank deposits (people saving due to crisis fears) to excess reserves under control of the central bank. What you mean with Fed's influence on money supply only a fraction of total? Excess Reserves of the dollar became even higher than the net monetary base, indicating the opposite: the Feds influence (along the intrest rate on the excess reserves paid to the banks) on the money supply sits historical high, likely never seen before. In 2008 excess reserves were nearly nonexistent in terms of todays figures. Base http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=123.ILM.M.U2.C.LT01.Z5.EUR 2013-05 1333817 E 2013Apr 1369052 E 2013Mar 1428842 E 2013Feb 1534126 E 2013Jan 1630913 E 2012Dec 1630969 E 2012Nov 1675264 E 2012Oct 1736211 E 2012Sep 1766244 E 2012Aug 1750966 E 2012Jul 1774568 E Excess Reserves http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.U2.N.R.LRE.X.1.A1.3000.Z01.E 2013-05 217281 A 2013Apr 241136 A 2013Mar 297341 A 2013Feb 360807 A 2013Jan 382990 A 2012Dec 403527 A 2012Nov 422720 A 2012Oct 431095 A 2012Sep 432898 A 2012Aug 403239 A 2012Jul 4616 A (note: apparently they recently changed the date format from an alphanumeric month abbreviation to a number, causing that different 2013-05)
Yes, it's higher than it was because the QE dollars replaced the non-Fed FRB-system dollar-equivalents. Essentially M0 (base money) was approximately 18% of the true money supply before the GFC and, thanks to the credit crunch and associated QE it is now approximately a third of the true money supply. BUT 18 percentage points of that (i.e. over half) are the excess reserves and the current Net M0 is actually down to ~16% of true money supply. How much influence the Fed has over these deposits is an open question (depending on how conspiratorially minded you are). Are they sitting there because the Fed is manipulating levers or simply because the banks don't trust other options? Edit: Those Euro statistics seem to be the internal liquidity management funds. I'm not exactly sure what they are.
What do you call 'true money supply'? I use the narrowest money supply there is, being the monetary base. Because every higher numbered supply involves the addition of kinds of paper that are lesser and lesser likely to be spent. Cash (banknotes), money on short term bank deposit (so not longer term savings deposits). So all what is 'higher', doesnt easily enter circulation, because it involves ending a contract, which in turn involves penalties/fees/etc. So the monetary base is by far the biggest price inflationary stock. With the exception of excess reserves, that, for some reason unclear to me (or very obvious in the light of the strategy I suspect the central planning is operating as explained here), is included in the monetary base. For ex: the ECB's monetary base components: - L010 Banknotes in circulation http://sdw.ecb.europa.eu/browseExplanation.do?node=SEARCHRESULTS&sk=123.ILM.M.U2.C.L010.Z5.EUR - L021 Current accounts (covering the minimum reserves system) http://sdw.ecb.europa.eu/browseExplanation.do?node=SEARCHRESULTS&sk=123.ILM.M.U2.C.L021.U2.EUR - L022 Deposit facility http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=123.ILM.W.U2.C.L022.U2.EUR That L022 is the account where excess reserves are stored. The same description on the Federal Reserve side, only that they explicitly state, see http://research.stlouisfed.org/wp/1996/96-014.pdf , that excess reserves is part of the monetary base (which the ECB doesnt explicitly state (at least I still didnt find it) so it's not sure). This is an article from last year, I came across: http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html This person has created a chart showing both, which says it all: See how the angle of the net monetary base, the 'real' inflationary component, remained the same one as before the 2008 crisis? Now cap back to the ECB's Euro side I pasted earlier: Draw a line between the latest/last plot on the red line and a plot in 2008. You see the very same as the net monetary base of the Fed: the resulting line has the same angle to the X time axis as before the crisis, alike all the 'Quantitative Easings' were dummy operations. Can all this be coincidence? I highly doubt it. I think that we are looking at a smart central planning strategy, lotsa talk about Quantitative Easings and dollar/euro creation, but in reality they were never inflationary because they sat on the sideline as a disguised component of the monetary base. Disguised, just compare the media attention to the QE's with the media attention to the immense excess reserves buildups, the former was on the frontpage of every newspaper, the latter you have to find in a few articles on the entire web, most of these few being blogs, yet the official CB figures confirm the latter.
I don't know what you mean. Internal Liquidity Management is not the name of a fund but a description of what the ECB, as a central bank, does within the monetary/financial system built around ECB. This is a good explanation: http://libertystreeteconomics.newyo...w-global-banks-manage-liquidity-globally.html Shifting money from base to excess and vice versa, and other 'shuffles' from/to other balances. Remember the sterilisation of existing dollars I talked about? Abit like at the Comex, where constantly is shuffled between Eligible and Registered gold/silver, as to manage the amount available for delivery to meet the needs, haha.
Possible. Because that is the only way to directly 'defeat' savers that refuse to put their money in the frontrunned traps they placed in the markets. Take for ex my country, this year again a new record high amount money on bank deposits. That is the REAL problem of the central planning. They can't increase intrest rates because then the amount would grow even faster, and they would be forced to create more and more money until the root of the hyperinflation process (people unable to cut spendings even more and thus unable to save) arrives and the mechanism starts. So the central planning tries to drive people away from bank deposits, at all costs. Remember Cyprus? A smallish nonevent (it's a fraction of a % of the EU zone) but blown up by media to Gulliver dimensions. And EU officials didn't avoid to talk about the part on bank deposits above 100,000 euro that isn't 'guaranteed' by governments, instead they did their best to keep mentioning it, and not only in Cyprus (ex local politicians here also made similar statements, as that the 100,000+ part would be subjected to new taxes). Also another local political statement that suddenly popped up, after a couple decades doing nothing about it, is about multiple savings accounts. In order to avoid having to pay a higher tax % on their savings intrest, alot people spread their money across different deposits / different banks. Some politicians said that they would form a central database to easily detect these, as to be able to apply the higher tax, an operation that could have caused a shockwave throughout bank depositors. Abit later other politicians said that nothing was decided yet. This is obviously all scare-seeding talk, to drive people away from bank deposits towards risk, where the blame for losses can be shifted to them instead of to bad (central) banking practices. But will they actually perform a devaluation? Be sure that bank deposit holders do not like this. It could cause a severe shock with runaway inflation as next consequence, like happened in Belarus a couple years ago. So I doubt devaluation, and gold re-evaluation I consider even as a joke, why would the central planners, after all the mess they went through to get rid of 1) the real gold standard, then 2) the bretton woods fake gold standard, return to a real gold standard, limiting them again in their spending? I think that that 'monetary reset' you talk about will just be the destruction of excess reserves, again some crisis, again some excess reserves, and the story repeats just like Stephen Kings Dark Tower, to cause a next milking sequence of bank account holders that attempt to escape inflation losses by buying stuff as gold / silver where the central planners entities frontrunned themselves back in, once enough got disappointed by the Red, and sold low.
You've raised a plethora of individual questions/issues but I can answer this one quite easily. What I call the True Money Supply (TMS) is the one formulated by Murray Rothbard (based on Mises original formulation). Basically it represents the amount of money in the economy that is available for immediate use in exchange (ie. the amount that is available to call on the current stock of goods and services). The benefits of TMS over conventional measures calculated by the Federal Reserve are that it counts only immediately available money for exchange and does not double count. This graph shows the relative size of TMS to currency and the excess reserves. As I said - most money in our credit economy comes from the non-cenral bank banking sector.
Is 1 question a plethora? Then you just have had another plethora. Why 'individual' issues? (Sorry for this next plethora question!). What I said was an amount elements, together forming a story. About that 'True Money Supply', hey, a bank savings account is also immediately available for spending, but its owners chosed to not do so, that's what 'saving' is, remember? That's why I said: "I use the narrowest money supply there is, being the monetary base. Because every higher numbered supply involves the addition of kinds of paper that are lesser and lesser likely to be spent." If monetary base components aren't even spent yet, why would wider money supplies (M1, that 'TMS') be spent? (Sorry another plethora question).
Wow. Mr multiple posts greater than one screen making multiple semi-interrelated points and assertions in order to string a story together is worried about "plethora of individual questions/issues"? Anyway, narrowest money supply doesn't make sense given the vast amount of money equivalents. The TMS is the money available to drive inflation, not the monetary base. It is the amount people have to bid up general prices. It quite rightly does NOT include term deposits most of the M2, any of the M3 and some of the M1 (refer to the literature for specifics).
