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Sunday, August 21, 2011

While I Go Find My Visual Cortex

Here's something for those of you who do not have a neurological illness to contemplate.

St. Louis compiles its Adjusted Monetary Base Series. If you have never encountered this before, here's the explanatory page, and here's the short definition:
Beginning January 1959, the new AMB includes a revised St. Louis monetary source base equal to the sum of three variables: currency in circulation outside Federal Reserve Banks and the Treasury; deposits of domestic depository institutions at Federal Reserve Banks; and float-pricing related as-of adjustments. This measure of the monetary source base corresponds to line 8 of Table 1 in Anderson and Rasche (1996a, 1996b). All data are obtained from the Division of Monetary Affairs at the Federal Reserve Board of Governors, and are published on the Board's weekly H.4.1 statistical release. The second item, Federal Reserve deposits, equals the sum of two items published on the H.4.1: reserve balances and required clearing balance contracts, the latter shown in a footnote on the first page of the release. The third item, float-pricing related adjustments, is a small item mandated by the Monetary Control Act's requirement that the Federal Reserve recover from depository institutions the value of float generated in check processing; it is included in "service-related adjustments" in a footnote on the first page of the H.4.1 release.
If that still seems obtuse, here's H.4.1. Don't forget that these figures are in millions, so the first figure you see is 2.848 trillion.

Anyway, while we are all waiting to hear about Uncle Ben's Jackson Hole speech, we might want to consider the record:

Indexed on the left we have black Fed Funds (percent) and percent change in REAL personal consumption expenditures (red). Which looks so incredibly low, if you follow that historical sequence. The only time it gets near zero is in a recession.

Not that there's any chance of THAT, as I'm sure Ben will tell us in a soothing and uncle-ish manner.

Indexed on the right we have SAVINGS deposits at commercial banks (doesn't include transactional accounts like checking, etc) in dark blue and in powder (light) blue (keep your powder dry, Fed Uncle!) we have AMBSL, aka helicopter money. Here's where you want to start humming the M.A.S.H. theme.

As we can all note, it is fascinating to see how that powder blue line goes up and the red line goes down. Methinks that if more money would solve the problem, one would expect a different correlation.

Here's a shorter time series, same graph:

You can't blame our uncle for lack of trying.

To really get the full effect, let's take a look at the Aught Depression series, which really started in 2006:

It's easier to see QE and QE2 here. Let's just say that if this were going to have an effect, it would have had to be started about a year earlier, but it wouldn't have done much for Main Street.

You will note that as the powder was evaporating a touch, from about March to October of 2010, real PCE was doing better. I can't imagine what happened! Can you?

Because money is a proxy for the exchange of goods and services, intemperately shoving chunks of it into largely impermeable markets is a risky business. The net effect is largely to infiltrate the exchange-of-money markets, but unfortunately, in this environment that's durably pegged to commodities and specie (gold, silver).

See, when the money can't be passed out on Main Street, because we mostly borrowed our butts off already and have all the ability to repay a loan of a whale beached on top of the Empire State Building, the money kind of stays, circulating in exchange markets like a toxic glob strange attractor. The only point of connection with reality is commodities and ex-money exchange media, and unfortunately if you fool with your money too much commodities become an exchange media. It's a reversion to the barter system, electronically mediated. Unfortunately, the values aren't pegged to money circulating on Main Street, but rather pegged to the toxic money market glob. That can have only one effect, which is to shut down money circulation on Main Street, aka constrict trade.

But I don't think our dear old Uncle quite gets it yet.


"That can have only one effect, which is to shut down money circulation on Main Street, aka constrict trade."

Have no fear! I'm here to brighten your day with all sorts of good Main Street trade cheer!

Retail Trade Employment Growth
Nice chart, Mark.

My wv is "plentes". I suppose those are pancakes made from chopped-up employment applications?

And milk and egg, of course.
You have to admit, driving down asset prices with the
Exception of PM's and then funneling over a trillion of
taxpayer dollars to the banks was brilliant. Now, those
that control the banks will loot them and discard the husk,
Leaving the taxpayers to pick up the wreckage in a
looted economy.
"I suppose those are pancakes made from chopped-up employment applications?"


Invented in the 1930s. Advertised in the 1970s. No joke.
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