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Showing posts with label M2. Show all posts
Showing posts with label M2. Show all posts

Monday, May 27, 2013

Killing the Currency


. . . there is no record in the economic history of the whole world, anywhere or at any time, of a serious and prolonged inflation which has not been accompanied and made possible, if not directly caused, by a large increase in the quantity of money.

— Gottfried Haberler, Inflation, Its Causes and Cures (1960)[1]

The phrase “not worth a continental” may be vaguely familiar to Americans as an old and quirky saying, but to Revolutionary War–era Americans it would have been a harsh reminder of a recent nightmare. In order to finance the war, the Continental Congress authorized the issuance of money without rights of redemption in coin or precious metals (unlike other currencies in circulation). In short order, over $225 million Continentals were issued on top of an existing money supply of only $25 million. Initially traded on a one-for-one ratio with paper dollars backed by coin or precious metals, within a mere five years Continental currency had depreciated to worthlessness.[2] It was America’s first major experiment with a fiat currency, and it cost many newly free Americans their livelihood and savings.

Sunday, April 7, 2013

The Biggest Bubble in Human History?


Dow up 125 points yesterday, to a new all-time record.

Why? What's behind it? The economy is not so hot. Why the red-hot stock market?

China is back in the news. A new report from CBS's "60 Minutes" documents the extent of the ghost cities in China – miles and miles of empty highway, office towers, apartments and malls. Analysts are talking about the biggest real estate bubble in history!

Is China a bubble? We don't know.

Does it matter? Well... yes... maybe. If China melts down or blows up the demand for oil and other resources goes down. The Chinese have pumped vast sums of money into development projects. That money helped to keep people on the job... and also kept the ships full of stuff, going back and forth across the world's oceans.

Friday, December 28, 2012

The Historic Inversion In Shadow Banking Is Now Complete

Back in June, we wrote an article titled "On The Verge Of A Historic Inversion In Shadow Banking" in which we showed that for the first time since December 1995, the total "shadow liabilities" in the United States - the deposit-free funding instruments that serve as credit to those unregulated institutions that are financial banks in all but name (i.e., they perform maturity, credit and liquidity transformations) - were on the verge of being once more eclipsed by traditional bank funding liabilities. As of Thursday, this inversion is now a fact, with Shadow Bank liabilities representing less in notional than traditional liabilities.
In other words, in Q3 total shadow liabilities, using the Zoltan Poszar definition, and excluding hedge fund repo-funded, collateral-chain explicit leverage, declined to $14.8 trillion, a drop of $104 billion in the quarter. When one considers that this is a decline of $6.2 trillion since the all time peak of $21 trillion in Q1 2008, it becomes immediately obvious what the true source of deleveraging in the modern financial system is, and why the Fed continues to have no choice but to offset the shadow deleveraging by injecting new Flow via traditional pathways, i.e. engaging in virtually endless QE.
What is more important, the ongoing deleveraging in shadow banking, now in its 18th consecutive quarter, dwarfs any deleveraging that may have happened in the financial non-corporate sector, or even in the household sector (credit cards, net of the surge in student and car loans of course) and is the biggest flow drain in the fungible credit market system in which the only real source of new credit continues to be either the Fed (via QE following repo transformations courtesy of the custodial banks), or the Treasury of course,via direct government-guaranteed loans.