patrick.net

Stuck,

I think there is a big global economic component to the equation. I do think you're right, and the Fed will eventually be FORCED to raise rates to battle inflation. I also agree with Zephyr that their actions will be time-distorted.

The other dimension to all this is the capital outflows/trade imbalance. By inflating under control the Fed is trying to participate in a global "soft restructuring". All the other major CBs are cooperating with this as well, with the exception of China. I look for future easing to put increasing pressure on China to continue with their staggered revaluation.

The Fed doesn't care about the dollar, but they do care about the balance of capital. Elected officials care too. And it's a race to see if the Fed can engineer a soft restructuring before Congress turns over and starts erecting trade barriers and blows up what's left of the WTO.

Randy,

Alright, as a non-statistician, I'll concede you may be right about there being some double-counting going on between M1, 2 & 3. If the scale of over-counting is significant, then, sure, it's a valid concern. Even so, why not just "mend it" vs. ending it? There's a considerable amount of skepticism about the Fed's stated "costs outweighing the benefits" explanation out in the financial blogosphere --and it's not just Trilateral Commission/PPT/tinfoil hat conspiracists that are asking such questions:

Money Supply and the End of M3
http://bigpicture.typepad.com/comments/2005/11/money_supply_an.html

Oregon Economics Professor Mark Thoma noted that having M3 available makes it easier to track movements “into and out of M1 and M2 over time.” While not having it available “is not a huge loss, it was nice to know it was there to look at when it was needed. Thoma would have preferred that if M3 goes, “some improved measure of highly liquid assets beyond M2 be constructed to take its place.”

Given the computing power at the Fed’s disposal, and the already incurred expense of compiling the data components, it essentially costs the Fed nothing to create the M3 data. Compared to CPI, this is one of the most steady data points the Federal Government generates. It seems a shame to lose a series that has been reported (and in such a consistent manner) for so many decades.

M3 Measure of Money Discontinued by the Fed
http://www.financialsense.com/editorials/conrad/2005/1122.html

This is just not credible in my opinion as the Fed has so much money that they routinely turn in $10 to $20 of their excess profits back to the rest of the government. They earned the $20 B as interest on the huge stash of Treasuries that are bought to keep interest rates low, and are the backing of the paper dollars they issue. There are buildings of economists at the Fed that could do the job.

The discontinuation of M3 reports is a relatively minor matter compared to growth in areas of the U.S. payments system that are not regulated by the Fed and not well monitored by them. But it is unsettling. It detracts from the transparency the Fed preaches and adds to the suspicion that the Fed wants to hide anything showing money growth high enough to fuel inflation, just so people won't know how bad it is and possibly react and thus make it worse.

For links to economists and analysts from BOTH sides of the argument, check this out:

M3, "Moneyness", and Conspiracy Theories
http://themessthatgreenspanmade.blogspot.com/2005/11/m3-moneyness-and-conspiracy-theories.html

I have no doubt in my mind that within 20 to 30 years the United States will rank third or fourth and possibly fifth as a financial world power behind China, Japan, India, Russia and Europe.

I'll take that bet, and even give you 5:1 odds. You should at least rethink Russia. They don't exactly have a long history of creating sustainable economic power; but they do have a great talent for destroying potential.

HARM,

At least one of those links does present logical, reasonable arguments.

You are attempting to shift the context of this debate from now&futures.com is full of shit to reasonable people reasonably debate Fed centered econometrics.

I have never raised objection with reasoned critics. I will continue to object to bullshit, regardless of its particular flavor or affiliation. I point out that I took "The Futurist" (aka Juku) to task over his "$100 Oil is Good for the US" model, which included lots of equally flawed graphs and charts.

Randy,

You seem to be convinced now&futures.com's methodology is "full of shit", so I'll leave it at that. I am not a professional economist or statistician --as you are-- so it is highly doubtful I can create anything better or debate you on the specifics of whether or not they achieved their claim of "five nines 9999946 correlation" to the real index. Perhaps they should have just said "this is a pretty good guess" and left it at that.

I still doubt that compiling historical Fed data to create a rough reconstruction of M3 using a "best guess" of the Fed's (presumably secret) formula is entirely crazy or beyond ordinary human ability. However, I'll concede there may be much better models out there. If you know of any, please share them with us here.

HARM,

I and others have been and will continue to search for such models. I'll happily share anything I find, of course.

The second link you posted above:
M3 Measure of Money Discontinued by the Fed
http://www.financialsense.com/editorials/conrad/2005/1122.html

is very reasonable. The third link is a bit of a polarized discussion, but also not without some interesting perspective and information.

Recreating a "guess" at M3 isn't really all that hard. But it's useless. What is hard is figuring out how to measure real money growth in aggregate, which is ultimately what you're after I assume.

No one reasonable denies that we have been awash in global liquidity. I'm just saying that the one particular site you used as support is illegitimate.

And, for the record, I am not a professional economist, econometricist, or statistician. I do not have a PhD in any of those fields.

I do not have a PhD in any of those fields.

I thought you were a CBA (Certified Bubble Analyst)?

aided and abetted by a man who is a born ex-bankrupt loser by the name of George W. Bush

correction: a born-AGAIN ex-bankrupt loser...

@DS,

Actually I think he had it right the first time :P .

@goober,

According to the Economist:

To bring the ratio of prices to rents back to some sort of fair value, either rents must rise sharply or prices must fall. After many previous house-price booms most of the adjustment came through inflation pushing up rents and incomes, while home prices stayed broadly flat. But today, with inflation much lower, a similar process would take years. For example, if rents rise by an annual 2.5%, house prices would need to remain flat for 12 years to bring America's ratio of house prices to rents back to its long-term norm. Elsewhere it would take even longer. It seems more likely, then, that prices will fall.

Of course, this was calculating it for national prices, not CA's --which are much higher, and will naturally take longer. And it all depends upon what you think the "real" inflation rate is, and whether or not rents will track this rate long-term. Two very big "ifs".

Oops, forgot the source: http://www.economist.com/finance/displayStory.cfm?story_id=4079027

Using 2000 prices as a "pre-bubble" benchmark:
CAR 2000 median price: $241,250
(source: http://realtytimes.com/rtapages/20001207_carsurvey.htm)
CAR June 2006 median price: $575,800
(source: http://www.car.org/index.php?id=MzE3ODY=)

575K / 241K = 239%

If we assume:
(a) the current CPI (~4%) is an accurate measure of inflation
(b) housing prices will stay perfectly flat long-term
(c) rent increases will roughly track the CPI long-term

Then it would take approx. 22.5 years for inflation alone to bring rents back into line with prices: 1.04^22.2 = ~2.39

If we assume "real inflation" is closer to the pre-Clinton CPI (7.5%), then it would take only 12 years for inflation to bring rents back into line with prices: 1.075^12 = ~2.39

All I will say is that if Rents don't "track inflation", then there won't be inflation. It's a circular iterative equation.

Same is true of incomes, with lag. There is no free lunch. It all depends upon how much more 'slack' you think can be taken out of the average consumer before (s)he gets upset enough to finally vote their own best economic interests.

goober Says:
I’m beginnig to think a plateau is possible…

if it plateaus, it will still put ridiculous demands on the income of the next generation, so there will be housing stress for years to come.

NYC council has announced the creation of 165,000 affordable housing place to be built or made available over the next 10 years... that would help to alleviate the problem by bringing down market prices both directly and indirectly by govt intervention... prices for these places would obviously be lower, and there would be a flow-on effect into uncontrolled prices due to lessened demand... both rents and purchases, i guess...

https://pbs.twimg.com/media/FCKAodrVEAYDfvE?format=png&name=small

The stagflation we saw looming on the distant horizon back in the mid 00s has finally arrived. It only took a global debt market financial collapse, the Fed printing so many 0s that it's easier to state their balance sheet in scientific notation, and a 2.5 year long undeclared state of global martial law, to finally release it upon us.

Now that we're here, it could take a decade or longer to just get back to anemic growth.

That is, unless another one of those formerly rare black swans decides to join the gaggle.

Randy H says

Now that we're here, it could take a decade or longer to just get back to anemic growth.

Actually all it takes is just one quarter with a President that really gives a good greasy rat fuck shit.

Trump proved that Democrats and RINO establishment creeps are nothing but grifting greedy retarded creeps, that has no business deciding or dictating monetary policies.

Randy H says

The stagflation we saw looming on the distant horizon back in the mid 00s has finally arrived. It only took a global debt market financial collapse, the Fed printing so many 0s that it's easier to state their balance sheet in scientific notation, and a 2.5 year long undeclared state of global martial law, to finally release it upon us.

Now that we're here, it could take a decade or longer to just get back to anemic growth.

That is, unless another one of those formerly rare black swans decides to join the gaggle.

Our glorious MIC is pumping on all cylinders now (thanks, Puton!) and will be the engine pulling us out back to growth.

Eric Holder says

Our glorious MIC is pumping on all cylinders now (thanks, Puton!) and will be the engine pulling us out back to growth.

The MIC is what is destroying, and will ultimately destroy the United States. That's why I'm "anti-war" - I do dislike the senseless killing, but more than that, it's destroying our country and obviously it. In 50 years, this flag:



May be synonymous with this flag:



Now I'll be dead by that time, however, there's much of the United States worth preserving, most of it in fact. The problem is we have a FEW criminals that have complete control over the system, and a bunch of dupes, like you who are providing cover for these criminals out of a perverted sense of "patriotism".

richwicks says

I'm "anti-war" - I do dislike the senseless killing

Bullshit. You've never, not a single time condemned Russia and Putin for their emperial war of expansion. Your words ring hollow.

richwicks says

The MIC is what is destroying, and will ultimately destroy the United States.

Nope. Our MIC is the glorious engine of innovation and provider of security for everyone. If you want to see what happens to a country hell-bent on disarming for 30 years in exchange to some "memorandum" look at what happening right now across the pond. Peace through superior firepower is the only kind of peace that lasts. UN and bullshit "security agreements" aren't worth the paper they are written on.

Of course that's just one of Biden's many inflationary crimes against American people. Other inflation-stoking crimes were lockdowns, shutting down the Keystone pipeline, and paying off student loans with money stolen from people who paid their own way.