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lapsedmodernistAs articles about the failing dollar* started popping up, I reviewed this article I had bookmarked. I know little about economics, and what I know comes to me with great difficulty; the Manchester economics as applied to late-stage US capitalism are so schizophrenic and self-contradictory and non-reality-based that contemplating them breaks my brain. It's like calculus, only with calculus it's my fault. No, but seriously, the whole trickle-down thing is kind of like Trofim Lysenko standing underneath a portrait of Lamarck and sawing off the horns of a cow, while screaming "your offspring shall have horns!"
Anyway, I have a whole bookmark section for things in accordance with my collect-the-dots heuristic of my own mind, as in, I nodehop and come across things that I have no use for at the moment, but I sort of intuit the negative space around them and save them for the future. Like this article. Highlighting mine.
Over the past two days, December 21st - when our first Hindenburg Omen (of whatever cluster is coming) - and Thursday December 22nd, the Federal Reserve has conducted one of the largest two-day Repo injections of money into the system since back in September 2001. On Wednesday they added $18.0 billion in reserves and on Thursday they added another $20.0 billion. Is this a coincidence, coming right as we get another Hindenburg Omen? Probably not. Is something high-risk going on behind the scenes here? Let's review some facts at the Fed. On November 10th, 2005, shortly after appointing Bernanke to replace Greenbackspan, the Fed mysteriously announced with little comment and no palatable justification that they will hide M-3** effective March 2006. M-3 has been the main staple of money supply measurement and transparent disclosure since the Fed was founded back in 1913. It is the key monetary aggregate that includes Fed Repo transactions, that mechanism whereby the Fed increases reserves. The date when M-3 will start being hidden also happens to be the exact month that Iran will declare economic war against the U.S. Dollar by trading its oil in Petro-Euros on its new bourse. But there is more. The Federal Reserve currently has three vacancies within the 19 top Regional Bank and Board of Governor spots. Why? Part of ongoing wholesale resignations.
M-3 has a direct but lagging impact on financial markets. Look at the chart at the top of the prior page. Whenever M-3 rises, the Dow Industrials rise. Whenever M-3 is flat or declines, the Dow Industrials decline. The Dow Industrials are a bellwether for the economy. If we can monitor M-3, we can better monitor the future path of equities and the economy. It is wrong for the Fed to stop its disclosure for this very reason. Investors need to know in a free market economy, because M-3 infusion is centrally planned intervention into a free market system. Investors need to know when the Master Planners have decided to intervene. Our buy/sell signals were designed to pick up the scent of Master Planner intervention by analyzing supply and demand forces underlying the markets. So with or without a fully disclosed M-3, we will be able to continue to identify coming multi-week trends.
So what about M-3 the past week? The latest figures show that on a seasonally adjusted basis, M-3 rose 27.3 billion last week, a 14.0 percent annualized clip, and is up $76 billion over the past month, a 9.8 percent growth rate. But those are the massaged numbers. For the raw figures, fasten your seat belt. Are you ready? M-3 was increased $58.7 billion last week (that does not include the huge Repo infusions noted above), a 30.0 percent annualized rate of growth. For the past two week, the Fed added $93.5 billion to the money supply, a 24.0 percent annual clip. Over the past 6 weeks it is up $192.9 billion, a 16.7 percent Banana Republic hyperinflationary pace. This is nuts, folks - unless there is an incredible risk out there we are not being told about. That is a lot of money for the Plunge Protection Team's arsenal to buy markets - stocks, bonds, currencies, whatever. This level of irresponsible money supply growth makes shorting markets hazardous, yet at the same time says markets are at huge risk of declining. Maybe M-3 growth doesn't stop the decline this time. Should be a fascinating storm in 2006.
The recent rise in Gold catalogued 74 points over about a month, a 16 percent rally from precisely the day the Fed announced it would hide M-3 from taxpayers and citizens of this great nation. That is no coincidence. Gold sees hyperinflation, monetization of debt, and intervention into free markets. Gold is telling us it expects Ben Bernanke to be an inflationist
Or, as the follow-up article breaks it down
The following is pure educated speculation: What if Iran goes through with its threat to sell oil for Euros instead of U.S. Dollars? Well, then Dollars won't help you much if you want to buy oil from Iran. So, you sell the Dollars you are holding for Euros. Whenever anything is sold en masse, its value drops. This means less demand for Dollars, which means the Fed will not be able to print excessive amounts of Dollars without further driving down the Dollar's value. There would simply be too much supply. Right now, the Fed can print all the Dollars they want because the demand for Dollars has been on the rise, especially as the cost of oil has risen. In other words, lately it has taken more Dollars to buy oil, so the demand for Dollars has been up. Again, this extra demand has allowed the Fed to print all it feels like with little consequent damage to the Dollar.
However, if the Dollar were to tank - and the Iran oil Bourse should push the Dollar in that direction - it puts pressure on Treasury Bonds and other U.S. financial assets to fall as well, since they are denominated in a declining-value currency. In this event, the Fed would have to step up its buying of U.S. financial assets to lend support to these asset prices - to stabilize U.S. markets. In other words, the Fed would have to monetize the U.S. Treasury's debt, and also monetize equity markets (be the buyer that keeps prices from falling). This would take so much fresh money that the Fed would need to create it in secret. Thus, they would have to announce that they are no longer going to transparently reveal the level of the money supply, but will hide it. The alternative is to punish Iran for - and make no mistake about this - effectively declaring economic war against the United States.
So, somebody explain to me what happens next?? The dollar is barely standing. The prices of gold is going up up up. The Administration is printing its new Monopoly money. Iran is ditching the dollar as oil currency. This is all over the news. Is tomorrow going to be, like, Black Monday w/r/t foreign investors? What is going to happen to the US economy? Do the interest rates have to go up, since the US is borrowing and borrowing and borrowing? If Bernanke raises short-term rates, won't that cause a stock market crash? And if he lowers them, won't that lead to drastic inflation over the long term? I mean, is there any way that the US economy isn't totally fucked, like the way it gets fucked every time trickle-down economics is attempted? I assume whatever "pause" will be enacted, it won't last past the midterm elections, after which...stock market crash?
*now, this article is from The Telegraph, which is like Fox News, mate, and written by that writer who was obsessed with Clinton's penis, but it's everywhere, like:
The International Monetary Fund is in behind-the-scenes talks with the US, China and other major powers to arrange a series of top-level meetings about tackling imbalances in the global economy, as the dollar sell-off reverberates through financial markets...
'We are in meltdown mode,' said David Brown, chief European economist at Bear Stearns. 'It's all being whipped up into a bit of a selling frenzy. The dollar has a massive portfolio of negatives against it: it's the long-term problems of the trade deficit, and the government's budget deficit.'
even better,
Amazingly, an administration so hawkish about homeland security and a strong national defense does nothing to bolster the unstable U.S. dollar.
In the past week, Tony Snow, former Fox commentator turned White House press secretary, sent out an e-mail blast decrying the media's coverage of America's economic progress.
Yet, the Fox-Snow and the White House have been quiet about the other (U.S. Treasury Secretary John) Snow's job as guardian of the nation's symbol of economic strength and prosperity.
Once the preferred exchange of all global markets, American greenbacks are now even disdained by many U.S. investors and routinely manhandled by other currencies of the world.
and the reprocussions are already globalized
The dollar's decline is creating inflationary pressure in the UAE, which has pegged its dirham to the US currency, an economy ministry official said on Sunday.
The US currency's slide against the euro was a key factor in Kuwait's decision to revalue its dollar-pegged dinar by 1 percent last week and markets have been speculating that other Gulf Arab central banks would soon follow suit.
Adulla bin Ahmed Al Saleh, an undersecretary at the economy ministry, told reporters inflation in the UAE could hit 6 per cent this year, unchanged from the ministry's figure for 2005, partly due to the rising cost of non-dollar imports.
** Measure of the U.S. money stock that consists of M2, time deposits of $100,000 or more at all depository institutions, term repurchase agreements in amounts of $100,000 or more, certain term Eurodollars and balances in money market mutual funds restricted to institutional investors.
Anyway, I have a whole bookmark section for things in accordance with my collect-the-dots heuristic of my own mind, as in, I nodehop and come across things that I have no use for at the moment, but I sort of intuit the negative space around them and save them for the future. Like this article. Highlighting mine.
Over the past two days, December 21st - when our first Hindenburg Omen (of whatever cluster is coming) - and Thursday December 22nd, the Federal Reserve has conducted one of the largest two-day Repo injections of money into the system since back in September 2001. On Wednesday they added $18.0 billion in reserves and on Thursday they added another $20.0 billion. Is this a coincidence, coming right as we get another Hindenburg Omen? Probably not. Is something high-risk going on behind the scenes here? Let's review some facts at the Fed. On November 10th, 2005, shortly after appointing Bernanke to replace Greenbackspan, the Fed mysteriously announced with little comment and no palatable justification that they will hide M-3
M-3 has a direct but lagging impact on financial markets. Look at the chart at the top of the prior page. Whenever M-3 rises, the Dow Industrials rise. Whenever M-3 is flat or declines, the Dow Industrials decline. The Dow Industrials are a bellwether for the economy. If we can monitor M-3, we can better monitor the future path of equities and the economy. It is wrong for the Fed to stop its disclosure for this very reason. Investors need to know in a free market economy, because M-3 infusion is centrally planned intervention into a free market system. Investors need to know when the Master Planners have decided to intervene. Our buy/sell signals were designed to pick up the scent of Master Planner intervention by analyzing supply and demand forces underlying the markets. So with or without a fully disclosed M-3, we will be able to continue to identify coming multi-week trends.
So what about M-3 the past week? The latest figures show that on a seasonally adjusted basis, M-3 rose 27.3 billion last week, a 14.0 percent annualized clip, and is up $76 billion over the past month, a 9.8 percent growth rate. But those are the massaged numbers. For the raw figures, fasten your seat belt. Are you ready? M-3 was increased $58.7 billion last week (that does not include the huge Repo infusions noted above), a 30.0 percent annualized rate of growth. For the past two week, the Fed added $93.5 billion to the money supply, a 24.0 percent annual clip. Over the past 6 weeks it is up $192.9 billion, a 16.7 percent Banana Republic hyperinflationary pace. This is nuts, folks - unless there is an incredible risk out there we are not being told about. That is a lot of money for the Plunge Protection Team's arsenal to buy markets - stocks, bonds, currencies, whatever. This level of irresponsible money supply growth makes shorting markets hazardous, yet at the same time says markets are at huge risk of declining. Maybe M-3 growth doesn't stop the decline this time. Should be a fascinating storm in 2006.
The recent rise in Gold catalogued 74 points over about a month, a 16 percent rally from precisely the day the Fed announced it would hide M-3 from taxpayers and citizens of this great nation. That is no coincidence. Gold sees hyperinflation, monetization of debt, and intervention into free markets. Gold is telling us it expects Ben Bernanke to be an inflationist
Or, as the follow-up article breaks it down
The following is pure educated speculation: What if Iran goes through with its threat to sell oil for Euros instead of U.S. Dollars? Well, then Dollars won't help you much if you want to buy oil from Iran. So, you sell the Dollars you are holding for Euros. Whenever anything is sold en masse, its value drops. This means less demand for Dollars, which means the Fed will not be able to print excessive amounts of Dollars without further driving down the Dollar's value. There would simply be too much supply. Right now, the Fed can print all the Dollars they want because the demand for Dollars has been on the rise, especially as the cost of oil has risen. In other words, lately it has taken more Dollars to buy oil, so the demand for Dollars has been up. Again, this extra demand has allowed the Fed to print all it feels like with little consequent damage to the Dollar.
However, if the Dollar were to tank - and the Iran oil Bourse should push the Dollar in that direction - it puts pressure on Treasury Bonds and other U.S. financial assets to fall as well, since they are denominated in a declining-value currency. In this event, the Fed would have to step up its buying of U.S. financial assets to lend support to these asset prices - to stabilize U.S. markets. In other words, the Fed would have to monetize the U.S. Treasury's debt, and also monetize equity markets (be the buyer that keeps prices from falling). This would take so much fresh money that the Fed would need to create it in secret. Thus, they would have to announce that they are no longer going to transparently reveal the level of the money supply, but will hide it. The alternative is to punish Iran for - and make no mistake about this - effectively declaring economic war against the United States.
So, somebody explain to me what happens next?? The dollar is barely standing. The prices of gold is going up up up. The Administration is printing its new Monopoly money. Iran is ditching the dollar as oil currency. This is all over the news. Is tomorrow going to be, like, Black Monday w/r/t foreign investors? What is going to happen to the US economy? Do the interest rates have to go up, since the US is borrowing and borrowing and borrowing? If Bernanke raises short-term rates, won't that cause a stock market crash? And if he lowers them, won't that lead to drastic inflation over the long term? I mean, is there any way that the US economy isn't totally fucked, like the way it gets fucked every time trickle-down economics is attempted? I assume whatever "pause" will be enacted, it won't last past the midterm elections, after which...stock market crash?
The International Monetary Fund is in behind-the-scenes talks with the US, China and other major powers to arrange a series of top-level meetings about tackling imbalances in the global economy, as the dollar sell-off reverberates through financial markets...
'We are in meltdown mode,' said David Brown, chief European economist at Bear Stearns. 'It's all being whipped up into a bit of a selling frenzy. The dollar has a massive portfolio of negatives against it: it's the long-term problems of the trade deficit, and the government's budget deficit.'
even better,
Amazingly, an administration so hawkish about homeland security and a strong national defense does nothing to bolster the unstable U.S. dollar.
In the past week, Tony Snow, former Fox commentator turned White House press secretary, sent out an e-mail blast decrying the media's coverage of America's economic progress.
Yet, the Fox-Snow and the White House have been quiet about the other (U.S. Treasury Secretary John) Snow's job as guardian of the nation's symbol of economic strength and prosperity.
Once the preferred exchange of all global markets, American greenbacks are now even disdained by many U.S. investors and routinely manhandled by other currencies of the world.
and the reprocussions are already globalized
The dollar's decline is creating inflationary pressure in the UAE, which has pegged its dirham to the US currency, an economy ministry official said on Sunday.
The US currency's slide against the euro was a key factor in Kuwait's decision to revalue its dollar-pegged dinar by 1 percent last week and markets have been speculating that other Gulf Arab central banks would soon follow suit.
Adulla bin Ahmed Al Saleh, an undersecretary at the economy ministry, told reporters inflation in the UAE could hit 6 per cent this year, unchanged from the ministry's figure for 2005, partly due to the rising cost of non-dollar imports.
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no subject
Date: 2006-05-15 07:21 am (UTC)no subject
Date: 2006-05-15 04:23 pm (UTC)The Fed has just raised interest rates to a paltry 5%, higher than in several years past but appropriate to the current US market, esp. as applies to housing & investment.
Inflation in the UAE has much less to do with pegging the dihram to the dollar as it does with operating a budget surplus at the tail end of a boom era in GDP growth.
no subject
Date: 2006-05-15 10:20 pm (UTC)The M-3 is still tracked it's just not in the regular reports, as there are a wide variety of more accurate metrics being used. It's passing was not protested by any economists or policy makers of any stripes, and if you still were interested in it, it's a simple calculation to make from public materials.
Our interest rates are completely reasonable given our somewhat strange market conditions. The Fed has been remarkably open about it, keeping interest rates low, and monetary supplies free, as youv'e said, to fight off any recession tendencies still lingering, but saying outright very soon we're going to have to fight the inflation that such approaches cause. They've said outright what they're doing carries a risk of inflation, and we can't do it forever. But to cut the economy off before it's fully healthy again risks undoing the progress they've made thus far.
Also, though I only buy it about 50%, there is a ridiculously popular economic theory out there right now explaining all of this from another point of view: the global savings glut. (I totally didn't check that source, but between the three our four links within there, you should get a pretty balanced idea of the theory). Regardless of its veracity (and actually, the more I've thought on it the past year, the more it's making sense to me), Bernanke is a stated architect and adherent to the theory, and it would certainly make sense that he is managing from that point of view, which is consistent with not overly caring about the trade deficit or other currencies being pegged to ours.
And indeed, regardless of the root causes, I can certainly see the point of view of not worrying about these things. We've been hollering about trade deficits and dollar strengths my entire life. Any recessions I've seen have never had a clear root cause in these factors. It's been one of the chief mysteries of economics in the last 20 years.
Regarding the M-3 and their graphs, I think it's very important point out that correlation is not causation. Even if the M-3 does track with the DJIA, and even if hiding it IS some big conspiracy, the fundamental fallacy of this article's argument is still entact: correlation is not causation.
The IMF stuff is reasonable - there is much discussion about the fund and its purpose as most of the developing countries it was founded to assist are turning away from it (as argentina has recently). It has a new leader (well, it's parent organization, the World Bank does), Paul Wolfowitz, who was hired by bush to shake it up. No surprise there. It's looking for a new role. The IMF has behind-the-scenes talks on the effects of just about everything, all the time. It's not evidence of concern.
The one valid point in this is David Brown's comments, which are basically spot on. There IS a school of economists that question whether deficit spending is REALLY unsustainable, but the vast majority would agree that yes, the deficit needs to be fixed. Everyone feels its unsustainable and yeah, it's doing some pretty screwy things to the futures markets.
Overall, though, there's no real evidence that the markets are going to crash, and indeed, if there were, the correction would have already happened or would be happening imminently to account for it. That's the whole point of the markets - to trade with a reflection of value both present and future.
Whew. sorry, I'll shut up. I never talk economics.