Monetary Policy is loose as a goose.

[salmotrutta]

Contrary to the FED’s technical staff, retail MMMFs are nonbanks.


In my 1958 Money and Banking text. “Purchases and sales between the Reserve banks and non-bank investors directly affect both bank reserves (outside money) and the money stock (inside money).”


Mises has it right:


“The definition of M2 includes money market securities, mutual funds, and other time deposits. However, an investment in a mutual fund is in fact an investment in various money market instruments. The quantity of money is not altered as a result of this investment; the ownership of money has only changed temporarily. Hence, including mutual funds as part of M2 results in the double counting of money.”


see: “Correlations and the Definition of the Money Supply”

October 19, 2023

www.misesfans.org/2023/10/correlations-and-definition-of-money.html


There’s not much new under the sun. It’s the credit school vs. the money school.


Since the monetary authorities make their determinations on the basis of the size and not the “mix” or the bank credit proxy, there is no a priori reason to assume that an expansion of time deposits will alter the FOMC’s consensus as to the proper volume and rate of change in bank credit.


The FOMC’s proviso “bank credit proxy” used to be included in the FOMC’s directive during the period Sept 66 – Sept 69. That’s the “credit school” (that the money stock is a by-product of credit policy, as opposed to the “money school” (the tangible stock of our primary or means-of-payment money supply, is the only valid indicator of monetary conditions).


Increases in DFI loans and investments [earning assets/bank credit], are approximately the same as increases in transaction accounts, TRs, and time deposits, TDs, [savings-investment deposits/bank liabilities/bank credit proxy] excluding IBDDs. I.e., loans/investments = deposits.


That the net absolute increase in these two figures is so nearly identical is no happenstance, for TRs largely come into being through the credit creating process, and TDs owe their origin almost exclusively to TRs – either directly through transfer from TRs or indirectly via the currency route or through the DFI’s undivided profits accounts.


In the credit school, large CDs constitute an increase in credit. But the pundits omit large CDs from measures in the money stock. Large CDs are thus, obviously, an increase in the money stock. Large CDs represent shifts from other deposit classifications. In other words, monetary policy is loose. Combine that with the FED counting MMMFs as banks and you get the rise in gold and other commodities, in other words, a rise in inflation.

[salmotrutta]

If, for example, time deposits were expanding as fast as the banks were making loans and creating new demand deposits, the money supply would remain virtually stationary. The money supply criterion would therefore create the illusion that a tight money policy was in effect.

[djAdvocate]

the other thing i wonder is that IF every other country expands their money at the same rate as us, what happens? it means that every currency rests on the same house of cards. but if the measure of a currency is against another currency, how does that end up mattering? if ALL currencies decline in value, then the relative value of each currency will remain the same.

this is kind of what we see in the world today. it is the stronger currencies like the Swiss Franc that make ours look bad, and who cares about the Swiss Franc, other than the Swiss?