patrick.net

Add $2T to MZM, get $3T more output.

We can play this game for a very, very long time.

Bellingham Bill says

We can play this game for a very, very long time.

I don't understand why you keep showing those worthless FED charts. They are a bastardization of the truth and lead people who don't understand economics to believe the FED is actually capable of controlling the economy.

This chart from shadowstats.com is much closer to reality than anything the FED has released since 2006 when they quit reporting M3 in lieu of MZM - a completely worthless measurement. John Williams has tracked the FED data that was used to report M3 and continues to do so. It is obvious why the FED quit reporting it... it exposed the fact that their policies were completely out of control (at one point M3 was up to 18% then collapsed below -6%) and the only way to cover up their lies was to just hide the information.

As everyone can see in William's chart below, the truth looks nothing like your chart and, more importantly, the game the FED is currently playing is coming to an end. If you believe the chart you posted and what you say above, then you are in for a very rude awakening. Personally, I think you a smart guy and a FED apologist. And I don't understand why.

You know this game can't be played much longer. So why pretend?

darlag says

You know this game can't be played much longer. So why pretend?

LOL.

http://research.stlouisfed.org/fred2/graph/?g=Hwo

Another good Stockman interview from this week:
http://www.peakprosperity.com/podcast/86441/david-stockman-collapse-american-imperium

darlag says

So why pretend?

your own chart shows money supply growing at 5%.

while the Fed's MZM is at +6%:

The thing about printing is if everyone does it, nobody's currency is going to weaken agains the others, since nobody is on a hard currency any more.

Now that's inflationary of course, but inflation isn't a world-destroying event.

And if someone wants to volunteer their currency to be the new reserve currency, they can go on and grab the ring. Fat lot of good it's doing us.

http://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm

I just don't see the systemic failure coming. Inflation, sure. But we're in a post-scarcity economy, compared to the 1970s. Going with real productivity gains of just 2% per year since 1970, we can output well over 2X the goods and services per unit input compared to then. And productivity has been well over +2% YOY in many areas like computing, energy, manufacturing.

As early as 2005 I knew the housing bubble was going to collapse, badly, since it had outpaced fundamentals and there was too much suicide lending -- lending that was setting the price level -- going on.

Stockman just vomits a lot of unspecific scare-word agit bullshit:

harm’s way perfect storm policy failures massive bubble painted
itself into a corner absolute failure of American world dominance
foreign policy is collapsing everywhere out of hand trade war
already fragile financial bubble that is waiting to burst zone of extreme
danger big failure and I don’t think it’s too far down the road.

and then summarizes that word salad with "So those are the factors that will ultimately cause a major collapse"

um, OK.

Stockman has been in every aspect of finance since the 80s, he knows his shit.

The biggest danger is the 4 trillion dollar bubble created by the Fed, it has manifested itself in student loan debt, the stock market, bonds, real estate.

All the while the unfunded liabilities keep piling up.

Currently I read that this year there will be a recession for the 2nd half.

But at some point there will be a catalyst, a black swan, that will trigger the re-balancing.

Maybe the BRICS? Maybe some of the 4 trillion will actually start getting lent out causing inflation forcing Yelling to raise interest rates? Maybe states/cities will start declaring bankruptcy whole sale? Maybe yet another war?

But the big one will come when the payment comes due for the unfunded liabilities and the politicians have tried every form of chicanery to no avail, and Humpty Dumpty will fall.

He is calling for it now, I think the bbqing will be where the welfare is the greatest. Fortunately for me most of that around here is Hispanic who are milder than they will be in DC where the indigenous will likely be dining on our intrepid leaders as they are fattened public servants.

indigenous says

But the big one will come when the payment comes due for the unfunded liabilities and the politicians have tried every form of chicanery to no avail, and Humpty Dumpty will fall.

IMHO WATCH OUT STARTING NEXT YEAR because, the Government Accounting Standards Board (GASB) require that "Pension liabilities must be included on the balance sheets of the agencies responsible for funding their employees' pensions."

http://articles.latimes.com/2014/apr/09/opinion/la-oe-fritz-pension-liability-california-20140410

Bellingham Bill says

The thing about printing is if everyone does it, nobody's currency is going to weaken agains the others, since nobody is on a hard currency any more.

Now that's inflationary of course, but inflation isn't a world-destroying event.

Inflationary? Not necessarily, it can also be deflationary. And _deflation_ can be a world destroying event as we saw in 1929. I believe you believe what you're saying, no question about your sincerity. But when we both look at the numbers we see two different outcomes.

I clearly understand Stockman's statement, "...when you take the balance sheet of the Fed from $900 billion to $4.5 trillion in less than 70 months, and when that pattern is replicated around the world, that is a train wreck in slow motion."

What he is describing is a credit (aka debt) bubble, plain and simple, and bubbles burst violently every time. The bigger the bubble the bigger the burst... and this one is the largest in the history of the modern world. I believe the train is going to run over the poor girl tied to the tracks. You believe Dudley DoRight will somehow stop the train and save her from a catastrophic end. I wish I had your optimism... but I don't.

Besides that, it's not about whose currency is reserve anymore. They're all fiat now. It's about whose debt levels are going to cause the next global liquidity trap. Just like Lehman, the major U.S. investment banks are unsustainably leveraged up the wazoo.

Stockman asked,

"What happens if they actually began to allow interest rates to rise or begin to attempt, through one mechanism or another, to shrink their balance sheet?

The fast money will get on the other side of the trade just as fast as it rode the bubble expansion to the top. And they will sell what they think the Fed is selling. And that will cause a massive unwind of the greatest overvalued market bubble in the world, which is the government bond market."

So, I personally don't believe the Fed can "allow" or not allow interest rate movements. I believe the market does that independent of the Fed's wishes or desires(although the Fed has enjoyed erroneously taking credit for it over the years). The market "WILL" demand yield in lieu of great risk, both in the U.S. and around the world. And when it does, the massive leverage of the investment banks will deflate like a pricked balloon. This monster can't be slowly unwound.

As Stockman asserts... "The fast money will get on the other side of the trade just as fast as it rode the bubble expansion to the top."

Which is just another way to say that _deflation_ will draw the economy into an uncontrollable death spiral. Like Stockman, I am convinced a deflationary spiral is inevitable, apparently you aren't.

So we wait and see... but if Stockman is right we won't have to wait long.

Stockman is a f@@@ing fool. He lost so much money for Solomon brothers he had to start his own money management firm, lost so much for his clients no one will invest with him and he has make it as a pundit spewing doughnuts for dipsticks.

darlag says

Not necessarily, it can also be deflationary. And _deflation_ can be a world destroying event as we saw in 1929.

Deflation was not world destroying, it was FDR who did that with help from HH.

darlag says

Which is just another way to say that _deflation_ will draw the economy into an uncontrollable death spiral. Like Stockman, I am convinced a deflationary spiral is inevitable, apparently you aren't.

Mish says we will be in and out of deflation. He was the one who said no we will not have high inflation in 2008 because the credit market dipped. The money supply is what 3 trillion with M2 at 12 trillion but the credit market is 50 trillion. This is where the deflation comes from.

Inflation is a far more common economy killer.

The Fed can keep this going for a while.

indigenous says

Deflation was not world destroying, it was FDR who did that with help from HH.

It was the FED that did that with help from FDR. Even Bernanke, (the supposed expert on the Great Depression) admitted that in a 2002 speech in which he apologized to Milton Friedman and admitted Friedman's and Swartz's assessment of the Fed's role in the early 1930s was correct and the primary cause of the economic deflation. Of course he went on to say deflation is not possible today :-)

http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

Milton Friedman and Anna Schwartz cleared that up. The Fed was the culprit by their own admission.

http://www.globaldeflationnews.com/the-keynesians-and-helicopter-ben-bernanke-the-end-of-the-federal-reserve-system-part-2/

darlag says

Milton Friedman and Anna Schwartz cleared that up. The Fed was the culprit by their own admission.

My understanding is that basically Friedman blamed the Fed for not supplying liquidity to the failed banks in 33.

The market already had a device for this eventuality which was for the banks to issue script. As I recall FDR decided this was unacceptable for some fucked up reason. (which he had lots of them)

When ever you are looking for the cause of the problem you look earlier. Just logic right? Yet Friedman is trying to say the problem occurred simultaneously with the cause. It doesn't work like that. The problem was earlier in the 20s when there was too much loose money.

But the bottom line is that the depression would not have occurred if HH and FDR had done nothing. Rather it would have been just another short recession. To place blame any where but these two mutts is misplaced.

indigenous says

But the bottom line is that the depression would not have occurred if HH and FDR had done nothing. Rather it would have been just another short recession. To place blame any where but these two mutts is misplaced.

Not buying that one... but I agree, the Fed was not the cause and not the only culprit involved. They were, however, primarily responsible for making the problems worse, not FDR, not HH.

In this speech honoring Friedman's ninetieth birthday, Bernanke explains a great deal about how the Fed reacted improperly and what happened as a result. He also acknowledges Friedman's excellent work on the subject of deflation in the early thirties and admits and explains the Fed's role in exacerbating the problems.

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/

darlag says

Not buying that one..

Do you consider Bernanke to be a unimpeachable source ?

What is so bad about deflation?

Yet you follow Stockman?

indigenous says

Do you consider Bernanke to be a unimpeachable source ?

What is so bad about deflation?

Yet you follow Stockman?

I only agree with either of them when they agree with me :-)

I consider no source unimpeachable - even me.

darlag says

I only agree with either of them when they agree with me :-)

Go to the Mises site and readup on the Great Depression, I'm sure Stockman would agree with me.

darlag says

Which is just another way to say that _deflation_ will draw the economy into an uncontrollable death spiral. Like Stockman, I am convinced a deflationary spiral is inevitable, apparently you aren't.

Japan has a demographic-driven deflationary spiral:

The last thing we have to worry about is deflation!

Throwing 30 bullshit buzzwords out is not a scenario or description of systemic imbalances.

Now, if we want to talk about dislocations and departures, we can look at our trade imbalance and say the yuan going to 3 or 2. But is that inflationary or deflationary for us? We've been essentially exporting our inflation to China thanks to our colossal trade deficit with them.

But China doesn't want change (yet), so they print to "defend" their weak-ish yuan.

Or we can look at a future where the crazy (well, crazier) wing of the GOP takes over and decides to pull the temple down by rolling spending

back to the level 10 years ago to cut the deficit.

That'd certainly be deflationary in an apocalyptic scale.

But as far as I can see, the system is just injecting feel-good juice and the lines on the chart are going to keep going up and up.

^ inflation. Understanding how & why the system inflected in the 1970s is important, but I don't think anyone does, me included.

But the median boomer was age 25 in 1980; the median echo boomer is age 23 today. NOT deflationary!

^ Systemic ooga-booga debt leverage; total (non-FI) debt / GDP

deflationary collapse is the cranky old white guy's wish-fulfillment fantasy, and wherever you dug up this "interview", they're trying to sell you something.

Bellingham Bill says

^ inflation. Understanding how & why the system inflected in the 1970s is important, but I don't think anyone does, me included.

It was caused by Vietnam, almost all inflation is coincident with war.

Notice the flattening of the last graph after the recession? That was the deflation.

Bellingham Bill says

Japan has a demographic-driven deflationary spiral:

They say that about China in the future, from the one child policy.

indigenous says

When ever you are looking for the cause of the problem you look earlier. Just logic right? Yet Friedman is trying to say the problem occurred simultaneously with the cause. It doesn't work like that. The problem was earlier in the 20s when there was too much loose money.

OK, the great depression was caused in the 1920s.

indigenous says

But the bottom line is that the depression would not have occurred if HH and FDR had done nothing. Rather it would have been just another short recession. To place blame any where but these two mutts is misplaced.

We should blame HH and FDR who were president during the great depression. If it weren't for these guys, it would have been a short recession.

I'm confused.

YesYNot says

OK, the great depression was caused in the 1920s.

Similar to the great recession Greenspan made more money available for housing, this was the cause of the meltdown in 2008.

YesYNot says

We should blame HH and FDR who were president during the great depression. If it weren't for these guys, it would have been a short recession.

They kept the economy down by their incessant meddling with the market. FDR like I mentioned earlier outlawed script which would have saved the 1/3 of banks that went under because of runs. Hoover instituted the Smoot Hawley act that shrunk foreign trade overnight. FDR was constantly using the interstate commerce clause to control the market at the federal level. He controlled farm prices and destroyed crops in order to maintain prices of farm products. And many many more by both of them.

The problem is that this destroys confidence and investors just say deal me out as this regime is unpredictable therefore I'm not going to invest in anything right now. Investment is what grows business and creates jobs.

Does that help?

bgamall4 says

This rewriting of the history on FDR is crap. He was a hero to the Greatest Generation who taught them banksters are scum. Indigenous should come to grips with that.

I'm not pulling this out of my ass. FDR was an asshole, the greatest generation is ignorant.

So 0% interest is the new normal? How does that work indefinitely? If the Fed changes interest rates in any significant way, the housing market will stumble and fall, and too many wealthy people are too heavily invested in real estate for that to ever be allowed to happen. So does this mean null interest from the Fed forever? Just asking.

Bellingham Bill says

The thing about printing is if everyone does it, nobody's currency is going to weaken agains the others, since nobody is on a hard currency any more.

Now that's inflationary of course, but inflation isn't a world-destroying event.

I believe you believe what you're saying, no question about your sincerity. But when we both look at the numbers we see two different outcomes.

I clearly understand Stockman's statement, "...when you take the balance sheet of the Fed from $900 billion to $4.5 trillion in less than 70 months, and when that pattern is replicated around the world, that is a train wreck in slow motion."

That is a credit (aka debt) bubble, plain and simple, and bubbles burst violently almost every time. I believe the train is going to run over the poor girl tied to the tracks. You believe Dudley DoRight will somehow stop the train and save her from a catastrophic end. I wish I had your optimism... but I don't.

It's not about whose currency is reserve anymore. They're all fiat now. It's about whose debt levels are going to cause the next global liquidity trap. Just like Lehman, the major U.S. investment banks are leveraged up the wazoo.

Stockman asked,

"But just think: What happens if they actually began to allow interest rates to rise or begin to attempt, through one mechanism or another, to shrink their balance sheet?

The fast money will get on the other side of the trade just as fast as it rode the bubble expansion to the top. And they will sell what they think the Fed is selling. And that will cause a massive unwind of the greatest overvalued market bubble in the world, which is the government bond market."

I don't believe the Fed can "allow" or not allow interest rate movements. I believe the market does that independent of the Fed's wishes or desires. The market "WILL" demand yield in lieu of great risk, both in the U.S. and around the world. And when they do, the massive leverage of the investment banks will deflate like a pricked balloon. This monster can't be slowly unwound.

As Stockman asserts... "The fast money will get on the other side of the trade just as fast as it rode the bubble expansion to the top."

Which is just another way to say that _deflation_ will draw the economy into an uncontrollable death spiral. Like Stockman, I am convinced a deflationary spiral is inevitable, apparently you aren't.

So we wait and see...

darlag says

That is a credit (aka debt) bubble, plain and simple, and bubbles burst violently almost every time.

Not every increase is a bubble! For a bubble, something unsustainable has to fail, like in the 1920s when everyone was buying stocks on margin, or the 2000s when banks were literally handing out home loans like candy.

I believe the market does that independent of the Fed's wishes or desires.

if the "market" doesn't want our bonds, I guess we'll get to see how MMT actually works in the real world.

But in a deflationary crash, why wouldn't the "market" want our bonds? Until the libertarians develop a way to get off this planet, money's gotta find a home somewhere, and the USD is always going to be the tallest midget, given our colossally high standard of living, tens of millions of productive citizens, and a not-crippling (yet) degree of wealth disparity, and world-beating military capability (seriously, if you had to go to war, which nation's military would you want on your side?)

Now, if you want to argue that the US is going to turn into something out of Solyent Green, then sure, but that future doesn't appear "deflationary" to me at all.

I am convinced a deflationary spiral is inevitable, apparently you aren't.

Fighting deflation is one thing the Fed knows how to do. It's literally as easy as pushing a button, and they don't even need Congress' approval (yet).

There's quintillions more where that came from -- Weimar is easy. Just print until the market won't buy at any price. That's not deflation, that's inflation!

That is a useful graph for a change. 1.7 trillion dollars worth of MBS, might very well be the grave stone of this country, when it should have been the grave stone of the TBTF. Why do we accept this shit?

I guess it is too boring or not liberal enough or something?

indigenous says

That is a useful graph for a change. 1.7 trillion dollars worth of MBS, might very well be the grave stone of this country, when it should have been the grave stone of the TBTF. Why do we accept this shit?

Value of US real estate is about 25 trillion dollars. 1.7 trillion is about the amount of new MBS paper issued in 2013.

99% of which came from Frannie, Freddie, or Ginnie. The mix in every year since 2008 has been over 95%.

Private money was waiting for Great Depression II to snap up everything at fire sale prices. Private money was 56% of MBS in 2006. There would be NO liquidity without government intervention. The fed provided liquidity at just the right time, and acted in the exact opposite way it did at the outset of the Great Depression.

Sure prices would have been cheap, but about 100 people in the world who weren't counterparties would have been the only people with money.

That's if bullets weren't the new currency and anarchy wasn't the new law.

This is why some rich people are pissed. They saw an opportunity to reinstate feudalism on a grand scale and that pesky representative government prevented it.

control point says

Value of US real estate is about 25 trillion dollars. 1.7 trillion is about the amount of new MBS paper issued in 2013.

Or almost half of the QEs.

control point says

Private money was waiting for Great Depression II to snap up everything at fire sale prices. Private money was 56% of MBS in 2006. There would be NO liquidity without government intervention. The fed provided liquidity at just the right time, and acted in the exact opposite way it did at the outset of the Great Depression.

Actually the liquidity would have been provided by script just as it had done in the past, but FDR decided that that would not do, it was better to let 1/3 of the banks to go under.

OTH the Fed did not require the assets be marked to market so it became a huge bailout with the taxpayers taking it in the ass.

control point says

Sure prices would have been cheap, but about 100 people in the world who weren't counterparties would have been the only people with money.

No comprende? Can you splain?

control point says

This is why some rich people are pissed. They saw an opportunity to reinstate feudalism on a grand scale and that pesky representative government prevented it.

Context please?

indigenous says

by script

In a banking crisis, you think people are going to accept IOUs? Oh yes, I know, simply reverting to a barter economy is all that was needed. Why didn't Weimar Germany, Zimbabwe, or any other nation experiencing a currency crisis simply use scripts?

indigenous says

No comprende? Can you splain?

There would have been at least one, but most probably a few hundred rich guys, who were not counterparties to the debt deflationary economy, who would have been the only people with cash. They would have bought everything.

control point says

In a banking crisis, you think people are going to accept IOUs? Oh yes, I know, simply reverting to a barter economy is all that was needed. Why didn't Weimar Germany, Zimbabwe, or any other nation experiencing a currency crisis simply use scripts?

They did in the past. Deflation is a lack of money Inflation is too much, script would not have done any good when there is too much money.

control point says

There would have been at least one, but most probably a few hundred rich guys, who were not counterparties to the debt deflationary economy, who would have been the only people with cash. They would have bought everything.

Still don't understand...

How many have debt that in a down turn can't be repaid? How many have immediately available assets? How many have food & or a garden? How many live a location that allows for some personal security?- Do large cities count?

Foolish me, America could never have a Depression.

indigenous says

Deflation is a lack of money Inflation is too much,

Nope and nope. For fucks sake, how many times does someone have to explain to you, and prove to you beyond a shadow of a doubt, that money supply and prices are the not the same? True scientists change their theories and definitions as the phenomena of the science they are studying become better understood. Classical economics has been rejected by mainstream economists for 150 years. The disconnect between money supply and inflation has been known for at least 50 years.

indigenous says

They did in the past.

You're have no understanding of money and banking reality, that is all I can say. And by the way, it is scrip. You cannot run a national or global economy on beer tokens.

Rejecting the null hypothesis on faith every single time without fail is not science, even a little bit. You'd gain more respect around here if you had any understanding of what I just said and actually applied it, ONCE.

indigenous says

Deflation is a lack of money Inflation is too much,

We're beating dead horses here...

Deflation has nothing to do with money... nothing. It is wholly and totally a psychological phenomenon whereby people are not willing to buy something/anything at any price due to a belief that the PRICE is going to fall further and thus they will be able to procure it cheaper in the future. It's as simple as that.

The repercussions of deflation are not simple, however. As prices fall, people who owe _money_ for a product in price decline (in other words, those who have bought too much credit/debt), refuse or become unable to pay off their loans and thus default on their credit obligations. This is called debt destruction. The value of goods vanishes into thin air like housing values did in 2006. One day your house was worth 300,000 -- the next 150,000. When that happens on a massive scale, that is deflation. No amount of cheap credit, even zero interest rates, can fend off deflation once it starts spiraling out of control.

In a deflationary depression, such as the 1930s and briefly in 2008-2009, the price of almost everything collapses, stocks, bonds, commodities, currencies, housing, metals, ...everything. Liquidity dries up because nobody can calculate the collateral value of assets that just keep relentlessly falling in price. Until prices stabilize, the spiral will continue, the debt destruction will continue and banks refuse to loan money on pretty much anything because they have no idea what its eventual worth is going to be.

There are NO tools to fight deflation, regardless of what the FED claims, which is why the "D" word is anathema to their jargon. They won't even say the word, opting instead for substitutes like "disinflation" which, I suppose is supposed to sound less dire. It isn't less dire though. Deflation is an uncontrollable monster and everybody knows it.

Just for the record, _money_ (i.e., cash) actually becomes worth _more_, not less, which is why I expect the U.S. dollar to get stronger - not weaker - in a deflationary depression. The 300,000 you bought a house with in 2005 would buy you 2 houses in 2009. Which is why I tell people that cash in your mattress is the best defense against deflation. Two year FRNs (U.S. Treasury Floating Rate Notes) are next, followed by short term Treasury notes (2 YR max).

You must stay liquid and personally protect your wealth when deflation is devouring everything in sight. Depending on a bank or a broker to do it for you is taking a huge risk.

control point says

Classical economics has been rejected by mainstream economists for 150 years. The disconnect between money supply and inflation has been known for at least 50 years.

So fucking what, they are still Wrong. This is very simple stuff, if the supply of something goes up it's value goes down. control point says

You're have no understanding of money and banking reality, that is all I can say. And by the way, it is scrip. You cannot run a national or global economy on beer tokens.

But they did google it.
control point says

You'd gain more respect around here

Did I give you the impression I give a rat's fuck what you think? I don't

They will not pay it... yet the Federal Reserve's existence depends on their doing so.

False. We could just tax the rich marginally more, but Austrians of course hate taxes more than inflation, especially taxes on their beloved corporations, LOL.

blue is after tax corporate profits, red is federal deficit spending

My money is in the kids.

Go kids! ::eyeroll::

darlag says

psychological phenomenon whereby people are not willing to buy something/anything at any price due to a belief that the PRICE is going to fall further and thus they will be able to procure it cheaper in the future

yeah, well, the price of food, housing, health care, and goods from China isn't going down anytime soon.

The yuan gaining on the USD is INFLATIONARY not "deflationary"

The yuan at parity would suck so much food out of this country we'd have actual shortages on the shelves.

Deflationary collapse a la the early 1930s is certainly possible; all that is required is a conservative government doing nothing in their serene laissez faire as the economy throws a rod or two.

"Liquidate labor, liquidate stocks, liquidate the farmers. ... It will purge the rottenness out of the system."

Got yams?

Bellingham Bill says

False. We could just tax the rich marginally more

We could... but we won't. The rich and entitled control who gets taxed. They aren't going to tax themselves - that's a no-brainer.

The rich will be taxed by the debt destruction caused by deflationary depression. The playing field will be leveled, but not in a cooperative and controlled fashion. The masses aren't going to eat bread willingly. Heads will role. History is a harsh mistress.