Over the Long Term the Markets WILL be Up;Invest Accordingly

[flow5]

Recovery?  We had:

(1) "reflation" @ + 0.103 - PCE, but

(2) real-output has lagged @ +0.088, - R-gDp,

i.e., we got stagflation, business stagnation accompanied by inflation.

There is no "wealth effect".  QE capriciously transferred the ownership of vast amounts of assets unnecessarily accelerating the process by which wealth is concentrated among a smaller and smaller proportion of people (the beneficiaries are those who owned a lot of stocks and real-estate). The concentration of wealth ownership among the few is inimical both to the capitalistic system and to democratic forms of government.

The essence of a free (i.e., self-regulatory), capitalistic system is price flexibility, downward as well as upward. The price distortions created by QE, fostered stagnation and unemployment, diminishing the demands for competitively priced products, and the resilience of the economy (including lower tax receipts).

[Aman A.K.A. Ahamburger]

Yes, recovery. GDP in the EU has yet to surpass that of 2008, whereas it has in the USA. What are they doing in Europe now, even though it's too late?

Also, I will remind you that you claimed that the USA was heading for a death march... So yes, SLOW, PAINFUL, recovery. Longest in US history, but still NOT in RECESSION - like the EU is.

Again, what we are witnessing is what appears to be the end of the boom and bust cycle that has created the massive inequalities that exists today. QE didn't put boomers into massive amounts of debt with no savings over the last 40 years, poor spending habits and relying on the Govt did.

[flow5]

No, let me correct you, I was right about the Death March.  R-gDp fell in the 1st qtr of 2011.

[flow5]

See CB/NB POMO's reconciliation 9/22/08 - 9/22/14 (or the DEATH MARCH):

M2 (excluding MMMFs, which declined), exceeded POMOs by $184.2 billion. But then you must add $626 billion(2011 figure - so vastly understated), from the expansion of bank capital accounts. Then you can subtract the expansion of CB credit (which includes the CUs, S&Ls, and MSBs which I estimated), of $1,804 trillion.

Net, you get that POMOs were $994 billion short of matching IBDDs (excess reserves).  Most likely double that figure due to meeting Basel requirements. 

[flow5]

Aggregate demand has heretofore been insufficient to significantly jump start CB private-sector credit expansion.

However, there’s a surfeit of public-sector eligible bank investments (with $18,152,081,649,050.21 in federal debt, and a large portion held by would-be sellers). The U.S. Treasury is the largest creditworthy borrower. The CBs are not reserve constrained (85 percent of required reserves are satisfied from the banks liquidity reserves, or via applied vault cash), and Treasury debt is a zero risk-weighted asset (absent bank capital requirements). Thus, the CB’s Treasury purchases (investment), is unencumbered.

Between 1942 and Oct 2008 the commercial banks always minimized their non-earning assets, always remaining fully “lent up”. They held no excessive amount of excess legal lending capacity to finance business (or consumers). They utilized their excess reserves to immediately acquire a piece of the national debt (zero-risk weighted assets absent any capital requirement), or other short-term creditor-ship obligations that were eligible for bank investment (thereby counter-cyclically expanding the money stock, depressing short-term interest rates, steepening the yield curve, and obviating the need for inordinate gov’t intervention); whenever there was a paucity of credit worthy borrowers; pending a longer-term, and presumably more profitable disposition of their legal lending capacity.

After the intro to the payment of interest on reserves, the CBs obtained higher rates of return by accepting a riskless, floating, remuneration rate. Remunerating reserves emasculated the Fed’s “open market power” (i.e., legal reserve management, and its regulation of the money stock, on a week-to-week or even a month-to-month basis). Indeed, the CBs were paid not to invest (i.e., as opposed to lend).

“Pushing on a string” represents the loss of control of the money aggregates on even a month-to-month basis, higher money market volatility, and breeds less certainty surrounding any new business commitments.

But in the current environment, the Fed's lack of control is dependent upon Treasury-Reserve bank collaboration (the volume of Treasury issuance and auction timing).

However, Treasury Secretary Jack Lew (bankrupt America artist):

(1) reaffirmed his stance Friday that a strong United States dollar is a "good thing."

(2) “Treasury’s decisions about how to manage government debt are made independently of the Fed’s monetary policy choices, he said"

Treasury Secretary Lew chose to issue a preponderance of longer-dated debt, Loser Lew should have been fired.

Treasury-Federal Reserve collaboration (treasury issuance), was non-existent. Any T-bill yielding less than the remuneration rate (whose umbrella extended 2 years out on the short-end segment of the yield curve), could have been arbitraged by the commercial bankers (creating an “asset swap” – but not any new money, not any increase in aggregate demand).

It's a simple proposition. The Treasury should collaborate with the Fed in determining the volume and timing of its debt issuance. The Great-Recession required greater collaboration between the Treasury’s practices and issuance and the FRB-NY’s “trading desk” debt monetization or open market operations of the buying type (i.e., between Treasury Secretary Henry Paulson - manager of the United States Emergency Economic Stabilization fund, Financial Stability Oversight Board member that oversaw the Troubled Assets Relief Program, and then Treasury Secretary Timothy Geithner, prior president of the Federal Reserve Bank of New York. and then Treasury Secretary Jacob J. Lew, former Director of the Office of Management and Budget and the idiot that caused the Great-Recession all by himself - Bankrupt U Bernanke).

Broadly speaking, the Treasury can plan on the types of securities to be sold and decide, e.g., whether they should be short-term or long-term, marketable or redeemable, eligible or ineligible for bank investment, etc. I.e., the Treasury can decide who will buy a given issue. And by targeting non-bank customers, the Treasury assures that the Fed can: expand the money stock – and at will – via open market operations of the buying type - with either the CBs or the NBs.

[flow5]

It is axiomatic, given nominal rigidity (limited upward and downward price and wage flexibility), unless monetary flows (our means-of-payment money times its transactions rate-of-turnover),exceed the roc in real-output by 2-3 percentage points, output can't be sold, production will be cut back, incomes will decline, and jobs will be lost.

Monetary policy seeks high and sustainable rates of economic growth, high employment, and reasonable price-level stability, and the avoidance of chronic deficits(or surpluses) in our balance of payments, principally through the FRB-NY’s open-market device.

Monetary policy objectives should be formulated in terms of desired roc's in monetary flows, M*Vt, relative to roc's in R-gDp. Roc's in N-gDp (though "raw materials, intermediate goods and labor costs, which comprise the bulk of business spending are not treated in N-gDp"), can serve as a proxy figure for roc's in all transactions [ P*T ] in Professor Irving Fisher's "equation of exchange". Roc's in real-gDp have to be used, of course, as a policy standard.

[flow5]

By virtue of its tremendous size, the federal debt has become one of the major elements affecting the cost and availability of credit and the money supply.

REFUNDING OPERATIONS.

1. Refunding operation which involves borrowing from he NB public and using the funds to retire CB debt.

Decrease in money stock, increase in ERs leaving TRs unchanged.

2. A refunding operation that involves borrowing from the NB public and using the funds to retire RB debt.
Decrease in money stock, ERs, and TRs.

3. A refunding operation which involves borrowing from the CBs and using the funds to retire debt held by the NB public.
Increases money stock, TRs unchanged, decreases ERs

4. A refunding operation which involves borrowing from the CBs and using e funds to retire RB debt.

Money stock unchanged, TRs and ERs decline.

5. A refunding operation which involves borrowing from the RBs and using the proceeds to retire debt held by the NB public.
Money stock increases, TRs and ERs increase.

6. A refunding operation which involves borrowing from the RBs and using the proceeds to retire CB held debt.
Money stock unchanged, TRs and ERs increase.

NEW FINANCING:

Assumption being that the Treasury is operating with a cash deficit and that the funds spent by the Treasury are received by members of the non-bank public.

1. A new financing operation where the funds are borrowed from the RBs.

Money stock increases, TRs and ERs increase


2. A new financing operation where the funds are borrowed from the CBs.

Money stock increases, and ERs decrease

3. A new financing operation where the funds are borrowed from the NB public.

Money, TRs and ERs unchanged, but Vt rises.

[Aman A.K.A. Ahamburger]

Jun 1, 2015 17:28:17 GMT -5 flow5 said:

No, let me correct you, I was right about the Death March.  R-gDp fell in the 1st qtr of 2011.

One quarter of contraction is not death.. Further proving that QE has been beneficial to the economy.

The essence of a free (i.e., self-regulatory), capitalistic system is price flexibility, downward as well as upward.

AKA, letting housing prices come down. Too bad for bad consumer spending habits, predatory loans, and BS financial products.. The reason for QE in the first place.

[Aman A.K.A. Ahamburger]

Jun 1, 2015 18:19:43 GMT -5 flow5 said:

By virtue of its tremendous size, the federal debt has become one of the major elements affecting the cost and availability of credit and the money supply.

I couldn't agree more, flow. The single biggest reason that there is no boom coming is the insane size of debt that exists in the system. More and more money going towards money already spent during the last generation means less for investment. This is why I believe all these social programs of the last generation are the biggest problem. That money should go to investment and then jobs, not just handed out in the hope it spent wisely.

[flow5]

"One quarter of contraction is not death"

Say's who? That's exactly what the 2010 death march THREAD was all about - a short-fall in the money stock.

And maybe you should read Professor Fisher's: The Purchasing Power of Money. His work provided the framework for analyzing the principles in monetarism: money and prices.

In it, Professor Fisher discusses the acceptability of money and its degree of exchangeability. He describes the circulating media of bank deposits, and the purchasing power of money, to wit: “the purchasing power of money is the reciprocal of the level of prices; so that the study of the purchasing power of money is identical with the study of price-levels.”

Bankrupt U Bernanke turned safe assets into impaired assets (i.e., turned housing prices upside down and unsaleable, illiquid and untradeable). 

Here's who caused our recessions since the Great-Depression:

Period ................. Chairman

Nov 1948 – Oct 1949... Thomas B. McCabe
July 1953 – May 1954... William M. Martin
Aug 1957 – Apr 1958... William M. Martin
Apr 1960 – Feb 1961... William M. Martin
Dec 1969 – Nov 1970... William M. Martin
Nov 1973 – Mar 1975... Arthur Burns
Jan 1980 – July 1980... Paul Volcker
July 1981– Nov 1982... Paul Volcker
July 1990 – Mar 1991... Alan Greenspan
Mar 2001 – Nov 2001... Alan Greenspan
Dec 2007 – Jun 2009... Ben Bernanke

I.e., all these recessions were both predictable and preventable.

[Aman A.K.A. Ahamburger]

Meh, on one hand prices are supposed to float, on the other all recessions are preventable.. Through intervention, aka, not letting things float.

Says who?

The English language. Death isn't a small drop and a quarter of contraction, it's death. Dead, finished. You know, like how there was no exit plan from QE, which I said was the taper.

Maybe you should reread Fishers book. From chapter II..

Of all kinds of goods, perhaps the least exchangeable is real estate. Only in case some person happens to be found who wants it, can a piece of real estate be traded. A mortgage on real estate is one degree more exchangeable. Yet even a mortgage is less exchangeable than a well-known and safe corporation security; and a corporation security is less exchangeable than a government bond. In fact persons not infrequently buy government bonds as merely temporary investments, intending to sell them again as soon as permanent investments yielding better interest are obtainable. One degree more exchangeable than a government bond is a bill of exchange; one degree more exchangeable than a bill of exchange is a sight draft; while a check is almost as exchangeable as money itself.

In other words, the very last thing that MBS, based on predatory loans to unqualified buyers were, were sound financial products. Keep polishing that turd though, someone, someday might buy it.

[Aman A.K.A. Ahamburger]

Further, Fisher says..

The purchasing power of money is indicated by the quantities of other goods which a given quantity of money will buy. The lower we find the prices of goods, the larger the quantities that can be bought by a given amount of money, and therefore the higher the purchasing power of money. The higher we find the prices of goods, the smaller the quantities that can be bought by a given amount of money, and therefore the lower the purchasing power of money. In short, the purchasing power of money is the reciprocal of the level of prices; so that the study of the purchasing power of money is identical with the study of price levels.

The reason for subprime, zero down, qualified anyone loans was because the value of homes had become unrealistic and there was essentially zero PP left. Zero PP is also reflected buy the nil savings rate and record high personal debt level prior to the 2008 financial crisis.

Let's not forget even the "forward look" only calks six months out. So while it could have been predicted and obviously was because of the banks betting against the drop; preventing anything at that point was impossible because there was essentially zero purchasing power left in the economy. Especially because the economy was filled with toxic assets - yes, they were toxic assets, the economic numbers say so.

[flow5]

Your Fisher quotations just back up what I already told you.  You don't understand what he said. I predicted the Great-Recession in Dec 2007: 

POSTED: Dec 13 2007 06:55 PM |
The Commerce Department said retail sales in Oct 2007 increased by 1.2% over Oct 2006, & up a huge 6.3% from Nov 2006.
10/1/2007,,,,,,,-0.47,,,,,,, -0.22 * temporary bottom
11/1/2007,,,,,,, 0.14,,,,,,, -0.18
12/1/2007,,,,,,, 0.44,,,,,,,-0.23
1/1/2008,,,,,,, 0.59,,,,,,, 0.06
2/1/2008,,,,,,, 0.45,,,,,,, 0.10
3/1/2008,,,,,,, 0.06,,,,,,, 0.04
4/1/2008,,,,,,, 0.04,,,,,,, 0.02
5/1/2008,,,,,,, 0.09,,,,,,, 0.04
6/1/2008,,,,,,, 0.20,,,,,,, 0.05
7/1/2008,,,,,,, 0.32,,,,,,, 0.10
8/1/2008,,,,,,, 0.15,,,,,,, 0.05
9/1/2008,,,,,,, 0.00,,,,,,, 0.13
10/1/2008,,,,,,, -0.20,,,,,,, 0.10 * possible recession
11/1/2008,,,,,,, -0.10,,,,,,, 0.00 * possible recession
12/1/2008,,,,,,, 0.10,,,,,,, -0.06 * possible recession
Trajectory as predicted:
BERNANKE SHOULD HAVE SEEN THIS COMING. IN DEC. 2007 I COULD.

And the DEATH MARCH was the title of the tread, not the discourse.  It was intended to be hyperbole.  You simply twist the facts to suit your closed mind.

[flow5]

The PRICE LEVEL = roc's in M*Vt (as Fisher said). The PRICE LEVEL was contracted for 29 contiguous months.  That turned otherwise safe-assets into impaired assets (turned housing prices upside down and unsaleable, and mortgages illiquid and untradeable).

GO FISH

[Aman A.K.A. Ahamburger]

Bahahahahah... Keep selling the shit that the system wasn't filled with toxic assets. Oh, and good for you for calling the recession in 2007, I seen that shit was going to fall apart in 2007 as well.

However, maybe just like you, the donuts at the top said, hey look a recession. But hey, these are all "sounds" financial products, we will be okay. You know what, come to think of it, that's EXACTLY what went on when you read the notes. They knew there was a problem, but they had it under control. They were just trying to "slowly deflate" the housing bubble. Like you said flow, prices need to go up and down.

Here, I'm gonna post an article about Canada in the housing thread that sums up the situation in the US prior to the housing bust. The difference of course is that our banking system isn't filled with a ton on toxic assets, because Paul Martin refused to follow suit with the INSANITY that was going on south of the boarder...

Hahahahah, stable assets... Yeah, I guess there was no subprime crisis caused by rolling interest loans!! Hahaha. Ah, thanks for the laugh...

Bottom line here. NO MATTER WHAT THE MARKETS WILL BE UP!!!!

[flow5]

You don't think the Fed controls the price level? There were > 10 housing boom/busts since the Great-Depression. You think this housing boom was any different?   Your stuck.  I have the last laugh.  All easy money policies beget financialization and speculation.  Your ignorant.

[flow5]

All markets will be up? You're crazy.  Equities have had their run. Monetary flows are contractionary. Long-term flows are rising faster than short-term flows. And 10 trillion dollars of savings are impounded (DDs are only 10 percent of TDs).

[flow5]

DJIA is down 170 today. No, in the long run stocks will be down. I.e., your thread is stupid.

[Aman A.K.A. Ahamburger]

Yes, I know it was different this time, everyone does..

You know why I love the net, things hang around..

www.ritholtz.com/blog/2007/12/money-supply-growth-its-much-worse-than-that/#comments

flow5
December 23, 2007 at 5:38 pm
Don’t underestimate Bernanke. We haven’t had anyone as good since Martin.

The worst Chairman:

(1) Paul Volcker
(2) Alan Greenspan
(3) Arthur Burns
(4) William Miller

flow5
December 24, 2007 at 12:52 pm

It is absolutely essential that interest rates be brought down. This requires the Fed’s maintaining the relatively tight money policy it has followed since Feb. 06.

flow5
December 25, 2007 at 2:04 pm

Deregulating financial institutions to the extent that they have been deregulated, was an invitation to financial disaster.

Deregulation is a disease.

blogs.cfr.org/setser/2008/06/18/why-has-the-dollar-tended-to-go-down-as-oil-goes-up/

Flow5
84 mos, 2 wks ago
I.e., the FED is following an EXTREMELY easy monetary policy.

I see why you have such a chip in your shoulder about Ben B. now, flow. In all your comments not one is screaming about major problems and you even admitted before the crash that the amount of deregulation was INSANE..

Keep trying to sell whatever it is your selling because once again, a big swing and a miss!!

[Aman A.K.A. Ahamburger]

Jun 4, 2015 16:40:45 GMT -5 flow5 said:

DJIA is down 170 today. No, in the long run stocks will be down.

Care to make a prediction? If you have been reading this site you would know I'm sitting heavy in cash because I think we are in for a rough 7-10 years here.

[flow5]

I already know where the markets are headed. I'm the best market timer in all of history. You're ignorant. Repos are not cash.

[flow5]

You don't know a damn thing about the housing market.

[flow5]

Your full of bullshit. This is the only housing crisis you've ever lived through.

[Aman A.K.A. Ahamburger]

Whatever makes you feel better.

[dothedd]

Greetings, Aham!

You said, "I think we are in for a rough 7-10 years here".

I TOO have been reading about the "COMING ECONOMIC COLLAPSE" ... It's time to save LOTS OF $$$$$$$$$$$$$$$$$$$$$$$$$$$!  




theeconomiccollapseblog.com/

www.thecommonsenseshow.com/2015/01/03/14-things-can-survive-coming-economic-collapse/

[Aman A.K.A. Ahamburger]

Hey b! Yes, we have been talking about that for a while now. Some of us have been advocating saving up kash, yep! I guess we'll see.

Jun 4, 2015 17:07:48 GMT -5 flow5 said:

Your full of bullshit. This is the only housing crisis you've ever lived through.

Wrong. Housing went bust in Canada in the mid 80's and my parents were underwater in their house in small town Saskatchewan my entire life growing up. It also went bust up here in the mid 90's too. So this is number three for me, and the numbers on this one are the worst since the great depression.

But you know what? I thought about something after supper here. I do feel bad about antagonizing you about your exceptional market timing skills - now that I know the whole story in regards to you, Ben B, and this mess.

Sincerely, flow you have great market timing abilities, without a doubt one of the best that I have ever seen. IMO, between your market skills and my economic/historical mind, we actually make a pretty damn good team. When Bruce and FTI are added to the mix, essentially nothing has slipped past us in this area of the board. So thank you for your contributions to Investing Perspectives and I hope we can move foward from this point and focus on what's coming, instead of arguing with, and insulting each other about the past.

[flow5]

See: • Bank Reserves And Loans: The Fed Is Pushing On A String

That's my money multiplier, CB's assets divided by RRs.  That the Fed lost control is no happenstance.  It was predicted in June 1980.

As for the historical housing numbers:

www.census.gov/construction/nrs/historical_data/index.html

Either the number of houses sold fell and/or both the # and $ price fell.  I.e., AD always fell. 

[flow5]

"The economic landscape is unquestionably littered with the wreckage of the crash. Home prices languish near post-bubble lows, over 30% below peak. The plunge in prices has left nearly a QUARTER of all mortgage borrowers owing more than the value of their homes"
------------------------

The Fed controls Professor Irving Fisher's PRICE-LEVEL. Bernanke drained the money stock, M1, (which had already been contracting between 12/29/2003 @ 1385.7 until 9/15/2008 @ 1375.4), drained money flows, money times velocity, and legal reserves for 29 contiguous months. When money flows contract, the price-level contracts (that is where ever money was mis-allocated).

[Aman A.K.A. Ahamburger]

Speaking of mis-allocated funds...

Syriza Left demands 'Icelandic' default as Greek defiance stiffens

The radical wing of Greece's Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe's creditor powers.

Syriza sources says measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma.

[tyfighter3]

What did I say 3 or 4 years ago about Greece. never throw money into a bottomless pit, you will never see it again. LOL