there is no money figure standing alone that can be used to accurately forecast the economy. Both the 10mo roc in DDs and the 24mo roc in DDs crater in November (but that time series is not as accurate as required reserves).
"The “true” or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds)."
That makes some sense with the exception of the Treasury's General Fund Account, because those balances aren't always quickly used. What you can't predict is the demand for money (the inverse of velocity). So, we could be in a recession.
Ben Bernanke, all by himself, caused the GFC (bankrupt half the home builders). Bernanke’s was wrong. See: "21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19.":
“a flawed and over-simplified monetarist doctrine that posits a direct relationship between the money supply and prices”.
As soon as Bernanke was appointed to the Chairman of the Federal Reserve, he immediately initiated, his first "contractionary" money policy for 29 contiguous months (coinciding both with the end of the housing bubble, and the peak in the Case-Shiller's National Housing Index in the 2nd qtr. of 2006 @ 189.93), or at first, sufficient to wring inflation out of the economy, but persisting until the economy plunged into an economic wide depression).
For > a 2 year period, RoC’s in M*Vt, proxy for inflation (for speculative assets), were NEGATIVE (less than zero!).*
Unfortunately, when long-term money flows peaked in July, which was reported with a lag on Aug 14, 2008 · when the government announced that the annual inflation rate surged to 5.6% in July - the highest point in 17 years; after July, both the RoC in short-term money flows and long-term monetary flows, simultaneously, fell off a high cliff (because of the lag effect of money flows).
Money market and bank liquidity continued to evaporate despite the FOMC's 7 reductions in the target FFR (which began on 9/18/07 until 4/30/08). Bernanke didn’t initiate an “easy” money policy, continuing to drain liquidity, despite Bear Sterns two hedge funds that collapsed on July 16, 2007, and immediately thereafter filed for bankruptcy protection on July 31, 2007 -- as they had lost nearly all of their value.
Bernanke’s 29 contiguous months of a massive contraction of American Yale Professor Irving Fisher’s price level, the massive tightening of monetary conditions in the US. caused a sharp rise in E-$ money, in E-$ demand. Foreign central banks did not have direct access to dollar liquidity swaps from the Fed (as illustrated by the sharp drop in EUR/USD from close to 1.60 in July 2008 to 1.25 in early November 2008).
BuB didn’t even begin to try and ease monetary policy until Lehman Brothers later filed for bankruptcy protection (it was one the Federal Reserve Bank of New York’s primary dealers in the Treasury Market, disrupting the primary dealer system), on September 15, 2008. The next day AIG’s stock dropped 60%. I.e., BuB maintained his “tight” money policy [i.e., credit easing, or mix of assets, not quantitative easing --injecting new money and excess reserves]. BuB literally didn’t ease monetary policy until March 2009 (when the rate-of-change in money flows finally reversed, when stocks turned).
The FOMC’s “tight” money policy was due to flawed Keynesian dogma (using interest rate manipulation as a monetary transmission mechanism), rather than by using open market operations of the buying type so as to expand legal reserves and the money stock -- and thus counteract the surgically sharp fall in AD, esp. during the 4th qtr. of 2008.
On January 10, 2008 Federal Reserve Chairman Ben Bernanke pontificated: "The Federal Reserve is not forecasting a recession”.
Bernanke subsequently initiated the economy’s coup de grâce during July 2008 (his second ultra-contractionary money policy). The 3rd contractionary policy was the introduction of the payment of interest on excess reserves, which destroyed non-bank lending/investing (the 1966 S&L credit crunch, where the term was first introduced, is the economic antecedent and paradigm).
Note aside: the 2 year rate-of-change, RoC in M*Vt (which the FED can control – i.e., the RoC in N-gDp), peaked in the 2nd qtr. of 2006 @ 12%. Bernanke let it fall to 8% by the 4th qtr. of 2007 (or by 33%). N-gDp fell to 6% in the 3rd qtr. of 2008 (another 25%). N-gDp then plummeted to a -2% in the 2nd qtr. of 2009 (another - 133%). That’s what created the cry, epitomized by Scott Sumner, for targeting N-gDp.
By withdrawing liquidity from the financial markets (draining legal reserves and the money stock), risk aversion was amplified, haircuts were increased, additional and/or a higher quality of collateral was required, liquidity mis-matches were magnified, funding sources dried up, long-term illiquid assets went on fire-sale, non-bank deposit runs developed (the ECB, which routinely conducts open-market operations “with more than 500 counterparties throughout the Euro Zone), withdrawal restrictions were imposed, forced liquidations lowered asset values, counterparties’ credit default risks mushroomed-- all of which contributed a general crisis of confidence & frozen financial markets (regulatory malfeasance was a subordinate factor). I.e., BuB turned Yale Professor Irving Fisher’s “price level”, or otherwise safe-assets, into impaired and unsaleable assets (i.e., upside down and under water).
No money stock figure standing along is adequate as a guidepost for money policy. And Vi has at times moved in a completely divergent path (opposite direction) from Vt., as in 1978, where all economist’s forecasts for inflation were drastically wrong.
Money has no significant impact on prices unless it is being exchanged. To sell 100 bushels of wheat (T) at $4 a bushel (P) requires the exchange of $400 (M) once, or $200 (Vt) twice, etc. Or a dollar bill which turns over 5 times can do the same “work” as one five-dollar bill that turns over only once.
The real impact of monetary demand on the prices of goods and services requires the analysis of “monetary flows”, and the only valid velocity figure in calculating monetary flows is Vt. Milton Friedman’s income velocity, Vi, is a contrived figure (Vi = Nominal GDP/M). It is a “residual calculation - not a real physical observable and measurable statistic.” The product of M*Vi is obviously N-gDp.
AD = money times transactions’ velocity, not N-gDp as the Keynesian economists claim. “Money” = the measure of liquidity; the yardstick by which the liquidity of all other assets is measured. I.e., M2 is mud pie.
Income velocity may be a "fudge factor," but the transactions velocity of circulation is a tangible figure.
I.e., income velocity, Vi, is endogenously derived and therefore contrived (N-gDp divided by M) whereas Vt, the transactions’ velocity of circulation, is an “independent” exogenous force acting on prices.
re: "slamming on them from 1978 until early 1982" William Barnett didn't accurately forecast interest rates during Volcker's reign. I did. His Divisia metric was wrong.
Volcker’s reign is a myth. History has been re-written. Paul Volcker’s version of monetarism (along with credit controls: The Emergency Credit Controls program of March 14, 1980), was limited to Feb, Mar, and Apr of 1980. Even with the intro of the DIDMCA of March 31st 1980 (making reserve requirements compulsory for all nonmember banks, which held 35 percent of all the payment system’s transactions deposits), total legal reserves increased at a 17% annual rate of change (before FRB-STL’s Dr. Richard Anderson's "reconstruction"), and M1a exploded at a 20% annual rate (until 1980 years’-end).
Why did Volcker fail? This was due to Volcker's operating procedure. Volcker targeted non-borrowed reserves (@$18.174b 4/1/1980) when at times over 100 percent of total reserves (@$44.88b) were borrowed (i.e., absolutely no change from what Paul Meek, FRB-NY assistant V.P. of OMOs and Treasury issues, described in his 3rd edition of “Open Market Operations” published in 1974).
One dollar of borrowed reserves provides the same legal-economic base for the expansion of money as one dollar of non-borrowed reserves. The fact that advances had to be repaid in 15 days was immaterial. A new advance could be obtained, or the borrowing bank replaced by other borrowing banks.
It was before the discount rate was made a penalty rate in Jan 2003 (Bagehot's' dictum). And the Fed funds "bracket racket" was simply widened, not eliminated. Monetarism actually has never been tried.
Then came the "time bomb" (as predicted), the widespread introduction of ATS, NOW, & SuperNow accounts at 1980 year-end -- which vastly accelerated the transactions velocity of money (all the demand drafts drawn on these accounts cleared thru demand deposits (DDs) – except those drawn on Mutual Savings Banks, interbank, and the U.S. government). This propelled N-gNp to 19.2% in the 1st qtr 1981, the FFR to 22%, & AAA Corporates to 15.49%.
By the first qtr. of 1981, the damage had already been done. But Volcker errored again (supplied an excessive volume of legal reserves to the banking system), in late 1982-83. I forecast in FEB 84 that stocks and bonds would bottom in June 84. Stocks bottomed June 15 @1086.90 & bonds on July 2 @13.76%
there is no money figure standing alone that can be used to accurately forecast the economy. Both the 10mo roc in DDs and the 24mo roc in DDs crater in November (but that time series is not as accurate as required reserves).
"The “true” or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds)."
That makes some sense with the exception of the Treasury's General Fund Account, because those balances aren't always quickly used. What you can't predict is the demand for money (the inverse of velocity). So, we could be in a recession.
Ben Bernanke, all by himself, caused the GFC (bankrupt half the home builders). Bernanke’s was wrong. See: "21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19.":
“a flawed and over-simplified monetarist doctrine that posits a direct relationship between the money supply and prices”.
As soon as Bernanke was appointed to the Chairman of the Federal Reserve, he immediately initiated, his first "contractionary" money policy for 29 contiguous months (coinciding both with the end of the housing bubble, and the peak in the Case-Shiller's National Housing Index in the 2nd qtr. of 2006 @ 189.93), or at first, sufficient to wring inflation out of the economy, but persisting until the economy plunged into an economic wide depression).
For > a 2 year period, RoC’s in M*Vt, proxy for inflation (for speculative assets), were NEGATIVE (less than zero!).*
Unfortunately, when long-term money flows peaked in July, which was reported with a lag on Aug 14, 2008 · when the government announced that the annual inflation rate surged to 5.6% in July - the highest point in 17 years; after July, both the RoC in short-term money flows and long-term monetary flows, simultaneously, fell off a high cliff (because of the lag effect of money flows).
Money market and bank liquidity continued to evaporate despite the FOMC's 7 reductions in the target FFR (which began on 9/18/07 until 4/30/08). Bernanke didn’t initiate an “easy” money policy, continuing to drain liquidity, despite Bear Sterns two hedge funds that collapsed on July 16, 2007, and immediately thereafter filed for bankruptcy protection on July 31, 2007 -- as they had lost nearly all of their value.
Bernanke’s 29 contiguous months of a massive contraction of American Yale Professor Irving Fisher’s price level, the massive tightening of monetary conditions in the US. caused a sharp rise in E-$ money, in E-$ demand. Foreign central banks did not have direct access to dollar liquidity swaps from the Fed (as illustrated by the sharp drop in EUR/USD from close to 1.60 in July 2008 to 1.25 in early November 2008).
BuB didn’t even begin to try and ease monetary policy until Lehman Brothers later filed for bankruptcy protection (it was one the Federal Reserve Bank of New York’s primary dealers in the Treasury Market, disrupting the primary dealer system), on September 15, 2008. The next day AIG’s stock dropped 60%. I.e., BuB maintained his “tight” money policy [i.e., credit easing, or mix of assets, not quantitative easing --injecting new money and excess reserves]. BuB literally didn’t ease monetary policy until March 2009 (when the rate-of-change in money flows finally reversed, when stocks turned).
The FOMC’s “tight” money policy was due to flawed Keynesian dogma (using interest rate manipulation as a monetary transmission mechanism), rather than by using open market operations of the buying type so as to expand legal reserves and the money stock -- and thus counteract the surgically sharp fall in AD, esp. during the 4th qtr. of 2008.
On January 10, 2008 Federal Reserve Chairman Ben Bernanke pontificated: "The Federal Reserve is not forecasting a recession”.
Bernanke subsequently initiated the economy’s coup de grâce during July 2008 (his second ultra-contractionary money policy). The 3rd contractionary policy was the introduction of the payment of interest on excess reserves, which destroyed non-bank lending/investing (the 1966 S&L credit crunch, where the term was first introduced, is the economic antecedent and paradigm).
Note aside: the 2 year rate-of-change, RoC in M*Vt (which the FED can control – i.e., the RoC in N-gDp), peaked in the 2nd qtr. of 2006 @ 12%. Bernanke let it fall to 8% by the 4th qtr. of 2007 (or by 33%). N-gDp fell to 6% in the 3rd qtr. of 2008 (another 25%). N-gDp then plummeted to a -2% in the 2nd qtr. of 2009 (another - 133%). That’s what created the cry, epitomized by Scott Sumner, for targeting N-gDp.
By withdrawing liquidity from the financial markets (draining legal reserves and the money stock), risk aversion was amplified, haircuts were increased, additional and/or a higher quality of collateral was required, liquidity mis-matches were magnified, funding sources dried up, long-term illiquid assets went on fire-sale, non-bank deposit runs developed (the ECB, which routinely conducts open-market operations “with more than 500 counterparties throughout the Euro Zone), withdrawal restrictions were imposed, forced liquidations lowered asset values, counterparties’ credit default risks mushroomed-- all of which contributed a general crisis of confidence & frozen financial markets (regulatory malfeasance was a subordinate factor). I.e., BuB turned Yale Professor Irving Fisher’s “price level”, or otherwise safe-assets, into impaired and unsaleable assets (i.e., upside down and under water).
No money stock figure standing along is adequate as a guidepost for money policy. And Vi has at times moved in a completely divergent path (opposite direction) from Vt., as in 1978, where all economist’s forecasts for inflation were drastically wrong.
Money has no significant impact on prices unless it is being exchanged. To sell 100 bushels of wheat (T) at $4 a bushel (P) requires the exchange of $400 (M) once, or $200 (Vt) twice, etc. Or a dollar bill which turns over 5 times can do the same “work” as one five-dollar bill that turns over only once.
The real impact of monetary demand on the prices of goods and services requires the analysis of “monetary flows”, and the only valid velocity figure in calculating monetary flows is Vt. Milton Friedman’s income velocity, Vi, is a contrived figure (Vi = Nominal GDP/M). It is a “residual calculation - not a real physical observable and measurable statistic.” The product of M*Vi is obviously N-gDp.
AD = money times transactions’ velocity, not N-gDp as the Keynesian economists claim. “Money” = the measure of liquidity; the yardstick by which the liquidity of all other assets is measured. I.e., M2 is mud pie.
Income velocity may be a "fudge factor," but the transactions velocity of circulation is a tangible figure.
I.e., income velocity, Vi, is endogenously derived and therefore contrived (N-gDp divided by M) whereas Vt, the transactions’ velocity of circulation, is an “independent” exogenous force acting on prices.
re: "slamming on them from 1978 until early 1982" William Barnett didn't accurately forecast interest rates during Volcker's reign. I did. His Divisia metric was wrong.
Volcker’s reign is a myth. History has been re-written. Paul Volcker’s version of monetarism (along with credit controls: The Emergency Credit Controls program of March 14, 1980), was limited to Feb, Mar, and Apr of 1980. Even with the intro of the DIDMCA of March 31st 1980 (making reserve requirements compulsory for all nonmember banks, which held 35 percent of all the payment system’s transactions deposits), total legal reserves increased at a 17% annual rate of change (before FRB-STL’s Dr. Richard Anderson's "reconstruction"), and M1a exploded at a 20% annual rate (until 1980 years’-end).
Why did Volcker fail? This was due to Volcker's operating procedure. Volcker targeted non-borrowed reserves (@$18.174b 4/1/1980) when at times over 100 percent of total reserves (@$44.88b) were borrowed (i.e., absolutely no change from what Paul Meek, FRB-NY assistant V.P. of OMOs and Treasury issues, described in his 3rd edition of “Open Market Operations” published in 1974).
One dollar of borrowed reserves provides the same legal-economic base for the expansion of money as one dollar of non-borrowed reserves. The fact that advances had to be repaid in 15 days was immaterial. A new advance could be obtained, or the borrowing bank replaced by other borrowing banks.
It was before the discount rate was made a penalty rate in Jan 2003 (Bagehot's' dictum). And the Fed funds "bracket racket" was simply widened, not eliminated. Monetarism actually has never been tried.
Then came the "time bomb" (as predicted), the widespread introduction of ATS, NOW, & SuperNow accounts at 1980 year-end -- which vastly accelerated the transactions velocity of money (all the demand drafts drawn on these accounts cleared thru demand deposits (DDs) – except those drawn on Mutual Savings Banks, interbank, and the U.S. government). This propelled N-gNp to 19.2% in the 1st qtr 1981, the FFR to 22%, & AAA Corporates to 15.49%.
By the first qtr. of 1981, the damage had already been done. But Volcker errored again (supplied an excessive volume of legal reserves to the banking system), in late 1982-83. I forecast in FEB 84 that stocks and bonds would bottom in June 84. Stocks bottomed June 15 @1086.90 & bonds on July 2 @13.76%