Fed Watch Thread

[Unlimited]

For those who follow the markets, from the perspective of the Government and the Fed. Duffminster, Flow5, BiMetal and some others have meaningful input as to where markets will head, once the politics and government monetary support wears off.
M0 M1 M2 M3 if you don't know what they are yet, you soon will. The money supply and the effects on your wallet and investments.

[neohguy]

Thanks unlimited. I hope all the folks you mentioned come here.

[bimetalaupt]

Unlimited,
Thank-you for the Thread!!! It is all about how money drive the market and how the markets are correlated.. As we have been talking about how weak the PIIGS are.. Frank has set the stage to a lot of understanding... As before the Depression in 1931 was started in Austria with an Insolvent Bank!!! 1929 was a boom year on Wall Street!!!

Thank-you Again,
Bi Metal Au Pt

[Aman A.K.A. Ahamburger]

I hear you Bruce, IMO, Different outcome 2011, more legs to stand on.

[flow5]

2010 jan ….. 0.22 ….. 0.54
….. feb ….. 0.08 ….. 0.52
….. mar ….. 0.07 ….. 0.53
….. apr ….. 0.13 ….. 0.54
….. may ….. 0.05 ….. 0.53
….. jun ….. 0.03 ….. 0.50
….. jul ….. 0.07 ….. 0.48
….. aug ….. 0.07 ….. 0.49
….. sep ….. 0.06 ….. 0.51
….. oct ….. 0.03 ….. 0.47
….. nov ….. 0.00 ….. 0.42
..... dec ….. 0.09 ….. 0.33
2011 jan ….. 0.08 ….. 0.24
….. feb ….. 0.03 ….. 0.19
….. mar ….. 0.04 ….. 0.18
….. apr ….. 0.08 ….. 0.21
….. may ….. 0.05 ….. 0.20
….. jun ….. 0.06 ….. 0.16
=====

I am surprised by the resurgence of short-term money flows. Long-term still falling & by the numbers end in FEB (i.e., housing & core inflation should stop falling).

[bimetalaupt]

Flow5,
It looks like Cash Hording is the thing for 2011.. V1 or Free Cash Flow will both be very little.. Esp Long Term money.. Feb point will well backed with models.. You know that..

Bi metal Au Pt

[bimetalaupt]

Starting with the Long Depression * (1873 to 1899) most if not all depresskions were started with bank crash in Austria..
The Panic of 1873 surrounded a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. It is nowadays referred to as the Depression of 1873[1] by historians. It was triggered by the fall in demand for silver internationally, which followed Germany's decision to abandon the silver standard in the wake of the Franco-Prussian war.[2] In 1871 Bismarck extracted a large indeminity in gold from France and ceased minting silver thaler coins. The first symptoms of the crisis were financial failures in the Austro-Hungarian capital, Vienna, which spread to most of Europe and North America by 1873. It was one of a series of economic crises in the 19th and early 20th centuries. In Britain, the result was two decades of stagnation known as the "Long Depression", which weakened Britain's economic leadership in the world.[3] In U.S. literature this global event is usually known as "Panic of 1873", while in Europe it is known as Long Depression or Great Depression.[4]

[bimetalaupt]

the Rothschild's bank crashed in 1931 was the tipping point that caused the Depression.

In 1931, Austrian bank Creditanstalt, owned by Europe’s famous Rothschild banking family, went under, sparking a run on other Austrian financial institutions that soon spread disastrously across the globe.

The ensuing panic decimated bank after bank and is considered the trigger of the Great Depression.

Could history repeat itself, with Austria again triggering a global financial meltdown?

Some financial experts believe that Austria today is indeed again the “sick man” of Europe, the weakest link whose collapse could spur an abrupt deepening of today’s global financial crisis.

In the 1930s, the turmoil caused by Creditanstalt’s collapse was so intense that it lengthened the Great Depression in the United States by at least two years. The very name Creditanstalt became shorthand among economists for what we now call “systemic risk,” like the pain that followed the unwieldy collapse of Lehman Brothers in September 2008.

Today, Austria’s banks are in trouble again, and experts worry that their woes could turn into a contagion that spreads through Europe and perhaps the entire world.

“Austria could be a trigger,” says Desmond Lachman, resident fellow for the American Enterprise Institute, in an interview with Moneynews.com.

“If Austria is in serious trouble, then the market looks for the next country (to fall) — Sweden, the Netherlands, Ireland, Greece.”

Virtually Worthless

Just like in the early ’30s, Austrian banks suffer now from excessive lending in Eastern Europe. Their loans to that region are estimated at $289 billion — 70 percent of Austria’s total economy, measured in gross domestic product (GDP).

That lending includes $44 billion in Romania, $37 billion in Hungary, $22.4 billion in Russia, and $14.3 billion in Ukraine.

The global financial crisis, of course, has sent these developing economies screeching to a halt.

The outstanding loans are, like the billions in bad home loans drowning U.S. banks, virtually worthless for the moment.

Exacerbating the situation, the Austrian banks made many of their loans in foreign currencies, such as the U.S. dollar and Swiss franc, to allow borrowers to take advantage of lower interest rates in those currencies.

Even households in Eastern and Central Europe were allowed to borrow in foreign currencies. Seventy percent of Ukraine’s loans and more than 40 percent of Russia’s are denominated in foreign currencies.

Now the currencies of Eastern Europe are plunging, making it more expensive for borrowers there to pay back their loans. Like investors across England who bought into Iceland’s “miracle” economy or Norwegian cities stuck with bad U.S. home-loan bonds — small-timers who just wanted a nice return on a “safe” CD — it was bound to end in tears.

“That bet turned out very badly,” Mitchell Orenstein, professor of European studies at Johns Hopkins University, tells Moneynews.com.

A bad bet, but not an unsurprising relationship: “Austrian banks saw Central and Eastern Europe as their old back yard. These areas were part of the Austro-Hungarian Empire,” Orenstein points out. “Creditanstalt was an old empire bank and fell for the same reasons. The problem was a lot of loans to the same exact areas as now: Czechoslovakia, Hungary, Ukraine. That’s why people are making the comparison. It’s certainly valid.”

A Shared Fate

Austria clearly has attached its fate closely to its eastern neighbors.

Overall, Austrian banks account for about 19 percent of the $1.5 trillion in loans outstanding in Eastern Europe, making them by far the biggest player in the region. In addition to Bank Austria Creditanstalt, Austria’s two other biggest banks also have substantial sums committed to Eastern Europe: Erste Bank and Raiffeisen Bank.

The banks’ troubled assets now amount to a whopping 12 percent to 14 percent of Austria’s GDP, Standard & Poor’s estimates. Analysts predict losses ultimately will total $42 billion.

On April 1, Moody’s downgraded its credit ratings for Raiffeisen’s owner RZB and for Erste.

“The persistent turmoil in international capital markets is likely to have an increasingly adverse effect on RZB’s core markets in Central and Eastern Europe and will exert pressure on asset quality, capital ratios, revenues, and earnings,” Moody’s said.

The banks’ troubles have forced the government to provide a $130 billion bailout. Despite the banks’ continuing problems, the public spigot seems now to be closed.

“That’s the limit,” says Werner Königshofer, a member of parliament from the opposition Freedom Party. He tells The Washington Post that “you can’t do everything for everybody.”

In February, Austrian Chancellor Werner Faymann said banks may have to be nationalized, and the Austrian press has openly speculated in recent weeks that the country itself could go bankrupt.

Austrian government bond yields have risen to the level of Portugal, Italy, and Greece, nations notorious for economic mismanagement and underperformance. The OECD estimates that Austria’s public debt will surge to almost 70 percent of GDP next year, from 62.6 percent last year.

Last Resort

To avoid a meltdown, the Austrian government has urged the European Union to put together a $260 billion rescue package for members in the east.

Yet Germany and other countries have rejected that idea, and President Barack Obama had little luck changing sentiment at the recent G20 summit in London. Bigger economies there argue that it really amounts to an effort to put Europe on the hook for mistakes made by Austrian banks.

If Eastern European banks tumble, the fallout would hit Austria’s sovereign debt ratings quickly — very bad news, as many a Latin American leader could tell you. Austria could end up a zombie country, dependent on last-resort lending from institutions like the International Monetary Fund. At the G20, leaders did agree to put $1.1 trillion into IMF coffers for just this kind of need.

Roger Kubarych, chief U.S. economist for UniCredit Group, which owns Bank Austria Creditanstalt, argues that the bank’s position now is far different, thanks to a different world economy. “One of the strengths of the Austrian economy is that it’s open,” Kubarych says.

In addition to making loans, Austrian banks bought or established their own banks in countries to their east. Those moves came as these nations sought to establish market-based banking industries after the fall of communism.

UniCredit now has banks in 22 countries serving 40 million people, including Italy, Germany, Russia, and nearly all of the former Soviet bloc countries of Eastern Europe.

“It’s natural for banks to follow companies. Austrian companies are heavily involved in outsourcing in these countries,” Kubarych says. “They’ve had close ties for decades and decades.”

Minimizing the Problems

And there is a case for hope. In addition to Poland and the Czech Republic, the economies of the Slovak Republic and Slovenia also are in decent shape, Orenstein says. As a result, he and others don’t see the plight of Austrian banks as a dire development.

Another plus for Austrian banks is that they didn’t join some of their European brethren in loading up on U.S. subprime securities, and they are reasonably well capitalized.

Their capital and reserves ratio registered a healthy 7.1 percent of total assets as of December. But that figure is computed on a non-risk adjusted basis, Deutsche Bank economist Sebastian Becker points out in a recent report.

Debt securities nevertheless are rising as a percentage of total bank assets, while deposits are falling, Becker warns. “Austrian banks increased the share of debt securities refinancing over the past 10 years to 24.6 percent of total assets from 17.5 percent.”

Experts remain on edge. In the environment of a global financial crisis, Austrian banking blues are particularly worrisome, Lachman says.

“In Europe, the eastern countries are a problem,” Lachman explains. “Austria is just the most egregious case of being exposed. Switzerland, Sweden, the Netherlands, and Belgium also have big exposures.”

The woes of Eastern Europe’s basket cases are in some ways a lot worse than those of Asian countries during that continent’s crisis in 1997-1998, Lachman says. The currency-driven contagion then soon spread to Russia and affected global finance for years.

“The Baltics are running current account deficits that total 15 percent to 20 percent of GDP. There’s a huge amount of short-term debt that has to be rolled into foreign exchange.” In addition, political instability has emerged in the Czech Republic, Hungary, Latvia and Ukraine.

“I think people are minimizing the problems,” Lachman says.

Most people wouldn’t associate Mark Twain with Austria, but Lachman does. The American author once said, “history doesn’t repeat itself, but it does rhyme,” he notes.

In the case of Austria now, Lachman warns, “you just get different dominoes that fall.”


Read more: Austrian Banks Could Trigger Global Depression — Again

[bimetalaupt]

overbuilding of RailRoads was one reason for the Panic of 1873...

Factors in the U.S.

The American Civil War was followed by a boom in railroad construction. 56,000 miles (90,000 km) of new track were laid across the country between 1866 and 1873. Much of the craze in railroad investment was driven by government land grants and subsidies to the railroads. At that time, the railroad industry was the nation's largest employer outside of agriculture, and it involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry as well as overbuilding of docks, factories and ancillary facilities. At the same time, too much capital was involved in projects offering no immediate or early returns.[5]
[edit] Coinage Act of 1873

The decision of the German Empire to cease minting silver thaler coins in 1871 caused a drop in demand and downward pressure on the value of silver; this had a knock on effect in the USA, where much of the supply was then mined. As a result, Coinage Act of 1873 was introduced and this changed the United States policy with respect to silver. Before the Act, the United States had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to a 'de facto' gold standard, which meant it would no longer buy silver at a statutory price or convert silver from the public into silver coins (though it would still mint silver dollars for export in the form of Trade Dollars)[6]

The Act had the immediate effect of depressing silver prices. This hurt Western mining interests, who labeled the Act "The Crime of '73." Its effect was offset somewhat by the introduction of a silver trade dollar for use in the Orient, and by the discovery of new silver deposits at Virginia City, Nevada, resulting in new investment in mining activity.[7] But the coinage law also reduced the domestic money supply, which raised interest rates, thereby hurting farmers and anyone else who normally carried heavy debt loads. The resulting outcry raised serious questions about how long the new policy would last.[8] This perception of instability in United States monetary policy caused investors to shy away from long-term obligations, particularly long-term bonds. The problem was compounded by the railroad boom, which was in its later stages at the time.

In September 1873, the American economy entered a crisis. This followed a period of post- Civil War economic overexpansion that arose from the Northern railroad boom. It came at the end of a series of economic setbacks: the Black Friday panic of 1869, the Chicago fire of 1871, the outbreak of equine influenza in 1872, and demonetization of silver in 1873.
[edit] Jay Cooke & Company fails

In September 1873, Jay Cooke & Company, a major component of the United States banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Cooke's firm, like many others, was invested heavily in the railroads. At a time when investment banks were anxious for more capital for their enterprises, President Ulysses S. Grant's monetary policy of contracting the money supply (again, also thereby raising interest rates) made matters worse for those in debt. While businesses were expanding, the money they needed to finance that growth was becoming more scarce.

Cooke and other entrepreneurs had planned to build the nation's second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing, and ground was broken near Duluth, Minnesota, for the line on February 15, 1870. But just as Cooke was about to swing a $300 million government loan in September 1873, reports circulated that his firm's credit had become nearly worthless. On September 18, the firm declared bankruptcy.[9][10]
[edit] Effects in the U.S.

The failure of the Jay Cooke bank, followed quickly by that of Henry Clews, set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, more slowly in Chicago, Virginia City, Nevada and San Francisco.[11][12]

The New York Stock Exchange closed for ten days starting September 20. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876. Construction work halted, wages were cut, real estate values fell and corporate profits vanished.[13]
[edit] Railroad strike

American railroad unions commenced the Great Railroad Strike of 1877, preventing the trains from moving, especially in Pennsylvania and the great railway hub of Chicago. President Rutherford B. Hayes sent in federal troops in an attempt to stop the strikes. Fights between strikers and troops killed more than 100 and left many more injured. Further trouble came in July 1877 in the form of a crash in the market for lumber, resulting in the bankruptcy of several leading Michigan lumbering concerns.[14] The effects of the resulting second business slump reached California by 1878.[15]

The tension between workers and the leaders of banking and manufacturing interests lingered on well after the depression lifted in the spring of 1879, the end of the crisis coinciding with the beginning of the great wave of immigration into the United States which lasted until the early 1920s.

Poor economic conditions caused voters to turn against the Republican Party. In the 1874 congressional elections, the Democrats assumed control of the House. Public opinion during the period made it difficult for the Grant Administration to develop a coherent policy regarding the Southern states. The North began to steer away from Reconstruction. With the depression, ambitious railroad building programs crashed across the South, leaving most states deep in debt and burdened with heavy taxes. Retrenchment was a common response of southern states to state debts during the depression. One by one each Southern state fell to the Democrats, and the Republicans lost power.

[bimetalaupt]

As the Stock market is up the T-bond market is crashing.. Wild.. vs Obama.. Give him a class in Economics 657.. Money and banking

Select type of Interest Rate Data
Select type of Interest Rate Data

Select Time Period
Select Time Period

Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
12/01/10 0.17 0.16 0.20 0.28 0.53 0.84 1.64 2.33 2.97 3.95 4.24
12/02/10 0.16 0.16 0.19 0.29 0.55 0.86 1.68 2.37 3.01 3.97 4.27
12/03/10 0.14 0.14 0.19 0.26 0.49 0.80 1.64 2.36 3.03 4.01 4.32
12/06/10 0.14 0.15 0.19 0.26 0.42 0.73 1.53 2.26 2.95 3.94 4.25
12/07/10 0.08 0.14 0.19 0.28 0.54 0.87 1.74 2.51 3.15 4.11 4.39
12/08/10 0.08 0.15 0.18 0.30 0.63 0.97 1.87 2.62 3.26 4.18 4.45
12/09/10 0.09 0.14 0.18 0.30 0.64 0.99 1.90 2.62 3.23 4.15 4.41
12/10/10 0.09 0.13 0.18 0.29 0.64 1.03 1.98 2.70 3.32 4.19 4.43
12/13/10 0.10 0.15 0.19 0.29 0.61 0.98 1.91 2.64 3.29 4.15 4.39
12/14/10 0.09 0.15 0.20 0.30 0.66 1.06 2.08 2.84 3.49 4.32 4.54
12/15/10 0.08 0.14 0.20 0.30 0.68 1.08 2.11 2.88 3.53 4.37 4.59
12/16/10 0.08 0.13 0.19 0.31 0.66 1.05 2.06 2.81 3.47 4.32 4.57
12/17/10 0.05 0.11 0.18 0.30 0.61 0.99 1.97 2.69 3.33 4.19 4.41
12/20/10 0.04 0.14 0.19 0.30 0.62 1.01 1.99 2.72 3.36 4.21 4.44
12/21/10 0.09 0.14 0.19 0.30 0.63 1.02 1.99 2.71 3.35 4.21 4.44
12/22/10 0.07 0.14 0.20 0.30 0.65 1.05 2.02 2.74 3.36 4.23 4.45
12/23/10 0.07 0.14 0.19 0.30 0.67 1.10 2.09 2.80 3.41 4.26 4.47
Friday Dec 24, 2010, 4:46 PM

* 30-year Treasury constant maturity series was discontinued on February 18, 2002 and reintroduced on February 9, 2006. From February 18, 2002 to February 8, 2006, Treasury published alternatives to a 30-year rate. See Long-Term Average Rate for more information.

Treasury discontinued the 20-year constant maturity series at the end of calendar year 1986 and reinstated that series on October 1, 1993. As a result, there are no 20-year rates available for the time period January 1, 1987 through September 30, 1993.

Treasury Yield Curve Rates. These rates are commonly referred to as "Constant Maturity Treasury" rates, or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The yield values are read from the yield curve at fixed maturities, currently 1, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.

Treasury Yield Curve Methodology. The Treasury yield curve is estimated daily using a cubic spline model. Inputs to the model are primarily bid-side yields for on-the-run Treasury securities. See our Treasury Yield Curve Methodology page for details.

Negative Yields and Nominal Constant Maturity Treasury Series Rates (CMTs). Current financial market conditions, in conjunction with extraordinary low levels of interest rates, have resulted in negative yields for some Treasury securities trading in the secondary market. Negative yields for Treasury securities most often reflect highly technical factors in Treasury markets related to the cash and repurchase agreement markets, and are at times unrelated to the time value of money.

As such, Treasury will restrict the use of negative input yields for securities used in deriving interest rates for the Treasury nominal Constant Maturity Treasury series (CMTs). Any CMT input points with negative yields will be reset to zero percent prior to use as inputs in the CMT derivation. This decision is consistent with Treasury not accepting negative yields in Treasury nominal security auctions.

In addition, given that CMTs are used in many statutorily and regulatory determined loan and credit programs as well as for setting interest rates on non-marketable government securities, establishing a floor of zero more accurately reflects borrowing costs related to various programs.

For more information regarding these statistics contact the Office of Debt Management by email at [e-mail].

For other Public Debt information contact [phone]

[bimetalaupt]

We did some sleuthing and data extraction and put M3 back together from various weekly Federal Reserve reports that are still available.

1. The formula we're using has five 9s correlation to the original data back to 1980.
2. There is only one missing element that is apparently no longer available (Eurodollars) and an adjustment has been applied to generate it. Its only about 3% of total M3 so should not have a material effect on the total.

Here is our article on M3b, which details our work and notes the sources for the data. Note that as of Nov. 10, 2006 the Eurodollar estimation formula has changed - see the article for details.

John Williams monthly reconstruction of M3 is here. Ours tends to be more volatile than his, partly because it's weekly and partly because of our differences in calculating the repo and Eurodollar component of M3.

Finally and to put M3 into proper perspective with inflation (as measured by CPI without lies), the M3 and M2 strong inflation link is virtually unquestionable. The longer term inflation picture is clear, although M2 shows a pause and likely temporary disinflation as of 2008. Certain bloggers are incorrect and have continually avoided these facts and the linked chart.


m3b




M3, longer term chart
m3bl


Same, log chart


M3 consists of M2, institutional money market mutual funds, time deposits in amounts of $100,000 or more, repurchase agreement liabilities of depository institutions (in denominations of $100,000 or more) on U.S. government and federal agency securities, and Eurodollars.

For reference, and as of early 2007, M3 is about $11.5 trillion, M2 about $7.1 trillion, institutional money markets funds about $1.4 trillion, jumbo CDs about $1.7 trillion, repos about $.67 trillion ($670 billion) and estimated Eurodollars are about $.61 trillion ($610 billion).
11/30/2007 - Note that much of the large growth in M3 lately has been in flows into CDs and Money Market Funds, a normal occurrence during financial turmoil. See our financial crisis page for more detail, and a picture of the current level of a U.S. financial crisis.

3/31/2008 - Also see our best effort construction of all Fed activities here. As of today, it shows that the Fed has been backing off on total money creation activities on a relative basis since about December 2007.

4/4/2008 - As of 3/19/2008, we have added the results of the new Fed TAF, TSLF and PDCF "tools" to our M3 reconstruction, since they are quite similar to temporary repos (repurchase agreements). Temp repos are part of the original definition of M3. Note that they add very roughly about 2-2.5% to the annual growth rate.

5/30/08 - Removed TAF, TSLF, etc. from the "regular" M3 weekly chart and now maintaining it as just a link here (M3 with TAF, etc.).
Important change - December 7, 2008
An adjustment has been made as of this week to account for changes in the Eurodollar component of M3, taking both derivatives and the flight to the dollar into account. It was back dated to September 2008.

Important addition - December 15, 2009
12/15/09 - added the rest of the Fed temporary and permanent OMO-like repo programs into our alternate M3 reconstruction here. It now includes TAF, TSLF, PDCF, borrowed reserves, MBS/GSE puchases, Supplemental Financing Program borrowings, adjustments for dollar swap lines, etc. This chart is an attempt to follow the actual original definition of M3 (which includes "repurchase agreement liabilities of depository institutions"), and update the M3 data taking the huge Fed policy changes since 2007 into account. Note also that the dollar swap line adjustment is minor, since the Treasury's S.F.P. program provided most of the financing.



Finally and to put M3 into proper perspective with inflation (as measured by CPI without lies from Shadow Stats), the M3 and M2 strong inflation link is virtually unquestionable. The longer term inflation picture is clear, although M2 shows a pause and likely temporary disinflation as of 2008. Certain bloggers are incorrect and have continually avoided these facts and the linked chart.
M3 versus MZM, short term chart showing the high similarities
M3 versus MZM, long term chart showing the similarities

M3b, with the effects from the TAF, TSLF, PDCF etc. included
M3b, with the effects from the TAF, TSLF, PDCF etc. included (long term)

M3b, with 13 week rate of change
M3b, with 13 week rate of change (long term)

M3 raw data in Excel, weekly since 1900 (interpolated up to 1959), updated monthly
Same, except zipped

[bimetalaupt]

Can some one tell me how to get charts to publish?

[973beachbum]

Can some one tell me how to get charts to publish?

Bruce, did you try using the quote function and just copy and pasting it in that way? I would try to do that first.

If that doesn't work try going on tothe General board and see if an explanation is there. If not that is the place to post the question.

Personally I still can't figure out how to post a picture.

Merry Christmas Bruce!

[bimetalaupt]

Dec 24, 2010 19:07:16 GMT -5 bimetalaupt said:

We did some sleuthing and data extraction and put M3 back together from various weekly Federal Reserve reports that are still available.

1. The formula we're using has five 9s correlation to the original data back to 1980.
2. There is only one missing element that is apparently no longer available (Eurodollars) and an adjustment has been applied to generate it. Its only about 3% of total M3 so should not have a material effect on the total.

Here is our article on M3b, which details our work and notes the sources for the data. Note that as of Nov. 10, 2006 the Eurodollar estimation formula has changed - see the article for details.

[/img]nowandfutures.com/images/m3b.png
John Williams monthly reconstruction of M3 is here. Ours tends to be more volatile than his, partly because it's weekly and partly because of our differences in calculating the repo and Eurodollar component of M3.

Finally and to put M3 into proper perspective with inflation (as measured by CPI without lies), the M3 and M2 strong inflation link is virtually unquestionable. The longer term inflation picture is clear, although M2 shows a pause and likely temporary disinflation as of 2008. Certain bloggers are incorrect and have continually avoided these facts and the linked chart.


m3b




M3, longer term chart
m3bl


Same, log chart


M3 consists of M2, institutional money market mutual funds, time deposits in amounts of $100,000 or more, repurchase agreement liabilities of depository institutions (in denominations of $100,000 or more) on U.S. government and federal agency securities, and Eurodollars.

For reference, and as of early 2007, M3 is about $11.5 trillion, M2 about $7.1 trillion, institutional money markets funds about $1.4 trillion, jumbo CDs about $1.7 trillion, repos about $.67 trillion ($670 billion) and estimated Eurodollars are about $.61 trillion ($610 billion).
11/30/2007 - Note that much of the large growth in M3 lately has been in flows into CDs and Money Market Funds, a normal occurrence during financial turmoil. See our financial crisis page for more detail, and a picture of the current level of a U.S. financial crisis.

3/31/2008 - Also see our best effort construction of all Fed activities here. As of today, it shows that the Fed has been backing off on total money creation activities on a relative basis since about December 2007.

4/4/2008 - As of 3/19/2008, we have added the results of the new Fed TAF, TSLF and PDCF "tools" to our M3 reconstruction, since they are quite similar to temporary repos (repurchase agreements). Temp repos are part of the original definition of M3. Note that they add very roughly about 2-2.5% to the annual growth rate.

5/30/08 - Removed TAF, TSLF, etc. from the "regular" M3 weekly chart and now maintaining it as just a link here (M3 with TAF, etc.).
Important change - December 7, 2008
An adjustment has been made as of this week to account for changes in the Eurodollar component of M3, taking both derivatives and the flight to the dollar into account. It was back dated to September 2008.

Important addition - December 15, 2009
12/15/09 - added the rest of the Fed temporary and permanent OMO-like repo programs into our alternate M3 reconstruction here. It now includes TAF, TSLF, PDCF, borrowed reserves, MBS/GSE puchases, Supplemental Financing Program borrowings, adjustments for dollar swap lines, etc. This chart is an attempt to follow the actual original definition of M3 (which includes "repurchase agreement liabilities of depository institutions"), and update the M3 data taking the huge Fed policy changes since 2007 into account. Note also that the dollar swap line adjustment is minor, since the Treasury's S.F.P. program provided most of the financing.



Finally and to put M3 into proper perspective with inflation (as measured by CPI without lies from Shadow Stats), the M3 and M2 strong inflation link is virtually unquestionable. The longer term inflation picture is clear, although M2 shows a pause and likely temporary disinflation as of 2008. Certain bloggers are incorrect and have continually avoided these facts and the linked chart.
M3 versus MZM, short term chart showing the high similarities
M3 versus MZM, long term chart showing the similarities

M3b, with the effects from the TAF, TSLF, PDCF etc. included
M3b, with the effects from the TAF, TSLF, PDCF etc. included (long term)

M3b, with 13 week rate of change
M3b, with 13 week rate of change (long term)

M3 raw data in Excel, weekly since 1900 (interpolated up to 1959), updated monthly
Same, except zipped[/quote]

[Aman A.K.A. Ahamburger]

I'm not disputing any of your info Bruce. I just don't see it having the same effect. At this point there have been a few dominoes that have fallen; that should have ripped apart the system, but they haven't yet. I think the fact that even though the EU is the "biggest economy" The biggest economy in Europe is actually the 4th. This wasn't the case in 1873, or 1931. India wants to have power to all by 2012. China has a lot of real estate to fill. Lot of mouths to feed, what do you think?

[bimetalaupt]

Ahamberger,
We do not know how close we cam when the Netherlands Government back ING when other countries would not. Like 1873 then problem started in Austrian BAnking and the effect began to escalate downward though the worlds banking systems.Esp in the USA where the Forth Bank of the US failed due to a run on the bank. Iceland and Ireland have both nationalized bankings.. What you are talking about will become more apparent during 2011.. I FEAR!!!!

Banks in China are very under capitalized. They lent on anything that would export during the 1990"s and early 2000"s. Most did not make money and are being held up with more loans.. The are in far worst shape then most understand.

What we have seen is a large number of small banks that the FDIC as merged into medium size banks. many of the banks failed with bought loans that were not part of the banks local area. They bought Alt-A to make money when loans were not available.

It looks like the USA will be the worlds food basket for the next 90 years. Watch Rabobank and Texas Farm Credit Banks grow.. They have the AAA Credit .. That I will buy bonds into...

Just a thought,
Bi Metal Au Pt

[bimetalaupt]

Flow5,
You always come up with the great post in a timely manor...

I am surprised by the resurgence of short-term money flows. Long-term still falling & by the numbers end in FEB (i.e., housing & core inflation should stop falling).

Read more: notmsnmoney.proboards.com/index.cgi?board=moneytalk&action=display&thread=273#ixzz1967eXMQa
This may be too simple but M1 has increased by some 20% for 3 months or 13 weeks.. That is short term money.. Cash in you pocket and money in you checking account......So GDP is in the clouds. Also M1 was up 8.6% for year over year

On the other hand M3 is now down 1.6% year over year.. That is long term money esp None M2-M3!! this is where the down is..from 5187 for 2009 to 4829 for 2010.. last reading .... as Flow5 said.. Long term is still falling.. This is the area of the 5 year million dollar CD's...

Most people and banks are not ready to put money out for long term.. They are sure rates are going up.. Looks like MMXI missed this one in the short term.. We had a prediction rates would fall with QE2 and a weak Euro...

Just a thought,
Bruce[img src="[/img]"][img src="[/img]"]

[bimetalaupt]

Dec 25, 2010 0:29:43 GMT -5 bimetalaupt said:

Flow5,
You always come up with the great post in a timely manor...

I am surprised by the resurgence of short-term money flows. Long-term still falling & by the numbers end in FEB (i.e., housing & core inflation should stop falling).

Read more: notmsnmoney.proboards.com/index.cgi?board=moneytalk&action=display&thread=273#ixzz1967eXMQa
This may be too simple but M1 has increased by some 20% for 3 months or 13 weeks.. That is short term money.. Cash in you pocket and money in you checking account......So GDP is in the clouds. Also M1 was up 8.6% for year over year
See how made Louie is not.. I told him Fluffy had a better record for stock-picking.. You picked Blacky for the "Texas Red"".. Next year.. Sure miss my Jack A&&.. Defenders of the lambs. We got two coyote.
On the other hand M3 is now down 1.6% year over year.. That is long term money esp None M2-M3!! this is where the down is..from 5187 for 2009 to 4829 for 2010.. last reading .... as Flow5 said.. Long term is still falling.. This is the area of the 5 year million dollar CD's...

Most people and banks are not ready to put money out for long term.. They are sure rates are going up.. Looks like MMXI missed this one in the short term.. We had a prediction rates would fall with QE2 and a weak Euro...

Just a thought,
Bruce[img src="

[/img]"][img src="[/img]"][/quote][img src="[/img]"]

[bimetalaupt]

Better Pictor of the two Grand Champion Japanese Chins.. Black and White is a little mate of Louie and has two more GC Points!!!

Both headed to the Champion of Champions.. in New York.. Or at least Buttons will

[Aman A.K.A. Ahamburger]

I understand Bruce! I guess we will just have to wait to see if the thread has been tied when then excess string is pulled in the next little while here.

[flow5]

Even given the slightly skewed $75b POMO schedule additions (backend loaded), short-term money flows peak in JAN. And long-term money flows should bottom in FEB-MAR. Stocks are thus SCHEDULED for a pull-back.

[flow5]

DAILY AVG IN MILLIONS

Two weeks ended % CHANGE IN WEEKLY AVERAGES



Dec/15/2010 Dec/1/2010…………………………………………. 13-wk…26-wk…52-wk

Total reserves…$1,097,067 $1,045,327…………………..…. 20.7… -1.4… -4.8

Non-borrowed reserves… 1,051,378…$998,766……….. 24.6… 3.3… 7.1

Required reserves… 72,219…$ 66,496…………………….... 30.5… 26.9… 14.2

Excess reserves… 1,024,848…$ 978,832………………..…… 20.1… -3.1… -5.9

Borrowings from Fed… 45689…$ 46562…………………….-52.8… -70.7… -73.4

Free reserves… 979,159…$ 932,270……………………...…… 24.2… 1.8… 6.6

===================

Once again, a resurgence in all categories of reserve growth – QE2’s smokin!!



Total, non-borrowed, required - very bullish.

[Aman A.K.A. Ahamburger]

I agree about the pullback flow5. Not to mention there is going to be temp layoffs by that time.

Things I have noted.

China m2 UP 55% y-o-y
German is really pushing for a euro stabilization fund with "unlimited refinancing capabilities"
China loves German equipment, and Germany's economy is better than it has been in at least a decade.
1930 didn't see the growth(8%+) of two nations that have 2 billion mouths to feed.
1873 and 1931, the UK is the worlds biggest economy. 2010 it's the 6th, or about 1/7 the size of the economy that you Bruce, say has the best banking system in the world.
2011. There are a lot of mouths to feed, by 2012 India wants to have power to everyone, what do you think??

[flow5]

This message was deleted by the original poster.

[vl]

We don't need NEW CASH to invoke a massive re-stabilization in housing values (core attribute for counter-attrition recovery). I can do it by adjusting terms while fixing the documentation and perfection aspects. In short, give me an Indelible Lien attribute over a bankruptcy law and let's reset credit with capacity and ability. THREE months to set up tri-age and ops, this time next year we'd have revenue and reasons to create jobs.
We HAVE to pull out before Europe does.

[flow5]

Long-term interest rates are determined not only by the various supply and demand factors that affect short-term rates, but also by a unique factor; namely, inflation expectations. The expectation that price levels will chronically increase injects an “inflation premium” into long-term rates. The tendency of short-term rates to rise concomitantly with long-term rates is largely the consequence of the substantial substitutability of both short & long-term financing.

Rising inflation expectations operate on both sides of the supply-demand equation. Long-term lenders will demand, in terms of group behavior, interest rate that at least exceeds the “inflation premium”. Thus the higher the expected rate of inflation, the higher the long-term rates. Conversely, borrowers expecting to be able to pay off loans with depreciated dollars will increase their demand for loan-funds. Of the two effects, the supply side is the more important, since it literally establishes the minimum for long-term rates.

The rate-of-change in long-term money flows (the proxy for inflation) is still in a “free-fall”. Until these colossal money flows finally reverse, housing prices will finish declining. Thus until the slope flattens, longer term maturities will continue to rally from these levels (12/16/10 post).

[bimetalaupt]

flow5,
The Info I got last year was banks did not want long term paper at this low rate.. I do recall how bad things got for the S&L banks when interest rates climbed to 20%... Made more on bonds then stocks for years. I had to do a lot of rethink about the 50-/50 system. My last Efficient Frontier is now 72/28 stock/bond.. Still in the Test mode!!!!Esp with the short element added to the system...

It will be interesting to see how the banks handle the fast growing Credit Union's.. They pay no taxes and keep a part of the income to increase reserves. The Credit unions around here are very well capitalized. The two largest have Tier1 of 10% and are growning is memberships and dollars. Yes they are making loans!!! They are paying more for money then the Money market funds at Guide Stone ( Southern Baptist).

Just a thought My good friend,
Bi Metal Au Pt

[bimetalaupt]

Frank,
i think Credit Unions are like the large Mutual Life insurance in that they can only grow as fast as the capital retention. Do you recall the type of Life insurance that was called Paid Up 65.. At that point they started paying an annuity for you to retire on.

I can see it now.. Retiring on $270 month Plus SS.......Higher bond prices are a sure thought my inflation will be real soon....
We could be talking about how the EU started the inflation/depression soon also.

So how much more can Wal-mart grow?? I think the growth est are too high....

Just a thought,
Bi Metal Au Pt

[Aman A.K.A. Ahamburger]

It's cool to hear that wal-mart pulled it off. Thanks Frank

[flow5]

That was the kind of foresight my friend had - he established a credit union in the late 1970's & passed it to his son. As for bonds, there are crosscurrents. Short-term rates-of-change in most money metrics have shown quick acceleration, & are peaking (the proxy for real-output). Long-term, all money metrics are still falling (the proxy for inflation). And longer-dated securities (over longer time periods), should predominately reflect inflation expectations. So there should be a temporary rally in bonds.

What is confusing are the global hot money flows that are directly linked to speculation (i.e., reflect supply side or resource constraints rather than demand side inflation). But remember that inflation is a monetary phenomenon. Inflation occurs when there is a chronic across-the-board increase in prices. or, looking at the other side of the coin, depreciation of money. Inflation is not a temporary increase in the price level, nor a long-term increase in any particular prices. Inflation simply results from a long-term excessive flow of money relative to the volume of real output of goods and services offered in the markets. Inflation, at varying rates, has persisted irrespective of the cycles of the business economy. This phenomenon enabled economists to coin a new term stagflation; business stagnation accompanied by inflation.

The price indices are passive indicators of the average change of a group of prices. They do not reveal why prices rise or fall. Only price increases generated by demand, IRRESPECTIVE OF CHANGES IN SUPPLY, provide evidence of inflation. There must be an increase in aggregate demand which can come about only as a consequence of an increase in the volume and/or transitions velocity of money. The volume of money flows must expand sufficiently to push prices up, irrespective of the volume of financial transactions and the flow of goods and services into the market economy.

As an example, count the number of commodity ETF's on Stock-Encyclopedia.com. Bubble investing is still in vogue. The "trend is your friend".