Meta-Blog

SEARCH QandO

Email:
Jon Henke
Bruce "McQ" McQuain
Dale Franks
Bryan Pick
Billy Hollis
Lance Paddock
MichaelW

BLOGROLL QandO

 
 
Recent Posts
The Ayers Resurrection Tour
Special Friends Get Special Breaks
One Hour
The Hope and Change Express - stalled in the slow lane
Michael Steele New RNC Chairman
Things that make you go "hmmmm"...
Oh yeah, that "rule of law" thing ...
Putting Dollar Signs in Front Of The AGW Hoax
Moving toward a 60 vote majority?
Do As I Say ....
 
 
QandO Newsroom

Newsroom Home Page

US News

US National News
Politics
Business
Science
Technology
Health
Entertainment
Sports
Opinion/Editorial

International News

Top World New
Iraq News
Mideast Conflict

Blogging

Blogpulse Daily Highlights
Daypop Top 40 Links

Regional

Regional News

Publications

News Publications

 
The Monetary Base Finally Moves
Posted by: Lance on Tuesday, September 30, 2008

The Federal Reserve has for a long time eschewed increasing the money supply directly, and instead has manipulated credit to affect the economy and control inflation. This has led to three important things which are in my opinion at the root of this crisis.

  • Asset price inflation (at least initially) as opposed to broader price inflation.

  • A massive increase in leverage (debt to magnify returns) throughout the financial system and our economy.

  • A massive increase in the size of the financial sector relative to the rest of the economy. Since it is built on leverage, financial sector compensation has soared and led to concentration of wealth in financial hands.


The last fascinates me, as a sector which should be a relatively small part of the economy functioning as intermediaries has through leverage achieved profits (a redistribution of wealth from the rest of our citizenry) far from the size their intermediary function can possibly justify. These intermediaries for example accounted for about a third of the market capitalization of the S&P 500 before they crashed and burned. How do the intermediaries deserve a market cap that amounts to around half of those for whom they intermediate?

The answer is increased leverage. I'll address this in more detail later, but the Federal Reserve has finally decided to expand the monetary base, which has consistently grown at a very slow, or non existent rate. From David Merkel:



Check out the very far left side of the graph and look at the vertical takeoff.
David fills us in on the details:

Look at the H.4.1 report. We may have finally hit the panic phase of monetary policy, where the Fed increases the monetary base dramatically. They are pumping the “high-powered” money into loans:

  • $20 billion for Primary credit

  • $80 billion for Primary dealer and other broker-dealer credit

  • $70 billion for Asset-backed commercial paper money market mutual fund liquidity facility

  • $40 billion for Other credit extensions

  • $80 billion for Other Federal Reserve assets

  • -$20 billion netting out other entries


Making it an increase of roughly $270 billion from last week’s average to Wednesday’s daily balance. Astounding.

In general, the increases are not being pumped into the banks, but into specialized programs to add liquidity to the lending markets. Now, I’ve written about this before, but it bears repeating. What happens if the Fed takes losses on lending programs. It reduces the seniorage profits that they pay to the Treasury, which means the Treasury has to tax or borrow that much more. The Fed isn’t magic; it’s a quasi-extension of the US Government in a fiat currency environment. It’s balance sheet is tied to the US Treasury.

Yves Smith at Naked Capitalism is correct. The US is no longer a AAA credit, particularly if you measure in terms of future purchasing power of US dollars. I’ve felt that for years, though, with all of the unfunded future promises that the US Government has made with Medicare, Social Security, etc. The credit of the US Government hinges on foreign creditors (like OPEC and China) to keep it going. What will they offer them? The national parks? :(
True, all true, but possibly if they are going to provide monetary stimulus this might be a better way than cutting rates, now and in the future.
 
TrackBacks
Return to Main Blog Page
 
 

Previous Comments to this Post 

Comments
Lance, your post is interesting.

But none of it matters.

You and your ilk believe that Sarah Palin is qualified to be president.

This position disqualfies you - and the rest of the nuts who post on this site - to be taken seriously.

Sad.
 
Written By: mkultra
URL: http://
That comment should be enshrined for time immemorial. Engrave it on the penny. Children should be shown that comment when they reach the age of 12. Webster’s should use it as part of the definition of "asshat."
 
Written By: Harun
URL: http://
Does mkultra work on a quota?
 
Written By: jpm100
URL: http://
The Rise and Fall of Voodoo Economics

The Theory of Voodoo Economics was proposed by George Herbert Walker Bush in 1980. The theory said Reaganomics and the Laffer Curve were bull-dinky, and could never last.

George W. Bush, a son of the Economic Theorist Bush, finally, in 2008, proved to the world, financial and otherwise, that Father Knows Best.

"Nice work, son, I’m proud of you, and the world is a different place because of your existence."



 
Written By: Juan Man
URL: http://
Isn’t MK Wonderful?
Be sure to tip your waiters before you leave, folks.
And remember, he’ll be here all week.

 
Written By: Bithead
URL: http://bitsblog.florack.us
mkultra, your comment is interesting.

But none of it matters.

You and your ilk believe that Barak Obama is qualified to be president.

This position disqualfies you - and the rest of the nuts who comments like you on this site - to be taken seriously.

Funny

 
Written By: Deerpark
URL: http://
Mk,

Actually I don’t think she is qualified, nor is Obama. Nor do you have any idea of who I am voting for, since my vote is still up for grabs.

The theory said Reaganomics and the Laffer Curve were bull-dinky, and could never last.
Hmmm....liberals seemed really impressed with it under Clinton, though they rarely gave Reagan any credit for setting in place the policies which Clinton pursued, tweaked and relabeled his own.

More importantly, the roots of this crisis have little to do with the Laffer curve or Reagan’s policies. They have to do with debt and finance centric federal Reserve and Treasury policies, regulatory idiocy (rather than the amount of regulation per se) perverse government incentives and the fact that things just go wrong in the world, which is a very complex adaptive system that nobody has a great handle on.

 
Written By: Lance
URL: http://asecondhandconjecture.com
Lance, your first three bullet points strike me as elements of market economies, not the results of Fed policies.

We had, for instance, a housing boom. Now we’re having a housing bust.

Even if you correct for the Fannie/Freddie, CRA provocations of bad lending practice, the fact is that the middle and upper ranges of the housing boom moved toward a classic bubble. That’s not what is being bailed out.

If all that is happening is a correction in the housing market, then that’s just part of a market economy. The Fed is in the cart (it’s not even the cart), not the horse.

The subprime mess is hidden beneath the normal market operation, and was a long-term creature of the Congress, via the aforesaid Fannie/Freddie, CRA manipulations, which had no feet in the reality of the market.

In fact, this housing market bust/correction has the hidden advantage of exposing the Fannie/Freddie, CRA distortion.

Working that out of the system is just another reason the Marxist Obama must not be elected.
 
Written By: Martin McPhillips
URL: http://newpaltzjournal.com
You and your ilk believe that Barak Obama is qualified to be president.
It’s amazing, isn’t it, that Obama has gotten this far.

He is a perfect example of how democracies commit suicide.

If I may borrow and paraphrase Obama’s own mentor’s, Jeremiah Wright’s, term (which he borrowed from Malcolm X), Obama is the chickens looking for a place to roost.

This is America’s Hugo Chavez moment.

Will it say no?
 
Written By: Martin McPhillips
URL: http://newpaltzjournal.com
Martin,

I’ll have more on what I mean later, but the fed and our government has enabled a situation that led to an explosive growth in financial engineering and credit. Fannie, Freddie, the CRA, etc., are but symptoms and sideshows to a disease that has been metastasizing for some time.

Sure markets blow up, it happens. Potential depressions due to financial meltdowns under central banks are generally enabled by those very same bankers.

 
Written By: Lance
URL: http://asecondhandconjecture.com
I don’t disagree with that, but the financial system is a lot more flexible than the government or the government’s rules, which I believe defined deviancy down in the financial institutions.

What I mean is that firm failures, mergers, buyouts, can reorient the institutions if the government stops forcing them to write bad loans.

Leveraging isn’t the problem if the leveraging is in accordance with good practice (i.e., ability to perform, as opposed to "must make the loan").

Risk is inherent to the system, as calculated risk. So failures happen, as they must. Nothing ventured, nothing gained. Most new businesses fail, for instance. Those are the rules of the road. But those rules of the road were violated by the government and then encouraged by the government.

Most people, moving along meeting credit requirements and paying their mortgages and bills, didn’t see the boondoggle.

This is a housing bubble that has burst, and it reveals a scam that got hidden in the boom, which scam was run, essentially, by the government.

Given the choice between letting the financial institutions eat this at the risk of systemic collapse and letting the government eat it on the full faith and credit of the American people, I’ll take the latter, and hope for the best, because the market must not go down. The American people, in effect, are putting liquidity, through their representatives, into the system, and letting the government eat its own crap.

That makes it possible for people and firms to buy and sell what they need to buy and sell and jams the government up with the rotten deals, which it caused.

It’s not a situation I want to see, but it’s the way it is going to be worked out, for better or worse. I see it as the least bad of the available options, the worst option being a systemic financial collapse that need not happen.
 
Written By: Martin McPhillips
URL: http://newpaltzjournal.com
Your site is very interesting and usefuls., plant bulbs, mjkdpk, printer comparisons, %-OOO, eltron printer, odfrq, hemp plant, xmvd, role of toxins in plant pathogenesis, oybtxv, plant tissue culture media, izj, dogeared jewelry, 06971, natural plant sterols, fjpg, plant kingdom, odbxsv, chanel costume jewelry, %PP, bsl plant attendent result, :OOO, cape cod jewelry, fdydix, enamel jewelry, pzfri, sugarcane breeding objective for plant breeder, mmkzli, fertility restorer gene plant breeding, duhy, plant or equipment, 38313, printer basics, 5168, monitor mounts, :-], designer inspired jewelry, opsjkf, nutrients that affect plant growth, >:],
 
Written By: pro exotics water monitor
URL: http://us.geocities.com/ebkcfpeozemo/pro-exotics-water-monitor.html
Fascinating site and well worth the visit. , jewelry store locator, 09924, oxygen plant, 974195, aloe plant problems, 580, dinosaur replica, 8[[[, nix jewelry, :], jewelry manufacturers, =-), bead jewelry, 598, jewelry catalogs, 029, plant klendathu, cmf, handcrafted unique jewelry, >:-((, cheap replica rolex, 5747, hp printer support, >:)), anklet jewelry, 8003, cell diagram labeled plant, %DDD, roberto coin jewelry, %[, bean lima picture plant, hlnb, pigeonpea hybrid plant breeding, 680179, judith ripka jewelry, 922, cell edible plant, bso, nitrous oxide plant india, poz, plant guides index, :-PP, sorority jewelry 14k, =-O, printer stand, rqzk, plant diagram of a life cycle, zpydb,
 
Written By: plant stand
URL: http://us.geocities.com/eazwegmqma/plant-stand.html
Great site. Thank You!, pilot plant, =[[[, pomegranate jewelry, 056473, dimond rings, 8-OOO, care of boxwood plant, >:O, gemstones jewelry, isgps, fantasy mythical handcrafted jewelry, 4383, class ring, 8P, cryptic clue plant a lethal injection, >:-DD, bridal jewelry sets, ekk, plant electricity, 218, epson photo printer, pelvck, custom handcrafted fantasy jewelry, 8-O, chinese replica nokia n95, 635244, brass pentagram jewelry, oiuyn, clothing sorting plant, >:-[[, randy s ring and pinion, 8P, jewelry accessories, klp, jewelry century, %-))), plant nursery, tzlxrw, lia sophia jewelry, jksz,
 
Written By: online shopping jewelry
URL: http://us.geocities.com/ebonybyrd24/online-shopping-jewelry.html
This site is very good! Thank you for your work!, gold toe rings, =-], jewelry appraisal, %]]], macrame plant hanger instructions, 436, ring tunes for reliance cdma mobile, 77345, mother s ring, =], designer jewelry, flgvw, organic plant food, 299, wholesale jewelry supply, boij, ring sizes, =[[[, resin jewelry, %-))), fashion sterling silver jewelry, glz, altell ring tones, qngjq, jewelry cabinet, %(((, semi precious stone jewelry, 71084, handmade jewelry necklaces, 8[[, parts of a plant cell, svhegh, nicole lauren jewelry, ckay, knockoff louis vuitton replica, mtxyy, labeled plant cell model, =-((, park lane jewelry, 8-[[[, brighton jewelry, 695160, men s silver rings, 286, mango tango laptop bags, 02858,
 
Written By: poppi jewelry
URL: http://us.geocities.com/ecaemdqzmzna/poppi-jewelry.html
Nice site. You are doing a great service to the web., antique style engagement rings, :O, colorful laptop bags, %[[, antique reproduction rings, =-OOO, bead and gemstone jewelry, 827, pilates ring, lpghki, ring tailed lemurs, eotob, irish celtic jewelry, 820, southwestern silver jewelry, >:-P, jewelry box vffor, 66845, plant life cycle, 553744, irish jewelry, :], bands of love rings, oob, locking collar jewelry, fyk, nipple jewelry, :((, kenneth jay lane jewelry, fcumin, promise ring meaning, 773004, jewelry sets, 47961, pittsburgh steelers jewelry, wzggo, ring sizing, :-]], cheap diamond engagement rings, 9408,
 
Written By: reiki jewelry
URL: http://us.geocities.com/edbray99/reiki-jewelry.html
Perfect! Try this sites:, meridia order online, qrkdnm,
 
Written By: meridia order online
URL: http://groups.google.pl/group/toYdmZ06/web/meridia-order-online
http://medicals.meine-hp.net/cephalexin/index7.html cephalexin expired
 
Written By: CPharmacy
URL: http://medicals.meine-hp.net/cephalexin
http://herpes-anti.meine-hp.net/erythromycin/index12.html erythromycin ethyl
 
Written By: AAntibiotics
URL: http://herpes-anti.meine-hp.net/erythromycin
http://medicals.meine-hp.net/augmenting/stronger-than-augmentin.html stronger than augmentin
 
Written By: Adrugs
URL: http://medicals.meine-hp.net/augmenting
http://yugioh.fusedtree.com/shopB-qw/index4.html Yugioh Rom Download Yugioh Theme Song http://yugioh.fusedtree.com/shopC-qw/index.html Yugioh Previews Yugioh Dungeon http://yugioh.fusedtree.com/shopC-qw/index2.html Cheat Codes For Yugioh Duelist Of The Roses Deck Construction Yugioh
 
Written By: Byugioh
URL: http://yugioh.fusedtree.com/shopB-qw
http://dog-qw.meine-hp.net/index9.html dog endlaminitis.com horse medicine power
 
Written By: BDoggis
URL: http://dog-qw.meine-hp.net
http://dogs.meine-hp.net/index27.html animal dog laminitis911.com power vitamin
 
Written By: BSmarti
URL: http://dogs.meine-hp.net
http://dogs.meine-hp.net/dog-nervous-soloxine-thyroid.html dog nervous soloxine thyroid
 
Written By: BLook
URL: http://dogs.meine-hp.net
Cheapest no credit check loans[url=http://www.mybloglog.com/buzz/community/nocreditcheckloansclickhere/#1]Cheapest no credit check loans[/url] Best no credit check car loans[url=http://www.mybloglog.com/buzz/community/clickherenocreditcheckcarloanshereclickonthislink/#1]Best no credit check car loans[/url] Dirt Cheap Airline Tickets - Best Decisions[url=http://www.mybloglog.com/buzz/community/dirtcheapairlineticketshere/#1]Dirt Cheap Airline Tickets - Best Decisions[/url] Cheapest granny sex[url=http://www.mybloglog.com/buzz/community/grannysex/#1]Cheapest granny sex[/url] Paris Hilton Sex Tape Real[url=http://www.mybloglog.com/buzz/community/parishiltonsextape/#1]Paris Hilton Sex Tape Real[/url] No Credit Check Student Loan Photos[url=http://www.mybloglog.com/buzz/community/nocreditcheckstudentloan/#1]No Credit Check Student Loan Photos[/url] All kinds of high risk personal loans[url=http://www.mybloglog.com/buzz/community/highriskpersonalloans1/#1]All kinds of high risk personal loans[/url] guaranteed online personal loans[url=http://www.mybloglog.com/buzz/community/guaranteedonlinepersonalloans/#1]guaranteed online personal loans[/url] Replica Rolex Watches Now[url=http://www.mybloglog.com/buzz/community/replicarolexwatches/#1]Replica Rolex Watches Now[/url] Need 5000 Loan Overnight Great[url=http://www.mybloglog.com/buzz/community/need5000loanovernight/#1]Need 5000 Loan Overnight Great[/url]
 
Written By: No Credit Check Loans Online
URL: http://www.mybloglog.com/buzz/community/nocreditcheckloansclickhere/
http://heater.psyki.com/heater-rennai-water.html heater rennai water
 
Written By: Bgototop
URL: http://heater.psyki.com
http://heaters.psyki.com/bradford-white-tankless-water-heaters.html bradford white tankless water heaters
 
Written By: ASmarti
URL: http://heaters.psyki.com
http://heaters.psyki.com/pelonis-oil-filled-heaters.html pelonis oil filled heaters
 
Written By: CSmarti
URL: http://heaters.psyki.com
Cheapest no credit check loans
no credit check car loans
dirt cheap airline tickets
Granny Sex In Internet
Brilliant paris hilton sex tape
No Credit Check Student Loan Photos
All kinds of high risk personal loans
Price of guaranteed online personal loans
replica rolex watches
Real need 5000 loan overnight
 
Written By: No Credit Check Loans Online
URL: http://www.mybloglog.com/buzz/community/nocreditcheckloansclickhere/

 
Add Your Comment
  NOTICE: While we don't wish to censor your thoughts, we do blacklist certain terms of profanity or obscenity. This is not to muzzle you, but to ensure that the blog remains work-safe for our readers. If you wish to use profanity, simply insert asterisks (*) where the vowels usually go. Your meaning will still be clear, but our readers will be able to view the blog without worrying that content monitoring will get them in trouble when reading it.
Comments for this entry are closed.
Name:
Email:
URL:
HTML Tools:
Bold Italic Blockquote Hyperlink
Comment:
   
 
Vicious Capitalism

Divider

Buy Dale's Book!
Slackernomics by Dale Franks

Divider

Divider