Monday, December 8, 2008

Weekly Monetary Base and Reserve Balance Update



Both the monetery base and bank reserves hit new highs in the past week.

Monetary Base

$1.51 Trillion, up from $886 billion on September 17

Reerve Balances at Federal Reserve Banks

$634 billion, up from $7.9 billion on September 10!

This is the money that will be used to buy Treasuries.

The money to buy government securities and pay taxes comes from government spending!! The media and nearly all mainstream economists don't understand this.

Foreigners do not LEND us money! Government spending funds the savings of foreigners!!!

7 comments:

googleheim said...

How about a flow chart with the following vectors as vertex points :

Monetary Base
Reserves
Treasuries
Spending Expenditures (E1,E2...En)
Interest Rates
Foreign Investment into USA
Foreign Investment out of USA
GDP / GNP
"debt"
etc ...

It would be swell to have this generalized with as many connections needed to show the money loops.

Then overview against what mainstream erroneously construes as to what is really going on.

Mike Norman said...

will put it together.

googleheim said...

real economy
taxes
printing money
reducing money
inflation
deflation
interest rates
etc

big picture sectionalized.

it would be a macro-model of sorts, so I don't know if some of the "actions" are variables for some of the other "things"
vis-a-vis nouns, verbs and parameters - whatever whatever.

the fed creation of money ( i.e. raw spending and expansion ) is a bubble unto itself with connection points to other bubbles - real economy with taxes internalized in a inscribed bubble ...

By separating the dairy from the meat for now, it is easier to show how the vast majority mistakenly does not understand that the Fed creates money like out of single grain of sand, and that the real economy which generates a different type of expansion if times are "good" contains the taxes and the foreign borrowing.

Then vertical lines which separate the bubbles from left to right, or if you are Chinese horizontal lines which separate bubbles from top and bottom will explicate
how the "tax and spend" or "tax and bailout" worries of the people out there are not related to the basic points the Norman is making.

As a sovereign nation, we can spin the entire world economy.

Technically, Bush made it very very more difficult to file for bankruptcy and shaft the creditors - at least for the average citizen or business owner back in 2002 with the new laws.
Did this embolden the banks to take on more risk ?

googleheim said...

Ok-

so if the Fed is ramping up to such a degree, where can we look in history ( against all those other recessions ) to see how the actions of expanding the monetary base and the reserves had via the big arrow which connects that bubble or object to the real economy object ?

From there we will see macroeconomic possibilities where to invest if not find employment.

With such a diagram, if clear enough, I could follow the trail of monies and do things like :

a. start with the fed creation of money and find which countries get the loans, which banks, and who their clients are ...
b. ditto for the domestic market.
c. find some bonds or stocks in the real economy and work them backwards to the Fed or laterally upwards / downwards to find strength of markets ( if the diagram breaks the real economy into markets / industries etc )
d. etc
e. etc

googleheim said...

WHY IS MR LUCIA THE BUCKET DUDE EXPLAINING THAT :

THE ECONOMY NEEDS STIMULUS,
STIMULUS REQUIRES MONEY,
MONEY REQUIRES BORROWING,
BORROWING REQUIRES CURRENCY DEVALUATION AND BONDS,
CURRENCY DEVALUATION CREATES INFLATION,
INFLATION INCREASE INTEREST RATES,
BONDS NEED PROTECTION FROM INFLATION ( INSERT "INFLATION PROTECTED BOND INVESTMENT" ),
ETC ETC

IS THERE GOING TO BE TWO THINGS HAPPENING :

1. NORMAN UNIVERSE : FED CREATES MONEY OUT OF THIN AIR AND HAS SOVEREIGN CAPACITY TO DO SO

2. LUCIA UNIVERSE : REAL ECONOMY RECEIVES MONEY ( MAYBE DOES NOT MATTER WHERE FROM ) AND INSIDE THE REAL ECONOMY SPHERE THIS MEANS BORROWING AND ALL THE EFFECTS ITERATED ABOVE.

WHAT DID JAPAN DO IN THE 1990'S WITH RESPECT TO THE FED SIDE AND THE REAL SIDE ?

I CAN SEE RIGHT NOW LOW FEDERAL INTEREST RATES, BUT IN REALITY MY CREDIT CARDS AND LOANS ARE NOT GOING DOWN PRE-FREEZE, IN-FREEZE OR POST-FREEZE THAW.

SO THERE IS A DISTINCTION BETWEEN FED AND THE REAL ECONOMICS. THE DISTINCTION IS A DISCONNECT FOR ALL I CAN SEE.

STF said...

Googleheim

It's basically a risk premium on the debt of non-sovereign borrowers, which is currently much higher than normal given present economic and financial conditions. The rate the government issues default risk-free and highly liquid securities at is never going to be the same rate anyone else borrows at. That said, the Fed can set rates for these private securities if it believes the market rates are too high, which its recent actions are moving toward (though it doesn't appear they understand completely that they can set prices).

Mike Norman said...

Ray's a good guy; he's just operating under the wrong paradigm as are a lot of people.

The government doesn't "create money." It "spends" by crediting bank accounts, which leads to an increase in reserves in the banking system.

Securities are sold to maintain a level of reserves consistent with where the Fed sets the overnight lending rate. This is not borrowing per se.

That's all there is to it, really.

Government spending is not limited by the amount of tax revenues collected of the ability to sell securities. (Besides, the funds for both are provided by government spending itself.)

The overnight lending rate is the sole determinant of the level of reserves in the system as well as how much "base money" the government provides.

The overnight lending rate is also just one factor in how much "non-governmental money" (credit money) is created. The main determinant is the demand for that form of money.

The Fed currently believes that low interest rates will spur demand for credit, even though there is much historical evidence to suggest that it won't work under current, deflationary conditions.

A fiscal approach--where government spending raises the level of aggregate demand--would be better.

We are headed in that direction, albeit slowly.