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With the recent passing of Milton Friedman, it is indeed fortuitous that Barry Rithotlz over at the Big Picture Blog has found a new source for M3.  And folks, the picture ain't pretty:

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When the Federal Reserve announced they were discontinuing the M3 series there was a group of people who openly stated they were worried and/or concerned.  I didn't buy into the concern, instead opting to believe the general statement from the Fed, which was "M3 isn't that important and we have other measures that are effective." (or something like that).

So, what is M3?  According to my dusty and tattered copy of the Baron's Finance and Investment Handbook, 3rd edition M3 is M1 plus M2 plus time deposits over $100,000 and term repurchase agreements.  Let's skip the deposits and focus on the repos.

So -- what is a repo?  According to the same source, a Repo is an

"agreement between a seller and a buyer, usually of US Government Securities, whereby the seller agrees to repurchase the securities at an agreed upon price and, usually, at a stated time.  Repos, also called called RPs or buybacks, are widely used both as a money market investment behicle and as in instrument of Federal Reserve Monetary Policy.

A repurchase agreement is like a short-term collateralized loan.  Party A (the lender) loans party B (the borrower) money.  In return, Party B gives Party A an asset (usually a short-term bond like a treasury bill).  Party B has to repay the loan within a short period of time.  Within the banking systems, this is usually done by the US Treasury with regional member banks.

Remember -- the US banking system is like a hub and spoke system with the Federal Reserve and US Treasury as the hub and all other banks like the spokes.  According to the New York Post"

FOR the past few years the U.S. Treasury has been quietly involved in what the financial markets call "repo" agreements and this near-secret operation could explain why the nation's money supply seems to be confoundingly large.

It might also explain why Washington decided earlier this year to stop publishing M3 money supply figures, the broadest and most popular measure of money in circulation.

Repurchase agreements - or repos - have long been used by the Federal Reserve to get money quickly into the hands of financial institutions, which in turn can put the money into circulation in the form of loans.

Last Thursday [November 7, 2006], for example, the Fed executed $2.5 billion in overnight repos and $8 billion in 14-day repurchase agreements. These were reported on the financial wires.

The Treasury completed a $5.5 billion repo operation on the same day under what it calls the Term Investment Option. There was no mention of the Treasury operation on the wires. In the Fed's repo deals, the banks temporarily turn over securities to the central bank in exchange for cash.


Let's go back to the chart, especially the more wobbly line.  This line shows the year-over-year change in M3.  Starting in the spring of this year, the annual change in M3 has fluctuated between 8% and 10% -- the largest change in over 3 years.  That's a huge change in money supply.

It is not a historically large number, however as this chart of the year over year percent change in M3 from the St. Louis Fed demonstrates.

Photobucket - Video and Image Hosting

So -- what is happening?  I'll let Barry at the Big Picture sum it up:

This is a classic case of "ignore what they are saying, because what they are doing is speaking so loud:"  While the Federal Reserve has been reporting rather flat money supply growth in M2 (blue line), in reality they have been dramatically increasing the cash (red and blue line) available for speculation.

Hence, that sloshing sound you heard. They have been providing the fuel for the rally, the huge M&A activity, the explosion in derivatives -- even the eye popping Art auctions are part of the shift from cash to hard assets. It is just supply and demand -- print lots of lots of anything, and that thing becomes increasingly devalued. It works the same for cash as it did for Beanie Babies.

Its not just the increase in Money Supply that should be concerning to investors -- its the misdirection about it. If Money Supply matters so little, as Fed Chair Bernanke has been out explaining to anyone who will listen, why pray tell has the Fed been working those printing presses overtime?

Given M3 increases, its no wonder the European Central Bankers laughed at the suggestion.

Originally posted to bonddad on Tue Nov 21, 2006 at 07:45 AM PST.

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Comment Preferences

  •  I Have No Idea What You Are Talking About (18+ / 0-)

    But I'm recommending in the hopes that this will hit the list and I will learn something from other people's comments.

    •  I felt the same way. (6+ / 0-)

      Bonddad usually does a better job of explaining the result or the purpose of the move.  This post is very heavy on the inside baseball and light on the explanation.

      I would rather be exposed to the inconveniences attending too much liberty than those attending too small a degree of it. -- Thomas Jefferson [-4.25, -5.33]

      by GTPinNJ on Tue Nov 21, 2006 at 07:55:21 AM PST

      [ Parent ]

      •  money = wall street cocaine, consumers get none (14+ / 0-)

        If I had to sum up what bonddad is saying today, the above line is about the best I can do.

        The Federal Reserve Bank, and for the last 6 months, in a whole new role, the US Treasury as well, have been flooding the market with money (despite the 5 1/4% interest rate).

        Here's a little more explanation from The Big Picture:

        At the time of the M3 announcement, we suspected the Fed was attempting to cover their tracks, disguising an ongoing increase in money supply and an unstated "easing" in Fed bias. Since that time, we have learned: the Treasury Department was also adding liquidity -- a duty they have assumed, in part, in addition to the same performed by the Fed. Indeed, based on the credit growth data Doug Noland published last month (October Credit Review), it appears that the Fed has – despite increasing interest rates – actually eased over the last two years.

        And what is all that money being thrown at the banks and investment houses financing?  Here's from Russ Winter

        Wash, Rinse, Repeat
        Monday opens up with another strange brew of economic news, take your pick. In the wash, rinse, repeat category, the now routine silly season LBO of the weekend is announced, including one in commercial real estate. In copper, Freeport McMorahan decides to pay top dollar for Phelps Dodge. Now, I must say, if there is one industry I know well, it’s copper and gold mining, and this deal is the maximum in stupidity, as is am I sure the Equity Office deal. An orgy of merger and acquisitions is blowing away all records. I believe the incentives for these deals does not involve the prudent man theory at all, I repeat at all, but is about fees, fees, and more fees. Speaking of orgies, ditto the latest in the art market.
        Also contributing to this orgy was a 2.3% decline in the Nikkei, which of course triggers a further weakness in the Yen, and encourages even more carry trades into the likes of more consumer credit for the likes of this. I’m sure everyone reading this blog gets the picture? By the way, it’s not just debt, it’s also soaring prices on nearly everything that are killing these late receivers

        With housing going in the tank, consumers up to their eyeballs in debt, and Walmart (ominously) having to cut prices at the very outset of the holiday shopping season, the Fed/Treasury are throwing more money at the fat cats, where it is all going into soaring stock prices, and being used for fat cats to merge with or acquire other fat cats, in the hope that the consumer slowdown doesn't take the economy as a whole with it.

        •  There is one small problem here.... (7+ / 0-)

          and that is the problem many have had with monetarism all along. It assumes that the velocity of money and the demand for liquidity are constant. (For non-economists, the velocity of money is the number of times it changes hands in a given period of time).

          They are not constant.  In periods of deflation, the demand for liquidity goes up because cash becomes a low risk asset to hold that is appreciating in value. In a period of rising financial uncertainty, which is what we are in, velocity falls. It takes more money growth to keep the economy where it is. Keynes refered to this situation as a liquidity trap.

          Businesses and consumers hold more cash in periods of uncertainty. Kevin Warsh, the new Fed govenor gave a speech on the topic last summer.  You can read it here:

          Pay particular attention to the graph at the bottom of the page. It shows a huge increase in corporate cash as a share of total assets.

          If we were seeing an inflationary rise in money supply, the bond market would not be acting as it is. We would not be seeing commodity prices like oil fall. We would not be seeing housing prices fall. Consumer and producer prices would also not be falling. The economic risk right now is more on the side of deflation.

          Far from printing too much money, I think a case could be made that the Fed is printing too little given the current economic environment.

          •  asdf (2+ / 0-)
            Recommended by:
            greenearth, Andy30tx

            I think Bernanke is trying to engineer the soft landing via money supply.  The M3 growth -- while increasing -- isn't at levels seen in the 1990s.  So the question becomes, "why is the Fed targeting M3 growth between 8%-11% (roughly)?"  The answer is he's trying to put just enough money into the economy to keep it moving.  

            If he was going to really open up the spigots he would lower rates.

            "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

            by bonddad on Tue Nov 21, 2006 at 10:14:41 AM PST

            [ Parent ]

          •  Agree with you re deflation (1+ / 0-)
            Recommended by:

            I've elaborated on it somewhat downthread (and thanks for the link, which I have now read).
            I don't think our statements are contradictory: M3 is growing at 10%, but it is being directed at a target that is so sated already with cash that it cannot do anything productive.

            Interesting that you think we are in a liquidity trap now.

            •  I wouldn't call it a liquidity trap (2+ / 0-)
              Recommended by:
              greenearth, deathsinger

              in the way Keynes meant it. Under such a circumstance, no amount of money supply growth would make a difference, hence the need for government deficit spending.

              I just think we are seeing a sizable increase in the demand for liquidity. You can see it in the corporate balance sheet numbers. You also see it in the international currency reserves. The accumulation of cash everywhere slows growth, but it also reduces the risk of a shock to the economy so it does have its upside.

              •  Re risks of a shock (1+ / 0-)
                Recommended by:

                I'm not sure how much of this "accumulation of cash" is real.  We've had a 20% move in about 4 months in the DJIA, which is now selling at 22 or 23 times earnings.

                And who knows what is lurking in the black boxes of the hedge fund industry (not to mention the banking issue touched on downthread).

                •  Overall valuation is still pretty low (2+ / 0-)
                  Recommended by:
                  fladem, greenearth

                  the S&P 500 is trading at a pe of about 15, the lowest its been in decades.


                  And particularly low given that 10 year treasuries are at 4.5%.

                  The accumulation of cash on corporate balance sheets is very real, that is information that comes from audited statements.

                  I think the problems of the hedge fund industry are overrated, but I agree with you, it is something of a black box given the lack of transparency.

                  •  I don't trust forward p/e's (1+ / 0-)
                    Recommended by:

                    By trailing p/e it's at about 19.  That's a little frothy by historical standards.


                    •  I don't trust forward pe's either (1+ / 0-)
                      Recommended by:

                      but according to Yahoo financial the trailing 12 month pe for the SP 500 is 15.19

                      According to it was 18.26 in October and the average PE since 1960 was 17.78.

                      I get Ed Hyman's work at ISI and he had S&P 500 earnings at 94 a share which would put the pe at 15 a week or two ago.

                      P/E is only relevant in context of interest rates and with 10 year treasuries at 4.5%, the relative level of current p/e's is quite low.

                  •  asdf (1+ / 0-)
                    Recommended by:

                    The accumulation of cash is very interesting.  The NBER did a paper on that and they concluded that companies are simply hording cash because of the increased risks they perceive.  

                    The problem with the hedge fund industry is there are some funds that are large enough and overexposed enough to certain market areas to create problems if they're wrong.  I don't know of any specifics, but there have been some rumors over the last year are various times about a "hedge fund having having problems."  True or not, I don't know.  But it's enough to spook markets.

                    I think we are in a new valuation era for the S&P, where 15-17 is considered richer than that level was say 10-15 years ago.

                    "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

                    by bonddad on Tue Nov 21, 2006 at 12:56:49 PM PST

                    [ Parent ]

                    •  The accumulation of cash (2+ / 0-)
                      Recommended by:
                      Eisbaer, greenearth

                      suggests they lack projects with high enough NPVs.

                      It's not a good sign.  

                      •  bonddad, daisy, fladem, and all (2+ / 0-)
                        Recommended by:
                        daisycolorado, greenearth

                        This is a very special thank-you to all of you.  This has been the most intellectually stimulating economic thread I've read/participated in, in a long time.

                        I feel that we are in economic terra incognita here, and reading/considering/debating some really intelligent minds on the issue is really illuminating.  So, to all of you, thanks!

                      •  I think there are a lot of reasons for the cash (0+ / 0-)

                        build up.

                        Lack of investment projects is one possibility. The question I have been struggling with on this hypothesis is why aren't there enough good investment opportunities?

                        What has changed from 10 years ago?

                        Is there an insufficient amount of new technology coming down the pipe to invest in?

                        Are there too few overseas markets left to develop?

                        Why would we not be seeing more M&A activity with valuations relatively low and cash so high?

                        And why haven't they just returned the money to shareholders? Dividends are up but still a shadow of what they were 20 years ago.

                        If you or any others have any ideas or suggestions on these questions, I would love to hear them.

                        •  Well, I can give you a totally partisan reason (0+ / 0-)

                          To quote from General Glut's blog:

                          General Glut, sworn enemy of Jean-Baptiste Say and neo-classical economics, continues to maintain as he has through the days of Sismondi, Marx and Keynes that capitalism's tendencies are toward crises of overaccumulation and underconsumption. Globalization performs this sorry old tale through debt, deflation and depression on the stage of the whole world.

                          Corporations are awash with cash, consumers are awash with debt.  To simplify, if you have 10 persons in your economy, and one of them is Donald Trump and the other 9 have absolutely nothing, Donald Trump is going to run out of money generating investments.  In my layperson's view, the current situation with corporate cash is a direct consequence of our unbalanced pro-corporate, all-supply-side economy.

                          It took 25+ years (which is why it is differenct than 10 years ago), but the endgame is rapidly approaching.

                        •  A few things (0+ / 0-)

                          As far as M&A.  Who is ExxonMobile going to buy without invoking cries of monopoly?  GE? Microsoft? ChevronTexaco? BPAmoco?

                          Other companies are sitting on a pile of cash cause they simply don't know what is going to happen with commodity prices.  Crude is falling, but propylene prices have risen.  Natural gas is still high, but is it about to puke?  How about copper? Tantalum? Steel? Coke?  The manufacturing industry isn't like the dotcom industry, it takes years to design-build the facilities to operate, not just moving into office space.  There is a real lack of expertise in some of these areas.  Want to drill for oil, the rigs are backlogged for years and if you build one, who is going to operate it?  There is still a ton of unlit fiber in the ground so I don't see a comeback there.

                          Don't forget the "environmentalists" make it very hard to build anything.  Want to build a EToH plant?  Be careful where you decide to do so.  Want to build a windfarm, someone will object because they don't want it (and will pretend it is an environmental concern.)

                          The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

                          by deathsinger on Wed Nov 22, 2006 at 04:57:53 AM PST

                          [ Parent ]

          •  divisia (0+ / 0-)

            ... wouldn't the divisia measure be especially relevant to the question at hand?  

            In any event the data presented here do not seem especially alarming to me.  

            The grass is greener where it's watered.

            by decon on Tue Nov 21, 2006 at 12:21:18 PM PST

            [ Parent ]

          •  Holding cash in an inflationary environment? (0+ / 0-)

            That would be incredibly stupid. The players will move to stronger currencies or hard assets. Increasing the money supply will beat the crap out of wage earners.

            "I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is over self." --Aristotle

            by java4every1 on Tue Nov 21, 2006 at 02:57:02 PM PST

            [ Parent ]

            •  But what if (0+ / 0-)

              we are moving to a deflationary environment. Energy prices are falling, housing prices are falling, CPI and PPI are falling. Holding cash in a deflationary environment is a rational move.

              •  Energy prices are still at 4 times value.. (0+ / 0-)

                Housing price declines have been relatively small and usurped by increasing interest rates. Minimum wage increases are inevitable and 3 trillion has been added to federal debt in only 6 years. Even is a stagnant economy achieves some downward pressure on prices that would necessitate higher tax rates to relieve the debt pressure. Investors already admit there are few good prospects which means additional cash will move to foreign currencies. I see no scenario where the dollar will grow stronger.

                "I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is over self." --Aristotle

                by java4every1 on Wed Nov 22, 2006 at 02:07:50 AM PST

                [ Parent ]

      •  This is one that your stomach lining (1+ / 0-)
        Recommended by:

        would probably do just as well if you don't get it, but we clearly don't have that luxury.

        Thank you, Dr. Dean, for the 50-state strategy!

        by bwintx on Tue Nov 21, 2006 at 08:49:21 AM PST

        [ Parent ]

      •  The wiki has a very good explanation of (2+ / 0-)
        Recommended by:
        democat, Magnifico

        what M1, M2, and M3 and why the increase in M3 is important.  

        Wesley Clark 2008

        by Do Tell on Tue Nov 21, 2006 at 09:31:45 AM PST

        [ Parent ]

    •  okay (5+ / 0-)
      Recommended by:
      tovan, corvo, ChemBob, greenearth, Andy30tx

      we owe a lot of money in US dollars.

      but we print US dollars.

      so we'll just print a bunch of dollars to pay off the debt, and no-one notices the dollar bills are coming from the printing press and not any actual economic activity.  We'll hide the statistics that measure this, and do it using complex procedures most people do not understand.

      I barrowed 200 bucks form my neighbor.  and don't have the cash to pay him back.  So i go to the xerox machine and copy a bunch of $20 bills to pay him off, and hope he's spends them before anyone notices they're xerox copies.

      The world will end not with a bang, but with a "Do'oh!"

      by Love and Death on Tue Nov 21, 2006 at 09:04:57 AM PST

      [ Parent ]

  •  Okay, so what's the result of this? (3+ / 0-)
    Recommended by:
    HeyMikey, greenearth, TomP


    I would rather be exposed to the inconveniences attending too much liberty than those attending too small a degree of it. -- Thomas Jefferson [-4.25, -5.33]

    by GTPinNJ on Tue Nov 21, 2006 at 07:53:53 AM PST

    •  adsf (2+ / 0-)
      Recommended by:
      RunawayRose, greenearth

      I don't think so.  When you look at the percentage change in M3 in the 1990s it was higher.  

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Tue Nov 21, 2006 at 08:04:24 AM PST

      [ Parent ]

      •  So what then? (2+ / 0-)
        Recommended by:
        HeyMikey, greenearth

        I'm confounded by your post.  What are the implications of this policy?  You say that the Fed is trying to engineer a "soft landing".  What does that mean & why is that bad?  If we're headed into a recession, don't we want there to be a soft landing?  I'm lost.

        I would rather be exposed to the inconveniences attending too much liberty than those attending too small a degree of it. -- Thomas Jefferson [-4.25, -5.33]

        by GTPinNJ on Tue Nov 21, 2006 at 08:08:00 AM PST

        [ Parent ]

        •  It's like chemotherapy (2+ / 0-)
          Recommended by:
          greenearth, drbloodaxe

          It may act as a cure or it may be worse than the disease.  There are so many implications that depend on other actions that it is difficult to predict the outcome of this action but it could be very bad news for anyone not so loaded with liquid capital that they can afford to lose a bit when/if the shoe does drop while they switch the remainder.

      •  i thought it was econ 101 (1+ / 0-)
        Recommended by:

        that an increase in the money supply means an increase in inflation

        its hard to drink all day unless you start in the morning

        by The Exalted on Tue Nov 21, 2006 at 09:17:38 AM PST

        [ Parent ]

        •  Only if the money supply grows faster than (0+ / 0-)

          real (adjusted for inflation) GDP growth.  

          Too much money chasing too few goods, prices rise.

          Wesley Clark 2008

          by Do Tell on Tue Nov 21, 2006 at 09:33:40 AM PST

          [ Parent ]

        •  Only if money velocity (0+ / 0-)

          is constant, which it is not.

          The demand for money changes over time. Businesses and consumers will demand more money in periods of uncertainty. As a result, in some economic situations and I would argue that we are in such a situation, an acceleration in money supply growth is just what the economy needs.

          •  and what is the velocity of money? (0+ / 0-)

            aha... enter voodoo constant.

            •  3.68x10^7 USD/day n/t (2+ / 0-)
              Recommended by:
              pb, wystler

              Got a problem with my posts? Email me, and let's resolve it.

              by drbloodaxe on Tue Nov 21, 2006 at 11:55:31 AM PST

              [ Parent ]

            •  Velocity of money (3+ / 0-)
              Recommended by:
              fladem, The Exalted, Skjellifetti

              is the frequency of its turnover. The key monetarist equation was:



              M is Money supply
              V is velocity
              P is the price level
              Q is the real growth in the economy

              The assumption was that velocity was constant and the real growth was a function of labor supply growth and productivity. Hence money supply growth = inflation.

              •  Hat Tip (0+ / 0-)

                To Milton Friedman, RIP.....

                •  When I was in grad school (3+ / 0-)
                  Recommended by:
                  fladem, Eisbaer, YucatanMan

                  Friedman was the devil incarnate.  I really liked Lawrence Summers tribute to him in the NYTimes a couple of days ago.

                  I saw Friedman present on several occassions. He was a great presenter, who used a touch of humor and a brilliant mind to parry back his opponents.

                  Still, I think he put a little too much emphasis on theory and not enough on the institutional arrangements that can affect outcomes.

                  I think it was Summers who said, 'We are all Friedmanites now' and he was right.

                  •  I took a class (1+ / 0-)
                    Recommended by:

                    from a Professor who took a course with Friedman. Friedman taught one class every two years at this point.

                    The Professor said he was brilliant, funny, but tough as nails....

                    My legal training helped me understand the problem with his analysis, as did an economics professor who talked about the problems with the assumption that we are all just interested in maximizing wealth (and what it meant for neo-classical economics).

                    But as even my Marxist Professor said - we are all monetorists now.

        •  There are two reasons (0+ / 0-)

          that this is no longer true:

          1.  as Daisy says, it may increase the veolocity of money
          1.  Globalization itself is in fact extremely deflationary. In such an environment increase in the money suppy do not increase inflation.
      •  But there is inflation. The only thing (5+ / 0-)

        keeping some prices down is cheap imports.

        Who will be brave enough to stop the ethic cleansing in Palestine's West Bank? Who will stop the crimes against humanity? Stop military aid.

        by mattes on Tue Nov 21, 2006 at 09:42:53 AM PST

        [ Parent ]

        •  Yup, it's all a charade (10+ / 0-)

          They say inflation is 3 percent or whatever, but that's complete bullcrap.  College tuition rises at, what?, 15 percent a year.  Insurance premiums are absurd.  Home prices are still through the roof.  These are major expenses, but the CPI is a tiny basket of goods.  WalMart artificially depresses inflation figures in the same way that underemployment and discouragement depress the unemployment rate.  It's all a friggin' shell game.  

          Things could get ugly at the drop of a hat.  Many potential catalysts for a complete economic meltdown loom, no matter what fancy footwork the Wall Street smart guys perform.  

          •  And no gas and food costs. (3+ / 0-)

            That's why I think Bush is so desperate to privatize social security.

            Who will be brave enough to stop the ethic cleansing in Palestine's West Bank? Who will stop the crimes against humanity? Stop military aid.

            by mattes on Tue Nov 21, 2006 at 09:55:31 AM PST

            [ Parent ]

          •  What share of the population (0+ / 0-)

            pays college tuition? It is a small part of the total economy, and far from a major expense, except to the small elite who have to pay it.

            The CPI is far from a tiny basket of goods. It covers price changes in more than 200 different goods.

            You are right about WalMart, it does help to keep prices down. And as an employer of 1.3 million people it does a lot to create employment opportunities for low skilled workers all across the country.

            •  I wouldn't consider (6+ / 0-)

              employment at Wal-Mart any sort of "opportunity". It's more like exploitation of an artificially repressed labor market.

              •  Obviously (1+ / 0-)
                Recommended by:

                you are skilled and educated.

                If you are unskilled and uneducated, a job at Wal Mart is a huge opportunity. All you need to do is look at the number of applicants that Wal Mart gets every time they open a new store.

                For example, read this article:


                Wal Mart got 25,000 applications for 325 job openings at a store they opened in Chicago. I know Wal Mart is viewed as a bette noir here, but the 25k job applicates were saying something quite different and at the end of the day, aren't they the core voter of the party?

                •  they need work (8+ / 0-)

                  not Wal-Mart.

                  Don't fight it son. Confess quickly! If you hold out too long you could jeopardize your credit rating. --Brazil (1985)

                  by hypersphere01 on Tue Nov 21, 2006 at 11:10:14 AM PST

                  [ Parent ]

                  •  Are you implying (0+ / 0-)

                    that 25k people don't know what is in their own best intersts? What makes you so all knowing?

                    •  I would imply that, yes. (5+ / 0-)

                      25K people could be found in small towns with devastated mom-&-pop stores and no other place to turn, but the Wal-Mart and it's abusive labor policies, minimal pay and health care.  

                      I grew up in towns like that. I've traveled through dozens of towns like that. They exist. And it's not a cheery place or existence when you have to work at the one and only place providing employment.  

                      Or, rather, do you suggest that people can always easily pick up and move for employment disregarding all other obligations.  The whole world isn't employment. There are other things taking place in peoples' lives too.

                      •  There are other things (0+ / 0-)

                        I would agree, and there are always other employers too. Even with 1.3 million employees, Walmart still makes up less than 1% of total employment.

                        And in Chicago, the example above, there are thousands of other employers. These people had choices and they chose to try to work at Wal Mart.

                        •  I doubt (3+ / 0-)
                          Recommended by:
                          Panda, YucatanMan, CSI Bentonville

                          It was their first choice.

                          There was a time in America when a guy or a gal with a HS education could live a nice middle-class lifestyle on the pay from even a retail job. I know because I did it when I was very young in the early 1970's.

                          Now? That's all been legislated away by representatives in the pockets of big bidness with their free trade frauds, the non-enforcement of labor law and the busting of unions.

                          There is a class war in this country and the middle class is being eliminated along with the jobs that used to sustain it. Loads of people line up for a handful of jobs at Wal Mart where they lock you in if you work the night stocking crew, where they actively root out anyone who seems likely to start up Union talk, where you have to answer a lengthy psych exam and piss in a cup to prove your honest and sober enough to work for 8 bucks an hour, where they will keep your hours low enough to prevent you qualifying for the ridiculously expensive health insurance- should I go on?

                          I live in a very affluent community now and the Wal Mart here? Funny, no one sees it as much of an opportunity. They always have the "Now Hiring" signs out and the people who work there? They wear the grim face of desperation and resentment that someone wears when they know they are being fucked and can't do a thing about it.

                          Wal Mart is not an opportuntiy, it is a symptom of a very sick and ultimately, failing nation. We do not need apologists for Big Bidness on this site, we need people who stand up for their fellow Americans against the traitors who have been robbing us all of our futures.

                          •  You said it brother! (3+ / 0-)
                            Recommended by:
                            Dave925, Panda, CSI Bentonville

                            Wal Mart is not an opportuntiy, it is a symptom of a very sick and ultimately, failing nation. We do not need apologists for Big Bidness on this site, we need people who stand up for their fellow Americans against the traitors who have been robbing us all of our futures.

                            The claim that "there are always other employers" simply is false. There are not. In many places, the nasty, trash-ridden Wal-Mart (they never waste money cleaning up litter, especially the more rural you get) is the one and only place that's hiring. And that is precisely because of their enormously high turnover rate -- the highest in the business.  If Wal-Mart is such a great fucking opportunity, why do people quit in droves?  To get the hell out of hell, that's why!

                •  it means (4+ / 0-)

                  unemployment is far worse than the official statistics would imply

                  The world will end not with a bang, but with a "Do'oh!"

                  by Love and Death on Tue Nov 21, 2006 at 11:22:16 AM PST

                  [ Parent ]

                  •  You don't have to be unemployed (0+ / 0-)

                    to apply for a job. I would bet that many of those 25k were already employed in some fashion, they simply saw Wal Mart as a step up.

                    •  Wal-Mart is a symptom, not the disease. (2+ / 0-)
                      Recommended by:
                      Love and Death, greenearth

                      Daisy and the anti-Wal-Marters are both right.

                      Daisy is right that a lot of folks see working at Wal-Mart as their best alternative, and that these folks are the best judge of their own circumstances.

                      The anti-Wal-Marters are right that working at Wal-Mart in many ways sucks.  Low pay, low or no benefits, often odd hours.

                      This is NOT Wal-Mart's fault.  They are doing what they are supposed to do, which is maximize their shareholder's profit. The party NOT doing what it's supposed to do is the government, which is supposed to look out for the welfare of its citizens.  If Wal-Mart pays too little, the government should raise the minimum wage.  If Wal-Mart's retirement and health plans suck, the government should fix Social Security and provide universal health care.  If Wal-Mart employees have other gripes, they should unionize, and the government should make the NLRB stop stacking the deck against unions.

                      The fact people have no better alternative than working at Wal-Mart despite all these drawbacks is further evidence the government needs to look out more for the poor and lower-middle-class.

                      Don't blame Wal-Mart.  Blame people who vote Republican.

                      -4.25, -4.87 "Whenever you find yourself on the side of the majority, it's time to pause and reflect." -- Mark Twain

                      by HeyMikey on Tue Nov 21, 2006 at 02:48:12 PM PST

                      [ Parent ]

                      •  You are right (1+ / 0-)
                        Recommended by:

                        and the problem is that corporations bear NO legal responsibility other than what you mention.

                        Hell, I had more legal responsibility when I was a kid than corporations do now.

                        We can legislate justice in business, we can make commerce responsible. We can provide decency and a fair price for a day's work. Truly the Republicans are a big part of this problem but I am focused on ridding the Democratic party of the substantial number of corporate quislings within. We do that and replace them with REAL Democrats, the Republicans and their economic treason will become irrelevant.

            •  Daisy, where do you live? (3+ / 0-)
              Recommended by:
              wystler, YucatanMan, CSI Bentonville

              Do you eat? Heat or cool your home? Clothe your children? Eat out? Have you had to buy a home in the past three years?

              To be as insulated as you claim from the real inflation that is the burden of daily life for anyone in the middle class you must either be so wealthy that the ordinary costs of living don’t impact you or living in a Wonderland. Which is it?

          •  I wouldn't say that about Wal-Mart... (0+ / 0-)

            I don't think there's any artificiality in the effect they have on inflation. Many people shop there, so if they are still paying low prices, then that's a very real effect on inflation.  

          •  Lots of technical issues... (0+ / 0-)

            But the the relevant BLS CPI statistics can't simply be dismissed as bullcrap.  They have a very nice explanation detailing the manner in which an individual's experience will differ from the average that you might like to read.

            The grass is greener where it's watered.

            by decon on Tue Nov 21, 2006 at 12:30:03 PM PST

            [ Parent ]

  •  There was a debate last week (20+ / 0-)

    in the European press, when Tricher (the ECB head) wrote again that he would not stop following money growth, and everybody scoffed at him or worse for being outdated and clinging to obsolete theories.

    All I can say is don't sell euros for dollars.

    In the long run, we're all dead (Keynes)
    Read more on the European Tribune - bringing dKos to Europe

    by Jerome a Paris on Tue Nov 21, 2006 at 07:54:04 AM PST

  •  Can't raising taxes on rich people... (5+ / 0-)

    ... help prevent inflation and allow us to continue to have low interest rates?  I've always wondered this.

  •  Excellent as always... (11+ / 0-)

    I am so anxious about this whole economy.  I keep waiting for the shoe to drop, but the stock market keeps chugging up.  I worry not so much for myself, I think we are in pretty good shape to weather the storm.  But my adult children, especially my son, are not.  And the mess we are leaving for my grandchildren is terrifying.

    And Bonddad, I read the Big Picture every day.  Barry had predicted a major downturn the end of this year in the stock market which has obviously not happened.  He does great stuff on inflation and the unemployment rate.  You fans of Bonddad, should go check him out.  He is apolitical but always has something interesting to say about things economic.

  •  sounds like we may have found (8+ / 0-)

    our alternate energy source - we can just start burning all that extra money.

  •  A stealth switch to a weak dollar strategy? (5+ / 0-)

    This is the perfect way to implement it.  Should investors be switching to Euros? Gold? Canned food?  If we weaken the dollar without reversing the twin deficits all he** will break loose.

  •  This is the right policy (1+ / 0-)
    Recommended by:

    They SHOULD be expanding the money supply.

    Inflation is virtually non-existent.  The real issue is aggregrate demand, both in the US and globally.

    •  Aggregate demand (26+ / 0-)

      Increasing the money supply only increases aggregate demand if the money finds its way to consumers through wage increases or into plant and equipment that creates productivity increases.  What has been happening over the past six years is the siphoning off of money into purely financial instrument with no actual investment in plant, equipment, training, and hiring.

      Which is why the Bush tax cuts were ill times and exactly the wrong solution for the economy.  We were awash in money; interest rates fell to 1%.

      Jiggling the money supply will not improve the economy.

      •  very well said (3+ / 0-)
        Recommended by:
        Team Slacker, Do Tell, greenearth

        If God were one of us, some radical christian would hate him or her.

        by FreeTradeIsYourEpitaph on Tue Nov 21, 2006 at 08:31:36 AM PST

        [ Parent ]

      •  Concise summary of the problem (16+ / 0-)

        Money has been spent on things that do not contribute to future income generation.  A house is a house.  It's value is shelter.  A 4,000 square foot McMansion with granite countertops and jacuzzi does not provide materially better shelter.  The economy does fine from the jobs and revenue while building the house, but once it's up then the economy is drained by the costs of finance, taxes and maintenance which the homeowner must shovel out to keep the house.

        The homeowner would have generally been much better off living in his smaller home with no mortgage and investing the excess income into productive investment to grow jobs and wealth for the future.  The US economy certainly would have been better off that way.

        When housing goes, we're all going over the cliff together.

        "Being a politician is a poor profession. Being a public servant is a noble one." - Herbert Hoover

        by LondonYank on Tue Nov 21, 2006 at 08:37:33 AM PST

        [ Parent ]

        •  Well, housing is already going (2+ / 0-)
          Recommended by:
          ChemBob, greenearth

          so why aren't corporate profits blowing up (yet)???

        •  At the personal level (1+ / 0-)
          Recommended by:

          that makes sense, but at the 'economy' level, wouldn't the mcmansion keep adding to the economy via those extra taxes, extra maintenance, and the maid?

        •  If it were only the McMansions (10+ / 0-)

          A lot of money is being put into financial instruments of dubious quality--not by consumers but by corporations.  Too little money is being invested in business goods and business services that employ large numbers of people or in training workers in skills that will allow for a greater expansion before running into a production capacity wall.

          The onus is not just on consumers.  And not just on homes.  One of the pervasive lies (at least in the United States) is that a home is an investment.  It is only if it is rented to someone else.  Otherwise it is pure cost and risk.  And if you are lucky you can resell it for more than you paid for it.  And if you aren't, you are sitting with a $300,000 to multi-million dollar white elephant and the debt service and repair costs to keep it.

        •  Adam Smith couldn't have said it better (3+ / 0-)
          Recommended by:
          LondonYank, xanthe, corvo

          And in fact, he did say essentially the same thing in Wealth of Nations.  Still a good read, and don't be put off by the fact that it is published in a cheap edition by the Liberty Foundation.

          •  Warren Buffett said it pretty well too (9+ / 0-)

            in his essay of 2003, Thriftville vs. Squanderville.

            Looks like we all better start learning Mandarin!

            Over time Thriftville accumulates an enormous amount of these bonds, which at their core represent claim checks on the future output of Squanderville. A few pundits in Squanderville smell trouble coming. They foresee that for the Squanders both to eat and to pay off -- or simply service -- the debt they're piling up will eventually require them to work more than eight hours a day. But the residents of Squanderville are in no mood to listen to such doomsaying.

            Meanwhile, the citizens of Thriftville begin to get nervous. Just how good, they ask, are the IOUs of a shiftless island? So the Thrifts change strategy: Though they continue to hold some bonds, they sell most of them to Squanderville residents for Squanderbucks and use the proceeds to buy Squanderville land. And eventually the Thrifts own all of Squanderville. At that point, the Squanders are forced to deal with an ugly equation: They must now not only return to working eight hours a day in order to eat -- they have nothing left to trade -- but must also work additional hours to service their debt and pay Thriftville rent on the land so imprudently sold. In effect, Squanderville has been colonized by purchase rather than conquest.

            "Being a politician is a poor profession. Being a public servant is a noble one." - Herbert Hoover

            by LondonYank on Tue Nov 21, 2006 at 09:41:21 AM PST

            [ Parent ]

            •  Learn to say "putonghua" (2+ / 0-)
              Recommended by:
              LondonYank, corvo

              Learning isn't that hard, once you get over the tones.  Reading's an absolute bitch, but most Chinese are taught the Latin alphabet ("pinyin").  And they're fascinated with America.

              Politics isn't a football game. The prize isn't power -- it's responsibility.

              by slippytoad on Tue Nov 21, 2006 at 10:03:49 AM PST

              [ Parent ]

              •  I'm lazy - my kids learn Mandarin instead (0+ / 0-)

                They go to Mandarin school every Saturday morning.  I figure they are my hedge bet against western decline.

                "Being a politician is a poor profession. Being a public servant is a noble one." - Herbert Hoover

                by LondonYank on Tue Nov 21, 2006 at 10:53:04 AM PST

                [ Parent ]

                •  OT re learning Chinese (3+ / 0-)
                  Recommended by:
                  LondonYank, xanthe, hypersphere01

                  I'm in a somewhat unique position in that I already (badly) learned how to read Japanese, so I've already learned most of the more common characters.

                  I actually find written Chinese somewhat simpler now, because (very much UNlike Japanese) the grammar is very similar to english.  And dealing with tones is at least an even trade-off from trying to figure out which or 2 or 3 or 8 completely dissimilar pronunciations to use!

                  •  i took 3 years of Japanese in High School (1+ / 0-)
                    Recommended by:

                    in Dallas Texas...

                    actually my school was in Carrollton a suburb of Dallas.  the local Japanese business community paid for the Japanese classes.  they even hired a real Japanese teacher from Japan.  the first year was learning hiragana, how to write, practicing pronunciation and learning simple conversation Japanese.  there was also a one semester course to learn conversational Japanese and not how to write hiragana/katakana/kanji.

                    my favorite class for three years.

                    Don't fight it son. Confess quickly! If you hold out too long you could jeopardize your credit rating. --Brazil (1985)

                    by hypersphere01 on Tue Nov 21, 2006 at 11:16:44 AM PST

                    [ Parent ]

                    •  btw, i am against English only (0+ / 0-)

                      i think Americans should know more than one language.  down here in the South i would require all students to take at least two years of Spanish.  I also took 3 years of spanish.  Not my favorite class.  I had already taken my first year of Spanish in Junior High.  My class in HS was full of juniors and seniors because it was the second year of Spanish.  They didn't want to learn and mostly tried to get the teacher to get off subject the whole time.  

                      Don't fight it son. Confess quickly! If you hold out too long you could jeopardize your credit rating. --Brazil (1985)

                      by hypersphere01 on Tue Nov 21, 2006 at 11:21:04 AM PST

                      [ Parent ]

                    •  If I were teaching Japanese (1+ / 0-)
                      Recommended by:

                      I would spend the first semester entirely teaching words and forming sentences from them that a typical Japanese would see in katakana or hiragana.

                      When I would introduce a kanji, I would teach 5 or 10 words that use that kanji in combination.

                      That way the students would only have to learn a Japanese word 1 time, not 3 times (first in romaji, then in kana, then in kanji).

                      Glad you enjoyed the experience tho. So did I!

                    •  What a splendid idea - (1+ / 0-)
                      Recommended by:

                      the local Japanese business community offering the community language courses.  I find that admirable.  A good way certainly to create bridges -  

                      I have no patience with people who grow old at 60 just because they are entitled to a bus pass. Mary Wesley, British novelist

                      by xanthe on Tue Nov 21, 2006 at 02:31:05 PM PST

                      [ Parent ]

            •  If you haven't seen this (1+ / 0-)
              Recommended by:

              and want to laugh and cry and pull your hair out at some creative fun-poking that maybe isn't so fun...

              HaHaHa America

              -8.38, -8.00 Moderation in temper is always a virtue; but moderation in principle is always a vice. --Thomas Paine

              by hyperstation on Tue Nov 21, 2006 at 11:29:21 AM PST

              [ Parent ]

        •  About that big house (6+ / 0-)

          A 4,000 square foot McMansion with granite countertops and jacuzzi does not provide materially better shelter.

          What it does do, and exceedingly well, is give the owner the illusion that he's got a giant swinging cod between his legs.

          Sorry. Just had to add that in there.  Same thing as a great big SUV, or a little tiny fast sportscar.

          Politics isn't a football game. The prize isn't power -- it's responsibility.

          by slippytoad on Tue Nov 21, 2006 at 10:01:36 AM PST

          [ Parent ]

          •  Imagine, however, how small he feels (5+ / 0-)

            when the car gets repossessed and the house gets foreclosed.  I have vivid memories of the layoffs here in Britain during the last deep recession of 1991-93 which cut a swath through the pinstriped ranks of the City of London.

            Friends who had prided themselves on having achieved a perfect life, perfect career, perfect image, perfect marriage, perfect kids in private schools, perfect home, perfect golf stroke, found themselves suddenly on the verge of ruin - or even deep in it.

            I talked one or two off the ledge back then.  I always took their calls when others would signal the secretary to take a message.  Those men recovered with the strengthening economy, but neither them nor I forgot.

            In Britain I don't believe there is any failure that cuts as deep as pulling your kids out of private schools.  Not being absolutely financially secure, I took the decision to keep my kids in the state sector.  It's more democratic, will teach them to get on with a wider spectrum of yobs, and keeps me from having to panic when I lose the occasional client.  If my kids have to work harder and more independently to gain an education, then at least they will feel the measure of their achievement.

            "Being a politician is a poor profession. Being a public servant is a noble one." - Herbert Hoover

            by LondonYank on Tue Nov 21, 2006 at 11:08:46 AM PST

            [ Parent ]

            •  OH yeah (1+ / 0-)
              Recommended by:

              My home is where I keep my stuff and my self -- and my family.  With any luck I'll have it paid off in about 15 years, and just in time to mortgage it a second time to make sure my kids can get through college.  Other than that, it's just the place I live.  I remain who I am despite that, and if I lost it we'd just regroup and go on.

              People who accord social status to their things need help.

              Politics isn't a football game. The prize isn't power -- it's responsibility.

              by slippytoad on Tue Nov 21, 2006 at 01:04:48 PM PST

              [ Parent ]

          •  My daughter and I (2+ / 0-)
            Recommended by:
            slippytoad, KiaRioGrl79

            use the term "penis extension".  

        •  So Renting Can Make More Sense? (1+ / 0-)
          Recommended by:

          Well said.

          This is the point I've been trying to make to my 30-something friends for the last 2 years; renting can actually make you more money than buying right now.  

          In Chicago, the rental market is much cheaper than the housing market.  While you often don't get quite as nice of a place, you save a ton of money from a mortgage (not to mention taxes).  

          Invest all that extra money wisely, and you might be better off as a renter in a weak housing market.  

          Al Gore received more votes, Ohio was stolen. This isn't a democracy.

          by Deadicated Marxist on Tue Nov 21, 2006 at 11:36:48 AM PST

          [ Parent ]

      •  The connection between (1+ / 0-)
        Recommended by:

        the money supply and economic growth is pretty well established at this point.

        Money supply growth can lead to more consumption (lower interest rates).  

        What people are really missing here is that the world does NOT have the demand to support its productive capacity.  This is the fundemental problem with the global economy.  The issue is exactly the opposite of the problem in the 70's'  

        BTW - I HATED the Bush tax cuts.

    •  that's right (10+ / 0-)

      ...and demand is headed down - not just for goods, but for credit. People see the trainwreck and they're starting to pull back. Producers are no longer able to pass on their cost increases. No pricing power.

      The fact that this is happening at a time when the prices for things are low (although maybe not in respect of quality), and at a time when lenders are (as Bonddad notes) still throwing money at people, should be a black flag.

      A foreclosure is not a soft landing. Banks in the real estate market is not a soft landing. As for the dollar,  I believe it's worth about half what it was four years ago - and the price of gas is double what it was four years ago. Neither the Chinese nor the Europeans want to see the dollar go down.

      What should happen is that foreign investors should at some point enter the US market to buy up properties and businesses with their dollars, gaining more control over the parts of the economy for which they already provide the labor. This is already happening. You think that American retailers control their Chinese suppliers. In fact it is the other way around, and Wal-Mart is becoming a shell company that doesn't do any of its own design, and even some of its marketing is sort of pre-packaged in the Chinese products themselves, since they are all no-name.

      I don't think the Chinese care about building their own brands. If you make everything a company makes, and you have unlimited money, and you already control the design process for products, then you own that company in all but name. When the credit bubble pops, the only thing Americans will have left to sell or trade are the premises, so to speak.

      The Japanese tried this in the early '90s, and the US hit them with a dollar crash. The Chinese are diversified away from that and protected, and all the diplomatic exchanges between the US and China on this subject have had to do with keeping the dollar relatively high (it's already partially devalued) just to keep prices low and demand steady.

      The US apparently likes this if-we-go-you-go-too position, but the Chinese strategy should be to time the shift, so that when the dollar falls, they move from emphasizing production for the American market to production IN the American market. That is, there cannot fail to be a right moment for them to spend their dollars.

      -10.00,-10.00. Beat that, motherfuckers.

      by frenchman on Tue Nov 21, 2006 at 08:31:04 AM PST

      [ Parent ]

      •  What major retailer (1+ / 0-)
        Recommended by:
        CSI Bentonville

        ever did product design? Its not their core compentency, that's what they have suppliers for.

        A lot of people made the same warning about Japan in the 1980s. They were coming in and buying up everything from Rock Center in NYC to Pebble Beach in California. A lot of good it did them.

        Obviously you have never had to negotiate as a supplier with WalMart, take my word for it, Wal Mart is still in the drivers seat.

        •  what do we know (4+ / 0-)

          The only thing Wal-Mart could possibly be "in the driver's seat" for is unit cost negotiations.

          They're not in the driver's seat for workplace standards: the Chinese government set aside its own strictures on "labor unions" so Wal-Mart employees in China could protest and strike.

          They're not in the driver's seat on quality. In my area, a new Supercenter opened up. I looked around. I looked in all departments - clothing, pets, shoes, textiles, toys, electronics, etc. - and I never saw such a coagulation of worthless crap in my life. It was third-tier stuff, and countries that are complaining that China saves its best production for the American market must be buying oil-soaked rags.

          I realize this sounds broad, so let me add that I'm certain that if you trace back various product lines through past years, you'll find that overall quality in relation to price - a hard thing to measure, I grant - has steadily declined for quite some time with Chinese production.

          In part this isn't even the fault of the Chinese. In what they think are tough unit cost negotiations, Wal-Mart executives - almost none of whom are based in China - think they have the edge because they see raw materials like steel going up and up. They think, why not let those bastards screw and re-screw their Commie slave employees (Wal-Mart is run by wingnuts, after all).

          The Chinese workers know all about this - not only the fact that American companies lie to their own people about their Chinese workplaces, but the fact that Chinese managers can fiddle unit cost by switching materials, redesigning for appearance, not function, and selectively removing useful features while still making the product appear to be "the same". And they know because they are the ones who have to do it.

          Wal-Mart is not in the driver's seat on the bottom line, either. They are just as overbuilt as subdivisions. Here's a bet: Wal-Mart, next year, will report that it is backing off on some Supercenter projects high in the pipeline, and start selling some of the land it has for new stores.

          If your position on Wal-Mart's toughness has some new source, please indicate it. Otherwise, I've read recently about the fact that Chinese occupation of managerial slots has been climbing the ladder, and that the Chinese themselves are starting to outsource production to other South Asian countries, partly in an effort to obscure the Chinese market share of American manufacturing for the consumer market.

          Wal-Mart started out with the ultimate betrayal: they switched from "Buy American" to "screw the American worker" without a break. It's not their fault that most American venture capitalists followed their lead. It all worked like clockwork for a long time.

          But it is a distortion of economic sense and reality, and it is going to end in a trainwreck. We just don't know which track.

          -10.00,-10.00. Beat that, motherfuckers.

          by frenchman on Tue Nov 21, 2006 at 11:04:05 AM PST

          [ Parent ]

    •  Throwing money at the wrong class (10+ / 0-)

      Forgot the name of the old-time democratic Texas senator who said, "You've got to put the jam on the bottom shelf where the little man can reach it."

      Repug (and DLC dem) economic policy has been all supply-sided for 25 years. If ever there was a time for a demand side stimulus, this is it!

      Not gonna happen though.

      •  Yes it will (2+ / 0-)
        Recommended by:
        greenearth, epppie

        We just need to marginalize Bush.  He doesn't seem to realize how unimportant he is now, but he'll learn.  His party is done.  Maybe for a generation if we're lucky.  Long enough to repair the damage.

        Politics isn't a football game. The prize isn't power -- it's responsibility.

        by slippytoad on Tue Nov 21, 2006 at 10:04:53 AM PST

        [ Parent ]

      •  In the past (0+ / 0-)

        Unions have always been for a relatively loose monetary policy.

        The budget deficit limits our ability to use fiscal policy to inflate the economy, so the FED is doing it instead.  

        Which is the lesser of two evils:  inflation or a recession?  Right now the FED isn't seeing much inflation risk - and I think they are dead right.   So they are trying to forestall a recession.

        Its the right approach.

    •  Inflation is nonexistent (9+ / 0-)

      You must shop at the same store as that Blasted Fed!
      Where are you all shopping? Where I am bread that was at 77 cents a year ago is now over a dollar. Milk which was $1.99 is now $3.06. The prices never went down when the gas did. This non existent inflation thing is BS.

      •  The grocery store surprises me (9+ / 0-)

        every time I shop.  Rice, pasta, and forget about fresh, organic veggies, fruits.  On the other hand, it wouldn't hurt me to eat less but I'm not worrying about a family.  It would be a way different story.  Plus electric/gas costs - I can't remember the last time I walked into a toasty warm room here - that's off the table.      

        I have no patience with people who grow old at 60 just because they are entitled to a bus pass. Mary Wesley, British novelist

        by xanthe on Tue Nov 21, 2006 at 09:11:40 AM PST

        [ Parent ]

      •  I paid $2/gal for milk just last week, (3+ / 0-)
        Recommended by:
        cwaltz, greenearth, epppie

        and the "regular" price for a gallon of milk at the supermarket hasn't been south of $3 in the last 2 years.

        •  Not here in Va (3+ / 0-)
          Recommended by:
          Thistime, greenearth, epppie

          I've got 4 crumb crunchers so I am well acquainted with the cost of milk. I buy at least 2 gallons a week. The price at Kroger right now in zip 24060 is $3.06

          •  In other words, you pay less for milk than I do (1+ / 0-)
            Recommended by:

            except when some supermarket puts it on sale as a loss leader--as Kroger did last week in my city.

            •  Not on sale here this week (0+ / 0-)

              (sigh) Sale milk is $2.50 a gallon or lately what they have been doing is $1.50 a half gallon (where I get to save a whole six cents). It totally sucks but I guess it could be worse I've heard places that have $4 or over.

              The bread prices are the latest in being shafted. Getting bread at Kroger means paying $1.00 as a sale price. I am fortunate though because they are pretty good about marking down the bread so I can usually pick up some of the loaves at between 59 and 79 cents or hold out for the bread store.

              Yesterday was a banner day because we found chocolate milk marked down. I paid $2.00 for a gallon that still had 3 days on it. I am pretty sure the kids will make short work of it.

              My grocery budget has had to go up about $50 bucks over the last year and I am a fairly frugal shopper.

              •  Bread we can stockpile and then freeze. Not milk, (0+ / 0-)

                which must be bought and used fresh. And at $4-$5 per pound (which makes 5 quarts reconstituted), dry milk isn't any cheaper--though it is handy to have in reserve for, say, baking.

                (Of course the problem with freezing bread is the space in the freezer that it takes up. With 4 kids in the house, that's probably not an option either.)

                •  You can actually freeze (0+ / 0-)

                  milk as well. It isn't as easy to stockpile because of its size but if you open it up and pour a small amount out it can be frozen. Unfortunately, my large freezer bit the dust and I can't fit as much into the small area on top of the fridge. We have been known to use dry milk in a pinch but there definitely is a difference in taste and texture and the cost is getting to the point it almost the same as buying a gallon. I paid $3.99 for milk that reconstitutes to a little less than 2 gallons.

        •  The price of milk (0+ / 0-)

          turns often on whether your state is part of the northeast diary compact.  It if is, the price of milk will be higher.

    •  The right policy is to abolish the Fed, isn't it? (0+ / 0-)
  •  there is no soft landing (7+ / 0-)

    ...even though the Dow stays up (and now we know why), and even though inflation stays low.

    Low interest rates after 9/11 were supposed to unlock entrepreneurial creativity. What they did was license malinvestment in real estate, among other things. We are way overbuilt in a certain type of housing. We are way overborrowed as regards the equity in that housing, because values now are falling - and in Japan, they fell for 15 years.

    I wish somebody would find out just how many trillion dollars worth of ARM's rest next year, and a projection on upside-down mortgages and likely foreclosure rates.

    As for derivatives, that is a massive overhang in the market that will have to be wound up when market conditions make certain types of derivatives unworkable. They worked for a while, but when they stop there's a jolt.

    Another worry - the number of companies, like GM and Ford, that are going to be wriggling like worms to get out of their pension obligations.

    The question is: can Dems time the new financial Dust Bowl, and blame it on Bush, and take advantage to pass New Deal legislation?

    Somebody will get soaked. The markets are still betting it will be us little folks. They believe we still have enough valuables and cash in our mattresses to ride out another bailout of the investor class.

    Hope they're right!

    -10.00,-10.00. Beat that, motherfuckers.

    by frenchman on Tue Nov 21, 2006 at 08:10:07 AM PST

  •  People can't spend (3+ / 0-)
    Recommended by:
    LondonYank, corvo, blue jersey mom

    If they've exhausted their credit and they are not seeing increases in wages and salaries.

    In advance of likely action to increase the minimum wage, this increase looks foolish.  Unless there is existing capacity to absorb the increased demand that will result.  But it seems to me that most corporations  have been following a policy of reducing capacity as their markets go down.  And if markets go up, there will be a lag because building plant, purchasing and installing equipment, and hiring and training employees will take 6 to 24 months (1 to 4 F.U.s).

    It's looking like inflation about September of next year and continuing well past the 2008 elections.  Interesting, eh what.

  •  Thx bonddad (4+ / 0-)
    Recommended by:
    democat, LondonYank, xanthe, MarketTrustee

    for posting about this. I was very suspicious when I read about the M3 number hiding though I am not any economics guru by any means.
    In Feb. 2003 a director of the federal housing oversight office (?) issued a systemic warning on Fannie Mae and was fired 2 days later by the administration.  Some replacement ('heck of a job brownie') was put in there immediately afterwards...

    If God were one of us, some radical christian would hate him or her.

    by FreeTradeIsYourEpitaph on Tue Nov 21, 2006 at 08:37:03 AM PST

  •  Economics for Dummies Question (4+ / 0-)
    Recommended by:
    Reed Richards, nio, yinn, greenearth

    OK, fine, they're printing lots of money.

    But what does that really mean? It's not like they are dropping it out of helicopters on rioting crowds below, though that would be entertaining.

    So the Treasury has lots of truckloads of $20 bills. Fine. What does that really mean for us down here on the street? What does it mean for the banks? What does it mean to investors?

    Seems like what we in computer science call a "no op" unless that money goes somewhere. I'd love to understand the mechanics of that part of the story.

    •  asdf (6+ / 0-)
      Recommended by:
      Jesterfox, Strat, corvo, Do Tell, greenearth, epppie

      to quote Mrs. Howard, my Fourth grade teacher, There is no such thing as a stupid question.

      What it means is we now know why the stock market is doing so well -- there is a ton of new cash in the economy that is moving into the market.  We also know the Federal Reserve/Treasury is trying to manage a soft landing with new money.  

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Tue Nov 21, 2006 at 08:49:47 AM PST

      [ Parent ]

      •  you didnt answer his question (1+ / 0-)
        Recommended by:

        he wants the mechanics of how money that the treasury prints gets to the markets/investors/etc

        its hard to drink all day unless you start in the morning

        by The Exalted on Tue Nov 21, 2006 at 09:21:58 AM PST

        [ Parent ]

      •  yep (10+ / 0-)

        yep as a former stockbroker,I have been saying for years that the stockmarket is little more than a huge ponzi scheme these days. It relies on speculation, momentum, and above all else new monies.  Its why the rich scum are trying to get SS monies in there, Private SS investment does NOTHING to solve the SS problem, but it does give the ponzi crack whore market the dope it needs to keep artifically high.

        One day the market will have to really look at intself, look at its companies, its warehouses, it equipment, it R & D, etc and the correction willnot be pretty, 20 to 25% IMHO.

        You really think Google is worth 500 a share?  WTF? It has very little tangible assets, its fucking fantasy.

        mr republican, is that a flag in your pocket or are you just glad to see my son?

        by pissedpatriot on Tue Nov 21, 2006 at 09:30:52 AM PST

        [ Parent ]

        •  isn't all economics (2+ / 0-)
          Recommended by:
          greenearth, epppie

          a giant ponzi scheme? if anyone thinks that free-market capitalism is the end stage of human economic development, attention hasn't been paid to history. obviously we're in a huge transitional stage.

          the silent encouragement of illegal immigration is nothing more than an additional propping up of our system as there's now a large pool of cheap labor  with a high birth rate that needs and uses increased goods and services.    

      •  I'm interested in the mechanics (1+ / 0-)
        Recommended by:

        Thanks bonddad.

        I know what the effect of the extra money is. But I don't understand how that money moves, literally, from the Treasury's printing presses into the hands of people who use it for all the things you mention.

        How does all that cash actually get "into" the economy?

        •  asdf (6+ / 0-)

          1.) Great screen name.  I have a 72 strat with Rio Grande pick-ups.  A long time ago I use to be a professional musician partial to Fenders.  I also have a heavily customized Tele  (2 JB Humbuckers and a lace sensor in the middle).  

          2.) Onto your question.  The Federal Reserve and banks work in tandem.  When the Fed/Treasury want to increase the amount of money, they do repos as explained above or the Fed/Treasury makes banks sell Treasury bonds to the Fed and the Fed pays cash.  The banks then put this money to work.  Reverse the process and you know how the Fed drains liquidity.

          "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

          by bonddad on Tue Nov 21, 2006 at 10:05:44 AM PST

          [ Parent ]

          •  thanks, and thanks! (2+ / 0-)
            Recommended by:
            hyperstation, greenearth

            I have an '84 Strat, massively customized to the point that the only thing still "Strat" about it is the body and neck. I never liked the Lace Sensors that were in it originally, so I put a humbucker in at the bridge (SD Pearly Gates). It sounds more like a Les Paul in that mode. I put "vintage wired" Lindy Fralins in the neck and middle positions, so it still can sound like a Strat when I want it to. It's all beat up and needs to be refretted (again) but I love it. It's still my first choice for gigs or recording.

            And thanks for the explanation, that's exactly what I was looking for.

            •  man I love that pearly gates p/u (1+ / 0-)
              Recommended by:

              I put one in a Ibanez Roadstar II and it made it sound like heaven... which is clearly where the name came from.

              I did move on to a Les Paul, probably because I got used to the sound, and then from there to a Travis Bean. Guitar geeks unite!

              -8.38, -8.00 Moderation in temper is always a virtue; but moderation in principle is always a vice. --Thomas Paine

              by hyperstation on Tue Nov 21, 2006 at 11:33:55 AM PST

              [ Parent ]

              •  No doubt. (1+ / 0-)
                Recommended by:

                It's a great pickup. Into my JMP II, it just nails the early Billy Gibbons tone. Have mercy!

                I have a Les Paul, too, which is also a beauty. But I prefer the Strat for the feel of the neck, and also because I can get such diverse tones out of it with just the flip of the switch.

                What this has to do with repos and monetarism, I don't know. Sorry to hijack your diary, Bonddad!

                •  Are guitars worth more, now? (0+ / 0-)

                  My husband has five of the old Yamaha guitars. He has each in a different year, in almost new shape. They were never an expensive guitar, but are well made and they do sound good. They remind people of the music parties they use to have. They are the kind of guitar you can take camping or to parties without a lot of worry. He keeps saying he should probably sell them, but he never does.  

                  The guitars aren't eating anything, so if guitar prices inflate, it would be good to have some things like that to sell or trade if there is no money, I suppose.

                  He has an old Gretch57, too.

                  Life is what you focus on. Let's focus on making life better all over the world for the most people we can.

                  by relentless on Tue Nov 21, 2006 at 01:05:25 PM PST

                  [ Parent ]

                  •  Depends (0+ / 0-)

                    Hey, now I sound like an economist!

                    Guitar appreciation/depreciation is a weird thing. In my opinion, nice guitars generally appreciate and cheap guitars don't. It's really a function of whether the guitar is "collectible" or not. That seems to drive the used guitar market.

                    Obviously, they have to be in very good condition to appreciate, regardless of status.

                    I don't know about your husband's guitars, but I can say that Yamaha isn't known for making collectibles. You may want to do a quick check on eBay to see where the market is.

                    The Gretsch, on the other hand, is more likely worth something. Again, I'd check eBay just to get a starting point for valuation.

      •  Financial musical chairs (0+ / 0-)

        With all this money coming into the system(how much due to the Japan carry trade?) it's become  like a game of musical chairs where you keep adding player instead of taking away chairs.

        The money has to go somwhere(and it ain't going into workers pay packets) so they go anywhere there's a yield: stocks, commodities, junk bonds, foreign markets, Jackson Pollock paintings, real estate.

        This is asset inflation, which can be as bad as cost inflation. The % of wages that go towards your mortgage climbs, reducing your purchasing power. The phenomena was seen in the Ireland after the introduction of the Euro(as the Bank of Ireland could no longer raise interest rates or control the money supply) as house prices started climbing and haven't looked back since.

        What was going on a coupe of weeks ago when the Fed had some issues with someone manipulating the repo market?

    •  They pretty much are dumping it from helicopters (8+ / 0-)

      onto rioting bankers below.

      Our Long National Nightmare Is (almost) Over!

      by Brain Donor on Tue Nov 21, 2006 at 08:57:02 AM PST

      [ Parent ]

    •  Money makes the world go around! (7+ / 0-)

      In classical economics inflation is seen as a function of money supply and the supply of goods and services available to consumers.  The more money available to buy limited amounts of goods and services, the more expensive (inflation) the goods will become.

      In an "infinite" economy however, there is no limit to goods and services available, so there is no appreciable inflation.


      When the excess money supply fails to purchase domestic material, it weakens the domestic economy.  As more and more market share goes to foreign sources, the imbalance can create a cascade: two things can happen.

      1. The dollar becomes toilet paper.
      1. Foreigners eventually own EVERYTHING.

      My concern is which of the two will we see?  1 will eventually cause wages to plummet in the US.  2 will me we will have to welcome our new alien overlords.

  •  My boss... (2+ / 0-)
    Recommended by:
    greenearth, epppie

    Evertime I try to talk to my wealthy republican boss about the national debt he always responds with things like "Who's going to collect on that debt?"  It will never be collected so why worry about it.  We've been in debt for over one hundred years."  He would be totally in favor of just printing more money to get us out of our troubles.  

  •  It Used to be Called Monetizing the Debt (13+ / 0-)

    As long as the Fed steadily increases the level of repos done with member banks, it is sopping up Treasury securities, of which a plentitude exist thanks to the Iraq War and an "on-budget" federal deficit growing by 9% each year.

    Removing federal debt from the market place keeps long term bond rates down and makes it easier for the Treasury to keep selling the debt the administration and Congress continue to issue.  This is monetizing the debt - bringing it back into the Treasury and putting cash out into the economy.

    The cash sits at first in bank accounts at the Federal Reserve, and the banks must find a place to invest it at a return higher than is charged by the Fed.  This is where the fun begins.  The biggest borrower the banks have is the consumer, but the banks can do only so much to induce the consumer to take on debt.  A roaring housing market worked for awhile, but the double-digit gains in house prices every year seem to be a thing of the past.  Or are they?  Is the Fed trying to reignite the housing market?

    A second option the banks have is to reduce their credit standards and allow consumers to take on even more debt than was thinkable a few years ago.  Banks can also invite in previous credit pariahs and deadbeats to the party, especially if the banks can sell-off this risky debt in places like the derivatives and mortgaged-backed securities market.

    There's no doubt the banks have been lowering their credit standards for years.  In 1990 the average home mortgage required a 20% downpayment; today the average downpayment on a mortgage is 9%.  Competition and the drive for ever-increasing fee incomes will continue to push the banks to reducing credit standards.

    This is also seen in the corporate market, where massive amounts of debt are being taken on by companies eager to buy competitors, since normal economic growth isn't happening at a fast enough pace.  Investors with all sorts of loose cash are buying up the bonds in these deals with celerity, because there is no place else to put their money.  The bonds, of course, are instantly rated as junk debt, and once proud credit-worthy companies overnight become compromised credit risks.  But where is all this loose cash going to go?

    Bernanke is following in Greenspan's footsteps.  Greenspan reflated the post Tech crash economy of 2000 by igniting a housing bubble, which eventually leached into emerging markets, gold, oil, and other commodity bubbles.  Bernanke may be trying to relight these bubbles, or just doing what the Fed has always done - push all sorts of liquidity onto the economy in the hopes that it will find productive use.

    Unfortunately, there is no productive use for this money.  If there were, workers would be getting the same sort of wage increases as management.  Instead the money goes to bubble investments, of which today's management buyouts and leveraged debt mergers are the latest examples.

    •  Banks more loaded with risk than ever (7+ / 0-)

      I wasn't aware of just how low bank reserves against bad loans are at present, compared with the past, till I read how bank reserves have been dramatically lowered in the last 10-15 years, per itulip.  And according to Autodogmatic, just last week Bush signed a bill doing away with frational reserves entirely!

      So, we have debtors more in debt than they've been since the Great Depression, and looser banking credit standards than we've ever had since the Great Depression.  We are really primed for a deflationary blowup.

      •  holy crap! (3+ / 0-)
        Recommended by:
        3goldens, Do Tell, greenearth

        and the FDIC sure isn't going to be able to cover all this.

        I wouldn't believe Bush if his tongue became notarized (h/t to shanti2)

        by billlaurelMD on Tue Nov 21, 2006 at 09:20:27 AM PST

        [ Parent ]

      •  Deflation following this latest Reflation Attempt (3+ / 0-)

        The history of the modern Fed has been to take ever more desperate measures to reflate the economy with lots of liquidity, even if that leads to asset bubbles and piling staggering amounts of debt on the backs of consumers and business.  This latest attempt at reflation may lead to another inflation scare, but in the long run, the debt will tell the tale.  A tipping point will occur where the risk profile of this debt will change overnight.  Banks and other lenders will suddenly see risk where none existed before, and loose money will disappear.  So will a lot of asset value in a general economic deflation.  

        •  Deflation (1+ / 0-)
          Recommended by:

          If I can ever figure out the new diary system, I have been planning on doing a diary about deflation.  Per my comments on this thread, I see it as inevitable now -- just not sure if it is 3 months from now or 5 years.

          •  rest easy, friend (2+ / 0-)
            Recommended by:
            3goldens, corvo

            i've struggled a long time to grasp the significance of "deflation" -- the semantic, intentional, import of a measurement of the cost of money that very few are willing to document or discuss publicly.

            even in academic circles, it would seem that "deflation" does not exist -- rather there is tacit agreement that "stagflation", rolling "recessions", "cyclic" supply-side performance and pricing, and (g) -- "growth" -- are sufficient explanatory signals of events and histographic trends driving fed monetary policy and rate manipulation to forestall inflation, which, of course, predictably scares everyone.

            for most, pragmatically speaking, purchase power is not as important as a chasing a fist fulla dollars.

            Diversity is the key to economic and political evolution.

            by MarketTrustee on Tue Nov 21, 2006 at 09:56:32 AM PST

            [ Parent ]

            •  The U.S. has no real experience with deflation (6+ / 0-)

              No one is around who remembers the deflation of the 1930s - at least no one in a position of power.  The nature of the U.S. economy before 1900 was one of interchanging booms and busts, where the busts were deflationary episodes.  Prices for goods, services, and labor went down during these periods.  But since the establishment of the Fed in 1913, with the exception of the Great Depression, prices have marched steadily upwards.  It is so ingrained in our thinking and behavior that no one questions whether any other economic condition could exist.

              I'm not even sure anyone in the world really has experienced deflation.  The Japanese in the 1990s certainly saw prices decline (especially real estate), but the massive unemployment that accompanies deflation was absent.  Argentina went through an economic collapse a few years ago with a whiff of deflation and large unemployment, but the sudden commodity boom since 2004 pulled them right out of it.  Their decrepit international bonds found new favor, and even more incredible, they were able to issue new debt recently.  In times past, a bankrupt country would have to wait decades before coming back to the bond market.

              Somebody, some place is buying all this debt, and their credit standards are weak to non-existent.  I think if they are professionals - mutual funds, endowments, insurance companies, banks, brokers, etc. - they put enormous faith in the liquidity of the debt markets to bail them out of any uncomfortable position.

              When the turn comes, it will be heralded by an event in the money markets.  Some sort of surprise collapse or credit trouble, where liquidity just disappears.  The musical chairs game will stop, only the participants will realize there are far, far fewer chairs than players.

              •  You are most vulnerable ... (1+ / 0-)
                Recommended by:
                Love and Death

                to events you have not previously experienced in your lifetime.  Even 10 or 15 years ago I realized we were becoming more vulnerable to inflation.  And when it arrived, people would do exactly the wrong thing (supply-sided tax cuts, more outsourcing) because that is what had worked so well re INflation.

                BTW, this is also why I have become concerned about the possibility of a major industrial war.  Industrialized states haven't experienced one on their home soil since 1945.  The costs are increasingly forgotten, while the jingoist and theocratic voices are increasingly shrill.

                I believe this is the reason why the 60 year Kondtratieff cycle works.

              •  Correction: (0+ / 0-)

                in my first response, I meant to say, I realized we were becoming more vulnerable to deflation...

              •  "real experience" (2+ / 0-)
                Recommended by:
                Numerian, Chris 47N122W

                i am ever mindful of the facts that differientiate the human species from all others: we know that we live in two worlds, the imaginary and the physical.

                often the imaginary will out, so endorsing paradoxes implicating our physical, "real," world and the perversity of our actions -- from climate to "money" stores of value -- to preserving "real" equilibrium.

                for these reasons i tend to emphasize contradictions of literary trope in economic quantitative methodologies and inferences in my dkos comments. i have commented obliquely on historic market movements back to the 19th century.

                i submit: no one "in the world really has experienced deflation," simply because deflation is not measured; it's the undesired thing. what isn't measured -- so the adage goes -- doesn't "count." so it is merely the motive that underlies real anti-inflation institutional mechanisms and the aggregated output of individual agents whose telological roles are (not) indeterminable. yet their goals are in turn determined by interest rate decisions that express tenuous justification in "real" world economic reality.

                every mathematical opportunity harbors terms of non-identity. cartesian philosophy obsolenscence? sure. that's humanity; that's the value of social science.

                i have noted your contributions with great interest, because you very often explain the utility of quantitatve expressions to our comprehension of "market" phenomena.

                thank you.

                Diversity is the key to economic and political evolution.

                by MarketTrustee on Tue Nov 21, 2006 at 11:24:18 AM PST

                [ Parent ]

                •  Here's an example (0+ / 0-)

                  The Labor Department ceases to measure the economic utility of unemployed people who stop looking for jobs after a certain number of weeks.  They just disappear from the unemployment statistics, though they do show up as a sort of footnote of several millions of workers who have somehow "chosen" to leave the work force.  We seem them once again in the ratio of adults who are in the work force - this ratio has been declining for the past few years.

                  Wouldn't it be interesting to measure the economic damage resulting from declining salaries and wages for such workers?  Sort of like GDP we would have had if so many people hadn't been outsourced, riffed, misplaced or whatever euphemism we like to call it.

                  •  yes, and there are many more non-identities (0+ / 0-)

                    pumping up the national account pulse, notably private corp performance -- which can be verified only by contract auditors -- yet contributes mightily to (self-identifing) labor and "consumer" perceptions of our economic and class welfare.

                    a positive rate of "growth" heals all wounds, so we are conditioned to perform ... empty productive activities ... except for rent-seeking sales contracts.

                    that said, equity valuations, finance, is still the mother of all non-identies. the incentives to float the boat are deeply imbedded in MSM reporting.

                    this doesn't mean FDI institutional investors don't have better information by which to guide their speculative strategems.

                    Diversity is the key to economic and political evolution.

                    by MarketTrustee on Tue Nov 21, 2006 at 12:13:12 PM PST

                    [ Parent ]

    •  free rate is FUBAR, is it not? n/t (0+ / 0-)

      Diversity is the key to economic and political evolution.

      by MarketTrustee on Tue Nov 21, 2006 at 09:33:41 AM PST

      [ Parent ]

  •  It's housing (2+ / 0-)
    Recommended by:
    hearthmoon, epppie

    I'm a former business writer turned SAHM and I've been saying for a while that this was what was going to happen. Why? It's the only way to keep the housing bubble from crashing in the numbers everyone understands. Housing will indeed fall -- but in constant dollars. The sheer amount of cash/inflation will ensure that it remains quite high in $$ terms.

  •  interesting (2+ / 0-)
    Recommended by:
    MarketTrustee, epppie

    this leads to a possible explanation/corralary to the debt explosion.  

    If I expect inflation to occur, then a logical reaction would be to barrow today and pay back tomorrow with cheaper money.

    This hidden inflation could do a couple of things "good" for the economy.  It lessens the debt burden of America, both the federal debt, and the average americans personal debt.  

    perhaps this is the gambit the fed is trying to do. With the Chinese currency pegged to the dollar, if they can keep this inflation hidden long enough, perhaps they feel that can prevent the debt in the country from becoming too much of a burden.  

    The rub is they have to keep it hidden for as soon as it becomes accepted as what's happening the financial secotr could collapse.

    It might explain in the macro why so many people have loaded up with so much debt.  Not because they consciencely plan it that way, but they no every time the go the gorcery store or wal mart things are more expensive, so better to buy it now on the credit card, and pay it off next year with cheaper money.  (it prolly won't work for most, but i can understand the underlying thinking)

    The world will end not with a bang, but with a "Do'oh!"

    by Love and Death on Tue Nov 21, 2006 at 08:56:03 AM PST

  •  Never took Macroeconmics in college (0+ / 0-)

    I wish I had, now.

    Who knows what evil lurks in the hearts of men? Well, come on, doesn't anybody know!?!?

    by Erik the Red on Tue Nov 21, 2006 at 08:58:24 AM PST

    •  You and me, both (0+ / 0-)

      I thought I didn't like econ, then took an International Political Economy course my senior year (I was a poli sci major) and it was one of the best things I ever studied, far less dull than even the prof would lead me to believe; it has made all kinds of actions become far more understandable over the years, and now I wish I could really dig in to the charts and graphs to understand the mechanics better. bonddad and the other econ folks around here are a big part of why dkos is part of my daily read.

      -8.38, -8.00 Moderation in temper is always a virtue; but moderation in principle is always a vice. --Thomas Paine

      by hyperstation on Tue Nov 21, 2006 at 11:39:04 AM PST

      [ Parent ]

  •  So why isn't this fueling inflation? (0+ / 0-)

    Have prices not caught up with the change in money supply because of the time lag factor?  Are there deflationary pressures at work?  Is the economy in reality growing by such leaps and bounds that the increase in supply is warranted?

    (By the way, your last block quote from Barry Ritholtz is confusing here, because it references a graph that you don't show.)

    There is more to truth than increasing its spin

    by hearthmoon on Tue Nov 21, 2006 at 08:59:41 AM PST

    •  Prices are catching up to money supply growth (4+ / 0-)
      Recommended by:
      3goldens, corvo, MarketTrustee, paul d

      Not only money supply growth - but increased federal spending.  The big worry of the Fed is that the asset inflation we saw in housing, oil, art, and other commodities would seep into the price structure of other parts of the economy, especially wages.

      That's begun to happen.  Wage growth is in excess of the magic 2% number that a lot of Fed governors view as inflationary, and they've been saying so lately.  It's why they may not be done increasing interest rates.

      That is why increasing M3 at a 10% annual rate makes no sense.  It is contrary to what a lot of governors have been talking about, and therefore we have a mystery.  Is the Fed really paying no attention any more to money supply?  Greenspan said they downgraded money supply as a policy tool, in favor of concentrating on the level of inflation in the economy.  Bernanke hasn't publicly disavowed this statement, so maybe the Fed really doesn't care about 10% M3 growth.

      If so, that is quite a gamble.  We all learned in the 70s that price inflation in the economy is always and everywhere a monetary phenomenon.  When you combined rapid money supply growth with out of control federal spending, you have a recipe for inflationary disaster.  

      One other possibility would be that the Fed is looking back to the 90's when M3 grew in the double digits and nothing bad happened - in fact the rate of inflation declined.  But this was a period of the "peace dividend" and very low growth in federal spending.  We live in a completely different era, more like the 1960s or 1970s when we wanted guns and butter.  

      We know how that turned out.

    •  inflation (1+ / 0-)
      Recommended by:

      an argument can be presented that inflation is localized in capital markets, where minimum investment and ROI is $100K per transaction -- that's institutional investor activity, independent of price signals attributable to (aggregated) individual OTC or consumer commodity markets, much less artifically depressed consumer cost of money (interest rates).

      Hence, that sloshing sound you heard. They have been providing the fuel for the rally, the huge M&A activity, the explosion in derivatives -- even the eye popping Art auctions are part of the shift from cash to hard assets.

      recall also that theoretical "trickle down" benefit to the national account and hard fiscal stimulation of "consumer" investment strategy has been discredited by history.

      this M3 observation is evidence of "value" depredations among the 1%.

      Diversity is the key to economic and political evolution.

      by MarketTrustee on Tue Nov 21, 2006 at 09:24:20 AM PST

      [ Parent ]

    •  Supply of goods and services aren't finite. (0+ / 0-)

      Well, not in the classical sense.

      With globalization, you can always find someone willing to sell it cheaper.  So instead of an inflationary spiral, you get a higher and higher percentage of the M3 being owned by foreign investors.

      What will they do with the money?  Buy everything that isn't nailed down.

      •  China plays a long game (3+ / 0-)

        They paid attention when the Japanese bought up everything for sale in America at the point where the RTC had to come in and clean up that mess, they got their asses handed to them.

        What is China doing? Investing in our debt for stability, and investing in Africa to take china's place in the economic pecking order.

        If America doesn't get their shit together, pretty soon we'll be the UK to China's America.

        •  Chinese investments (1+ / 0-)
          Recommended by:

          It would be interesting to know more about Chinese investment strategies (i.e., what they're doing with excess dollars from the trade gap.) In the U.S., I've read they invested heavily in mortgage markets, as compared to Japanese banks which favor government bonds almost exclusively. They've invested in an oil pipeline in Canada and soybean production in Brazil.

          This has been a fascinating and educational thread to read. My own take on the U.S. economy in general is that it's going through boom/bust cycles thanks to excess liquidity from the trade gap. The dollar is a boomerang currency that must always find its way home, one way or another. Foreign banks must find some way to invest their excess dollars, if for no other reason than to fend off devaluation (30% against major currencies over the past 5 years). While American investors reap rewards from inflated stock or real estate prices, their foreign counterparts are merely breaking even, in terms of their home currencies. It would be proper, I think, to speak of an investor class, now, in the U.S. and a growing underclass which is not able to invest. The situation is increasingly like a Caribbean island, where foreign investors drive property values beyond the means of any native inhabitant. The inhabitants, necessary for labor, are driven to undesirable properties and are eventually impoverished.

    •  To me, it sounds like the money never makes it (0+ / 0-)

      to enough people where it can drive overall inflation. It stays in the top 5%, where they just inflate stock investments and real estate investments and high end collectibles and luxury goods that don't factor into inflation ("Today's suprise increase in inflation is blamed on last weekend's Sotherby's auction where about $300,000 of Staw Wars props sold for over $300,000,000, coupled with the increasing use of tacky gold bathroom fixtures among the corperate elite")

      •  Cold fingers type poorly... typos abound. (0+ / 0-)
      •  seriously? Or is this a snark? (0+ / 0-)

        If the rich are sucking up the inflation, then they are paying through the bag door for some of the tax cut that caused this deficit.

        There is more to truth than increasing its spin

        by hearthmoon on Tue Nov 21, 2006 at 05:51:40 PM PST

        [ Parent ]

        •  I think it is serious (1+ / 0-)
          Recommended by:
          New Deal democrat

          Money doesn't trickle down, it aggregates,  and if it starts at the top it stays at the top. The superwealthy have no productive ways of using that wealth, and they just inflate investments that they buy off each other. Once upon a time you could plausibly claim they would invest in businesses that would create jobs, though it was never to the extent trickle down proponents claimed. Now returns on stock are entirely driven by speculation not dividends, and all of the "value" added to real estate doesn't help anyone except the speculator. The money hasn't done a thing to improve anyone's life outside of a few superwealthy.

  •  bonddad (0+ / 0-)

    I seem to remember you posted a diary that discussed the government's decision about M3 earlier this year or last.  I can't find you have the link?  thanks.

    Blogatha! The political, the personal. Not necessarily in that order.

    by ksh01 on Tue Nov 21, 2006 at 09:01:18 AM PST

  •  I think you're wrong, Bonddad (5+ / 0-)

    My charts don't show any difference between the growth of the M2 and the growth of the M3 over the last decade. And since M3 includes M2, that tells me that there isn't a big growth in repos.

    Correct me if I'm wrong, but my understanding of the growth in M2 is that it's due to growth in Money Market funds.

    When the Fed is flooding the economy, it shows up in M1 without a corresponding rise in M2/M3. If you look at data from September 2001 you'll see what I mean. A more interesting example is 4th quarter 1999, when the Fed was worried about bank runs for Y2K. Greenspan was absolutely masterful about using the repos to flood the banking system without driving down the overnight rate. I remember looking at the numbers in mid-2000 and just being awed. Absolutely masterful.

    The M1 has only leveled off in the last year and a half. From January 2001 through January 2005 the economy was being force-fed dollars.

    Let me see if I can find a way to steal numbers off my market data feed and post them here.

    Our Long National Nightmare Is (almost) Over!

    by Brain Donor on Tue Nov 21, 2006 at 09:06:36 AM PST

    •  Numbers (0+ / 0-)

      Straight extrapolation for M3 for the last 2 quarters would put it right around 11,700 - that's where your new source showed it too.

      Forgive the hand formatting.

      DATE M1 M2 M3
      9/06 1357.7 6862.3
      6/06 1370.3 6817.4
      3/06 1384.6 6763.8 10294.3
      12/05 1368.5 6664.8 10150.1
      9/05 1372.4 6588.6 9950.8
      6/05 1374.2 6506.0 9725.3
      3/05 1372.6 6463.7 9565.3
      12/04 1372.1 6408.1 9433.0
      9/04 1360.6 6335.4 9351.8
      6/04 1341.2 6276.4 9275.7
      3/04 1329.6 6159.8 9082.4
      12/03 1304.2 4926.3 8874.0
      9/03 1296.5 4857.0 8908.1
      6/03 1279.9 4776.9 8793.0
      3/03 1238.3 4717.0 8650.1
      12/02 1219.0 4645.7 8569.2
      9/02 1194.4 4572.4 8332.6
      6/02 1191.9 4512.1 8192.5
      3/02 1191.6 4441.7 8123.0
      12/01 1182.1 4383.6 8035.0
      9/01 1203.5 4270.7 7848.3
      6/01 1126.5 4185.2 7644.7
      3/01 1108.8 4115.3 7372.0
      12/00 1087.6 4926.3 7117.6
      9/00 1098.6 4857.0 7003.5
      6/00 1103.6 4776.9 6823.6
      3/00 1107.6 4717.0 6704.0
      12/99 1123.1 4645.7 6551.5
      9/99 1095.9 4572.4 6323.0
      6/99 1098.5 4512.1 6237.5
      3/99 1096.0 4441.7 6132.3
      12/98 1094.9 4383.6 6051.9
      9/98 1078.6 4270.7 5883.9
      6/98 1076.1 4185.2 5728.4
      3/98 1076.6 4115.3 5610.7

      Our Long National Nightmare Is (almost) Over!

      by Brain Donor on Tue Nov 21, 2006 at 09:29:58 AM PST

      [ Parent ]

    •  asdf (1+ / 0-)
      Recommended by:

      I see your point, but I think you are assuming that all repo deals turn up as cash on hand or actual currency.  They don't  The Treasury does a repo deal with bank A.  Bank A now has an account, not actual cash on hand.  The bank then uses this new account to make a loan to a trader.  The bank shifts the account into the trader's name.  Again, no actual cash is created.  It's really a matter of accounting more than anything.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Tue Nov 21, 2006 at 09:52:09 AM PST

      [ Parent ]

      •  Wouldn't that affect the overnight rate? (0+ / 0-)

        Repos are one of the Fed's main tools for manipulating the overnight rate.

        If they were playing games with repos, I'd expect to see distortions there.

        Our Long National Nightmare Is (almost) Over!

        by Brain Donor on Tue Nov 21, 2006 at 10:05:15 AM PST

        [ Parent ]

        •  Think how big the repo market is (0+ / 0-)

          It's a multi-billion dollar affair -- as in hundreds of billions etc....  It takes a lot to move that market.

          "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

          by bonddad on Tue Nov 21, 2006 at 10:08:54 AM PST

          [ Parent ]

  •  I import from Canada and this weak dollar kills (3+ / 0-)
    Recommended by:
    sclminc, rabel, arbiter

    me.  We lose money right off the top from it as those products cost quite a bit more with our dollar losing so much ground against the Canadian dollar.  We do produce some of our own product here in the US too, but also import some.  They have an easier time getting workers as they have health care.  We are in agriculture, and I can only pay $8.50-$10 per hour with zero benefits.  It is very hard to find anyone to work that can actually do physical work all day for those low wages and is legal.  A stronger dollar certainly was better for us as far as buying product goes.    

  •  Base of inflation (0+ / 0-)

    print more money than there is production, gold, or whatever and inflation.  Gov always pushes for inflation as our Income tax system then gives the gov more of the actual $ to them.  The people (any strata) keep less.  Anyone here suprised when we have a regrassive income tax system?

  •  Ah yes--cleared that right up (6+ / 0-)

    So, what is M3?  According to my dusty and tattered copy of the Baron's Finance and Investment Handbook, 3rd edition M3 is M1 plus M2 plus time deposits over $100,000 and term repurchase agreements.

    I thought this was a joke at first.

    What is wanted is not the will to believe, but the will to find out, which is the exact opposite. -- Bertrand Russell

    by RequestedUsername on Tue Nov 21, 2006 at 09:25:17 AM PST

  •  Isn't that what the Germans did in the '30s? (3+ / 0-)
    Recommended by:
    democat, Thistime, chillindame


    by Lupin on Tue Nov 21, 2006 at 09:28:33 AM PST

  •  Isn't inflation good? (0+ / 0-)

    At least good for some people?

    If you are poor or in debt, your wages will rise and you can pay off your debt with cheaper money.  

    •  Not really... (2+ / 0-)
      Recommended by:
      Thistime, 3goldens

      If inflation is 10% a year, and your CC rate is 22%, then your debt is increasing at a faster rate than your ability to pay it off!

      Inflation is good for FIXED DEBT, like mortgage debt.  Even then you can get screwed, because when inflation increases your property taxes and the cost of home maintenance faster than your wages, you are still fighting a losing game.

      It isn't inflation that matters, but growth!  Last quarter's growth was 1.6%, which is MUCH LESS THAN THE INCREASE IN DEBT.  This essentially means, the economy is shrinking.

      •  One man's price is another man's wage... (0+ / 0-)

        If your credit card has a variable rate, you have a problem.  Also if you have and ARM loan for your house.

        But the cost of living shouldn't necessarily rise faster than your wages.  If you are a roofer, for example, inflation won't push the cost of housing up faster than your wages...since your wage is such a big component of housing costs.

  •  Good time to move your retirement fund to (1+ / 0-)
    Recommended by:

    Overseas stocks???

    Not asking for advice, BTW...

    At the dedication of his Gubernatorial portrait, GWB thanked his audience for "Taking the time out of your day to come and witness my hanging"

    by wrights on Tue Nov 21, 2006 at 09:42:32 AM PST

  •  Uh-oh... (0+ / 0-)

    Guess I gotta sell some stuff while the market's up...

    "It's better to realize you're a swan than to live life as a disgruntled duck."

    by Mumon on Tue Nov 21, 2006 at 09:54:08 AM PST

  •  What is the likely effect on bonds? (0+ / 0-)

    Would they be more productive than stocks?  Less?

  •  Increasing the money supply (3+ / 0-)
    Recommended by:
    sagesource, billlaurelMD, 3goldens

    is the easiest way to ameliorate the effects of overspending.  Short-term, that is.  Mid- and long-term, this administration is burning every bridge, using (up) every resource, destroying every potential future.

    We're fucked.

    Whew. Haven't felt this human in 6 years.

    by Bob Love on Tue Nov 21, 2006 at 10:25:39 AM PST

  •  Ernest Hemingway quote wraps this up nicely: (5+ / 0-)
    Recommended by:
    rabel, jcrit, 3goldens, cassidy3, BR Janet

    The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

    Have we learned nothing from history?

    Yes, that was rhetorical.

  •  The Dollar - sounds like peso to me. (0+ / 0-)

    Once in a while you get shown the light in the strangest of places if you look at it right.

    by darthstar on Tue Nov 21, 2006 at 10:39:09 AM PST

    •  Hardly (1+ / 0-)
      Recommended by:

      the dollar is still the world's reserve currency. Travel just about anywhere in the world and you will find people happy to take it.

      The peso is only good in Mexico, and while inflation is tame for the moment, it has an inflation rate as high as 50% in recent years.

      Other than that, the dollar is just like the peso.

  •  states quarters and now dollar coins (0+ / 0-)

    by putting all of these new coins into circulation, doesn't that affect M3 as well?  New money in the system.

    Republicans are not a national party anymore.

    by jalapeno on Tue Nov 21, 2006 at 10:39:50 AM PST

  •  Money Supply? (0+ / 0-)

    Anyone have a few million 1923 Deutschmarks?
    I need a beer!

  •  Another quote from the link (2+ / 0-)
    Recommended by:
    Thistime, KiaRioGrl79

    William McChesney Martin, Jr., Fed  Chair from April 2, 1951 to January 31, 1970, famously described the role of Central Banks thusly:  "The job of the Federal Reserve is to take away the punch bowl just when the party starts getting interesting."

    It seems the present Fed is not only NOT taking the punch bowl away -- they are spiking it with alcohol. I am not looking forward to the hangover that's to follow . . .

    Remember the December surprise Bush 41 left for Bill Clinton?

    No one will want to be President in 2008 because the economy will be booby-trapped.

  •  Wait a minute! (1+ / 0-)
    Recommended by:
    The Centerfielder

    Come January the Democrats will control Congress.

    Who in Congress should be contacted to conduct hearings on this?

  •  money as commodity (0+ / 0-)

    You are the first one I have heard who sees the money supply as a commodity, and thus supply-demand dependent.  Even as the Fed raised rates, the real money market kept going down in rates.

    They can't hardly give it away these days.

    Shhhhh...  It's a big, bubblicious secret.

    And then there's the minimum wage issue.

    "This is not a political problem, it's a social problem." -Deacon

    by jcrit on Tue Nov 21, 2006 at 11:10:51 AM PST

  •  Stagflation Deja vu (0+ / 0-)

    One unlearned lesson from Viet Nam that even Keith Oberman  forgot to point out to Bush was that if you raise domestic spending while running a deficit to finance a war effort ( so-called Guns and Butter ) the result is called stagflation - Inflation and recession at the same time.

    I think Friedman would say that M2 is the critical monetary aggregate that dictates price movement and that there are large lags between changes in the M2 supply and and any resulting inflation, but I would love to hear a non political economist's views on this sudden surge in M3 especially so soon after it has been called redundant.

    Doesn't KOS have some serious Monetarists among its readers.

  •  Devaluing currency isn't necessarily a bad thing (0+ / 0-)

    Well atleast it isn't a bad thing for the poor and middleclass.  The saving rate in this country is basicly negative for poor and many middleclass folk (basicly many people are spending more than they actually earn and wracking up debt).  So currency devaluation = debt devaluation for many people.  

    So the people that devaluation of currency really hurts are the people with the highest saving rate i.e. upper class people; all that money Bush gave them in tax breaks is worth less now.  

  •  they're doing everything they can (0+ / 0-)

    to keep the financial markets jacked up.

    Can they keep it up 2 more years?  You know they will try.

    Just like you know Bush is going to try to kick Iraq down the road to 09.

    Leave Iraq for the next guy (or gal) to clean up, while the economy and stock market go into a nosedive.  That President could end up the Hoover of this century.

    Well, I comfort myself knowing that I can make a lot of money on the short side.  And I'll be long crude oil and gold long before they get to $200/bbl and $2,000/oz, respectively.

    "We got [Lieberman's] ass out of the Democratic party. So we did our job." -Markos Moulitsas, 10/26/06

    by jimsaco on Tue Nov 21, 2006 at 12:00:01 PM PST

  •  Abolish the Fed! (0+ / 0-)

    The Federal Reserve is a private institution that is deeply connected to for-profit international banks and enterprises.  They have been bleeding this country dry for 80 years.  

    We never should have paid a nickel of interest on the trillions in U.S. currency and credit added to the economy since the Fed's dubious beginning.  We're creating cash and govt-backed securities and getting charged interest.  IT IS OUR MONEY.  Our govt should be creating it, setting the nominal interest rate, and COLLECTING interest for OUR TREASURY.  If the Fed had never bullied it's way into our lives, we would be virtually debt-free today.  That is the truth, and people have understand this.  

    The amount of unnecessary debt, and the power created for these criminals to influence our economy and our lives is staggering.  It is enslaving us, good citizens, and if we don't get rid of this parasite soon, it will be too late.  Please write your Congressmen/women and ask them to support Ron Paul's bill to abolish the Fed.

  •  Ben Bernanke and Real Business Cycle Theory (2+ / 0-)
    Recommended by:
    New Deal democrat, paul d

    Able & Bernanke's Macroeconomics text book is a classic. In the text, Bernanke spends quite a bit of time on Real Business Cycle Theory, which means that he has been greatly influenced by the theory.

    Real Business Cycle Theory is the opposite of Moneterism and was part of the Neo-Classical Revolution of the 1980s. Most of the proponents were conservative, so the fact the Friedman and Bernanke are on the opposite side and yet both Republicans is not a contradiction.

    In Real Business Cycle Theory, Money is neutral. Thus, printing money has no real effects on the economy. Granted, increasing the money supply may increase inflation, but increasing inflation will just increase wages so the average working American will see no difference. In the theory, only real shocks (versus monetary shocks) can effect real (versus nominal) variables. Real shocks include wars, natural disasters, strikes, oil embargos etc... But increasing the money supply or interest rates has no real effects on the economy.

    In a simple economy, this view makes sense. If the economy only produces one pencil and ten dollars, then the price of the pencil will be ten dollars. Produce two pencils and the price of a pencil will be five dollars.

    Now suppose the economy produces two pencils and the Fed decides to double the money supply. It prints twenty dollars. The price of a pencil rises from five dollars to ten dollars. But no matter what the money supply is, there is always two pencils in the economy. In a sense, money does not matter.

    Money only matters in that it makes trade easier. In barter, there has to be a coincident of wants. You want to have what someone has and that same person has to want what you have. Searching for the right person can take time.  But once you have the money it doesn't matter whether you add an extra zero to your bills (a one dollar bill becomes a ten dollar bill), the search is still the same, so production of real goods and services remain the same. Everyone is just as well off as before.

    Real Business Cycle Theorists would argue that the Fed raising interest rates would have no effect on the housing market. Why? Because if you raise interest rates, housing prices would drop, so the total price of a house (interest rate + price) would be the same. Likewise, lowering interest rates would increase housing prices.

    I see the point of Real Business Cycle Theorists. These economists got people thinking about Real shocks such as Middle East turmoil and supply shocks to oil as a major cause of recessions. However, sometimes their reasoning is over simplistic and for some reason, higher interest rates do seem to slow down the housing market.

    •  But take the opposite tack (1+ / 0-)
      Recommended by:

      and say that 2 people are bidding on a pencil. They both have unlimited funds and a huge pencil addiction. There is then no upper limit to the price that will be paid for that pencil. The "reality" in the Real Business Cycle is a rather plastic object. The reason that the housing market slows with increasing interest rates is driven quite a bit by speculative factors. Diminished ROI yields lower buying interest. Expectations create reality, especially since most markets are actually future markets. So what is this "reality" they are talking about?

      Walking. It's the new driving.

      by Batfish on Tue Nov 21, 2006 at 12:39:11 PM PST

      [ Parent ]

      •  The Role of Expectations (0+ / 0-)

        You make a good argument on expectations becoming reality. Kind of like a self-fulfilling prophesy, which many liberal economists would think possible (including me).

        However, Bernanke would dismiss your argument because it relies on irrationality. Bernanke would claim that what you perceive as speculation is merely rational arbitrage. Because he is a believer in rational expectations, expectations do not create a reality, rather reality creates the expectation.

        Moreover, no one has unlimited funds. Thus, the one with the most money would end up with the pencil.

        Most studies indicate that the Rational Expectations hypothesis is off and that people think in terms of frames instead. Now we are back to George Lakoff.

  •  Hmm. My economy could use a little flooding. (0+ / 0-)

    Maybe I should send them my address...

    "the people have the power to redeem the work of fools" --Patti Smith

    by Immigrant Punk on Tue Nov 21, 2006 at 12:26:46 PM PST

  •  I called Bernanke a money printer a while back (0+ / 0-)

    in response to a diary commenting on Bernanke's accession to the Fed throne, and I remember getting a puzzled response. So thank you, Bonddad, for making Bernanke's money printing ways much clearer. Since Bernanke has also made statements suggesting a more relaxed attitude to inflation, I think the money printing speaks volumes.

    Walking. It's the new driving.

    by Batfish on Tue Nov 21, 2006 at 12:29:47 PM PST

  •  We need a Real Macro-Economist Here (2+ / 0-)
    Recommended by:
    acerimusdux, BlueTide
    to explain some basics.

    Any given repo where the Fed is a lender is a one time temporary increase in the money supply. Why? Because when it is paid back, the money supply decreases by an amount equal to the original loan plus some interest. Since a repo is a short-term loan, the money supply change from a given repo is short-term noise.

    Let's assume that the Fed has not borrowed any securities on day 0. On day 1, a bank borrows $1 from the Fed using $1 of securities as collateral. The money supply has increased by $1 on day 1. But on day 2, the bank pays back the loan ($1 + interest). So the money supply has actually contracted on day 2 vs day 0 by the amount of interest paid by the bank.

    In the case above, the two parties were the Fed and a private bank. What happens if the parties are the Fed and the U.S. Treasury? The difference between the bank and the Treasury is that the bank had to buy the securities at some point in the past prior to the repo. The Treasury can simply print new 90 day t-bills which it can then use as collateral for a new loan from the Fed. But the Treasury also has to pay back the loan on day 2 if this is a repurchase agreement. So on day 2 we are back to where we started, just like the case of the private bank.

    I'm at a complete loss here in understanding why repos are of any importance whatsoever.
    •  asdf (0+ / 0-)

      1.) We don't know how long the repos are out there.  Repos can last up to a year (roughly).  

      2.) The Fed could do rolling repos, which is similar to a bond refinancing.  Suppose the Fed has a 5 billion repo do on December 1, 2006.  They could call that repo in and on the same day perform another 5 billion repo.  This would keep the money supply more or less constant.  Then they could do another, new repo later in the week -- say December 5.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Tue Nov 21, 2006 at 12:39:14 PM PST

      [ Parent ]

    •  Actually I am (1+ / 0-)
      Recommended by:

      But I've been attorney for a while now. But I did read a couple of Bernanke's paper while I was in graduate school. I have to admit, I don't remember what he wrote.

      Anyway, Bernanke would make the same argument as you. He would take your argument one step further in using rational expectations and permanent income hypotheise like arguments. He would argue that in the long run Repos do not increase the money supply and rational investors will act as if the money supply remained the same.

      In another comment, I said that Bernanke would argue in favor of the neutrality of money and thus money supply does not matter. In his view, you can't eat money and you don't make anything out of money (except the Germans who made wallpaper out of their paper Marks). Thus, money has no overall effect on the well-being of a society, with the exception that you need some money to facilitate trade.

      •  Ben needs to get out more (1+ / 0-)
        Recommended by:

        While I have a great deal of respect for his academic achievements, I don't like the fact he has been too academic.  I would prefer to have someone who may be a bit weaker on the theory and stronger on the "I sat on trading floors" mentality.  

        "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

        by bonddad on Tue Nov 21, 2006 at 01:35:57 PM PST

        [ Parent ]

        •  Its like a religion (0+ / 0-)

          Many in academia will believe in their view like a religion. In Bernanke's case, he believes in inflation targeting. From your diary, however, one would think that Ben Bernanke believes in the opposite and hopes that by "printing more money" he can keep the economy growing.

          My take on Bernanke is that he believes that monetary policy is generally ineffective in controlling economic output stability, and thus, the exclusive goal of the Federal Reserve is to target inflation. (In a sense, he believes money supply doesn't matter when it comes to controlling output but believes inflation as detrimental) Now as a practical matter, inflation has been rather stable over the last 20 years generally varying between 1.5 to 4.0 percent. Thus, if the target inflation rate is actually a band between 1.5 and 4.0 percent, then there is no real change in monetary policy.

          But often, especially academians, economic policy is a matter of faith. People have to worry whether Bernanke will be inflexible in implementing monetary policy as compared to Greenspan. There is a general consensus that Greenspan's flexibility turned out to be pretty good policy, so why fix something that isn't broken. I'm thinking about continuing my Economic Tales series by writing a diary on Bernanke and Inflation Targeting.

      •  Enron Scheme (1+ / 0-)
        Recommended by:

        What is the chance Bush pulls enron scheme on national budget?

        Lending money to itself, but calculate it off book? I am sure there are some pseudo government agency out there that is not calculated by the treasury as US asset.

  •  When they're having problems selling T-bills... (0+ / 0-)

    ...they have no alternative but debt monetization or austerity measures.  Austerity is usually the last choice, so here comes debt monetization, folks.  If they start to drop interest rates, that will trigger the Dollar Crisis of 2007.

  •  Setup for a crash to meet an '08 Dem President ? (0+ / 0-)

    Knowing next to nothing about economics, that's my off the cuff guess.

    This can serve many other functions though.

  •  Here's my theory (0+ / 0-)

    The oil supply situation in the Middle East is about to change. Instead of being bought and sold only in dollars, there will be more and more players trading in Euros. Deposing Saddam Hussein has delayed that day by about 3 years. But now that it's clear that the US is about to lose in Iraq, other countries will be less reluctant to do so, but it will happen in private as much as possible, until sooner or later the cat is out of the bag. Meanwhile, the Fed allows Treas to churn out dollars until the game of musical chairs stops. Many of those holding dollars at the end of the game will be Baby Boomer retirees, who will find themselves and their life savings Enronned.

  •  Looks like people are finally figuring out that.. (0+ / 0-)

    George W. Bush is an economic nihilist.  He believes in nothing but destruction, across the board.

  •  Destroy my ignorance here (0+ / 0-)

    Ok, lets say the treasury prints up an extra $10 billion dollars. How does that get injected into the economy? I think I see the use of bond interest for this in the discussion, but is that the only method it can be put into circulation? Is this done mostly though individuals, or banks?

    If individuals, it seems like the only role that money will serve is to overvalue the high end investments rich people squander their money into - overpriced stocks, overpriced real estate, etc. And rich man's toys, but most of these guys have more toys than they can do anything with anyway.

    If banks, there is a slight chance it could reach down into the social strata through loans to small business and house and car loans, though in those cases the extra money still ultimately serves only to increase the wealth disparity as the people recieving those loans pay the money back plus interest. The only way most of that money would seem to stay in lower 90%'s pockets is through default and bankruptcy.

    Is there something I am missing here? Is there some way to start the money off in the lower classes where it would actually drive the real economy for a while before ending up in the hands of the top 5%?

    •  It doesn't (1+ / 0-)
      Recommended by:

      If my understanding is correct (and it may not be 100%) most of this cash does NOT get into the mainstream economy.  It can't.  Consumers are up to their eyeballs in debt and the housing market is in a dip.  Most homeowners have tapped out their home equity refinancing gimmick as a way to raise cash for short-term needs.  Banks aren't mysteriously going to change their lending policies just because they have a lot of extra cash laying around.

      The money will be loaned to the richest segment of the populationn, those not in a bind for cash, and corporations.  They will use it to finance insane business transactions, mergers and buyouts.  This will enrich those who are already rich and there will be little to no trickle-down involved.

      In other words, more corporate welfare.

      I never craved a toaster or a color TV

      by Paper Cup on Tue Nov 21, 2006 at 01:33:46 PM PST

      [ Parent ]

  •  What's the FED got to do with it? (0+ / 0-)

    The FED does not engage in buying and selling repurchase agreements outside of it's ordinary open market operations--which are target to the federal funds rate.

    This in entirely transparent.  If you want to know what Federal Open Market Committee policy and targets are, check their meeetings and minutes.

    These repurchase aggreements are short term affairs.  They don't cause any permanent expansion of the money supply.  They only impact short term interest rates.  

    If you want to see the impact of FED operations in the economy, lok at short term rates, like this:

    Ignoring what looks like one bad data point in early October, short term rates have been relatively flat since July (after the last FED increase in June).

    If you want to know what's going on in the economy outside of FED control, look at longer term rates, like this:

    Here's the big story, a significant drop in 10 year rates, causing a significantly deeper inversion of the yield curve.

    Neither the FED nor the Treasury is involved in engineering this, it is solely the effect of activity in private capital markets.  Investors see the economy slowing shortly, which means less inflation risk, and less sound investment prospects elsewhere, so they are buying safe 10 year treasuries.

    So what has been diving the modest growth in M2 this year?  Economic growth.  

    If you look at the graph of year over year M2 growth in Bondad's post above, you will see that during recessions, marked in grey on the graph, M2 growth is at a low.  This despite the fact that the FED at those times is cutting rates.  And when in revovery, M2 growth sharply accelerates, even as the FED is raising interest rates to put on the brakes.

    This is of course, normal.  The primary determinent of M2 is economic activity, not the actions of the FED, which can only have a limited, generally short term, impact.

  •  I dig these, bonddad... I was a micro fiend (1+ / 0-)
    Recommended by:


    Never quite caught on in the same way.

    Your macro diaries are helpful.  =)

    ["helpful," as in the opposite of your standard Intermediate Macroeconomics professor]

  •  Is this why Bush bought 90,000 acres in Paraguay? (0+ / 0-)

    Are all of the rich buying property overseas?

    I don't know if this means anything, but we used to get 0 interest credit card offers where they would pay off our old cards and then we wouldn't have to pay interest for a year.  Then for awhile, they wanted like 5% of your loan to do that. I noticed the new ones don't have the 5% charge and it reverts to 10% interest when the year is up, where before it would go to 19% interest. Could this be the way money is put in the average person's hands? If they transfer a $10,000 loan to interest free loan, that will save up to at least a $1,000 to $1,900 interest.

    Life is what you focus on. Let's focus on making life better all over the world for the most people we can.

    by relentless on Tue Nov 21, 2006 at 02:16:45 PM PST

  •  honest question (0+ / 0-)

    I'm only 16, I've taken just the "general-ist" Econ course (Macro+Micro in 10 weeks).

    It seems interest rates are rather high right now. I just got 5.1% on a CD, and my savings account gets 4.4%

    Doesn't that indicate an attempt to pull money from the economy?

  •  Amateurish? (0+ / 0-)

    Don't really want to get flamed but I have several questions about this diary and the people who moved it to the recc list.

    Is the author an economist? Does he know what he is talking about?

    It seems to me that someone writing a diary on what the Fed is doing with M3 should really be an expert on monetary policy, and should know what M3 or a repo is without having to look them up in the dictionary, as the diarist apparently did.

    After reading the diary, I still don't have a great sense of what M3 or a repo are and why they are important, or why the Fed is said to be flooding the market or what other measures of monetary policy might have to say. Inflation is relatively low and stable and housing has taken a dive. I would assume both of these are relevant to this diary but neither is mentioned much. Also, if the Fed abandoned M3 it probably had good reason to, as the Fed is independent of the administration and generally their officials strike me as a competent and non-ideological bunch.

    All I am left with is a vague impression that the Fed is doing something wrong, without really knowing why or why it is important.

    Does anyone else have the same feeling?

    •  Bonddad (0+ / 0-)

      Is the resident economics diarist. (like Jarome is the oil diarist, DarkSyde is the science guy, etc.) T

      his might actually be his most difficult to understand dairy in a while.

      The world will end not with a bang, but with a "Do'oh!"

      by Love and Death on Tue Nov 21, 2006 at 05:10:38 PM PST

      [ Parent ]

    •  Fed motivations (0+ / 0-)

      Another thought, if the people took out 800B from
      home equity last year, that is 7-8% of GDP.
      GDP is 11T.
      We know they spent it because savings rate is
      negative. Borrowing and spending 7-8% GDP from
      just this one source, could only produce 2-3%
      GDP growth? Doesn't compute, something else is
      hemoraging. The actual total per household debt growth is 10% annually, same as M3 growth stated.

      Personal debt creation at 10% of GDP ( not considering anything else yet) could only produce
      2% GDP growth, something is hemoraging.

      It may be the new jobs. 50% of new jobs are mcjobs
      on public assistance, are a net drain. The other 50%
      are healthcare, is the aging baby boomer demographic. 65% of healthcare dollars are government sponsored which goes right to entitlement debt, are a net drain. The other
      obvious drain is the trade imbalance.
      Every dollar dissapeared overseas is a negative. Foreign banks are in the open stated process of abandoning the dollar. Are seeking other trading partners, and options besides buying US equity and debt. They already have few possibilities to buy US product besides airplanes.

      There's almost no way to aggregate everything
      and know exactly what's going on. A few broad
      strokes of at macro level view of the forest
      are known however, like the trade imbalance.
      Free market enterprises are
      suppose to take care of it all but we are somewhere in a bizzare mixture of communist command economy
      ( the fed and reagans market intervention team )and fascism ( military industrial media
      complex ) and socialism ( medicare and medicade ).

      Nothing like this abortion was ever seen before
      and I expect it all has to be obliterated and
      start over with a constitutional money system.
      The Fed is the root of all evil and corruption
      and debt.

      Some explainations of the Federal Reserve Note
      and dollar hegemony :

      Congressman Ron Paul:

      Federal Reserve:

  •  We're in a deflationary environment (0+ / 0-)

    The increase in M3 serves only one purpose right now, to prop up the stock market. Notice how they timed the bull market to peak right around the election.

    However, no increase in the money supply, M3 or otherwise, will slow down the current deflationary environment that is destroying the housing market, and soon the rest of the economy as well if it doesn't turn around by this Spring.

    The deflation is caused by stagnent wages after inflation, an increase in credit card and consumer loan interest rates (in some cases over 30% interest rates), an increase in college and school costs, an increase in health insurance and medical expenses, and a reduction in government entitlements and other services for the poor and middle class.

    Deflation may soon give way to stagflation if oil prices move up to over $100 bbl, which is a certainty over the next 10 years, now that we have hit peak oil and the Middle East has been completely destablized.

    The way out is for the goverment to institute a nationwide effort to switch from using dangerous, polluting, fossil fuels to using safe, clean, renewable energy sources.

    We need to stop giving our money to the military, and instead, use it to convert U.S. located factories that produce military weapons into factories that produce alternative energy products like solar panels and windmills.

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