Printing Money Leds To Corresponding Falls In Velocity

[Injin]

Falls in velocity lead to money printing.

100%, guaranteed.

[R K]

Quantitative easing promises to have little effect except to provoke commodity hoarding, a decline in bond yields to levels that reflect nothing but risk premiums for maturity risk, and an expansion in stock valuations to levels that have rarely been sustained for long

Which would have been their motivation all along.

i.e. to support bank b/sheets and recap, make people 'feel' wealthier and try and counter the mega deflationary forces. Worked for 18 months so far..........

The only thing that will generate growth is more/better jobs i.e. protectionism (or anti-protectionism in the case of China/Germany/Asia etc)

[Injin]

Banks promises money to people.

This works while banks are being given the money back constantly.

When things go wrong, the banks don't get money in as people hoard it, so it has to be printed for them.

[Traktion]

The problem with using QE to scare people into spending, is that they may just buy up commodities instead - if there are no investments yielding good returns, why would you take the risk?

On the other hand, QE pushed into propping up banks is an invisible hair cut for savers, making whole the defaults on the other side of the balance sheet. In this respect, QE has 'worked' - it's meant that savings and bond holders have been kept whole for the time being, at the cost of inflation in the future (printed paper doesn't produce productivity).

Hoarding commodities may not be a bad thing though in the bigger picture - it is still moving money about. This in turn should allow others to access the money and debtors to pay off their loans. In this respect, QE is also 'working', but again it is probably not what they hoped for (it was never going to pump up the housing bubble for long again).

EDIT: sp

Edited October 27, 2010 by Traktion

[Injin]

The problem with using QE to scare people into spending, is that they may just buy up commodities instead - if there are no investments yielding good returns, why would you take the risk?

On the other hand, QE pushed into propping up banks is an invisible hair cut for savers, making whole the defaults on the other side of the balance sheet. In this respect, QE has 'worked' - it's meant that savings and bond holders have been kept hole for the time being, at the cost of inflation in the future (printed paper doesn't produce productivity).

Hoarding commodities may not be a bad thing though in the bigger picture - it is still moving money about. This in turn should allow others to access the money and debtors to pay off their loans. In this respect, QE is also 'working', but again it is probably not what they hoped for (it was never going to pump up the housing bubble for long again).

QE is done simply so the bankers don't get lynched.

[tallguy]

Falls in velocity lead to money printing.

100%, guaranteed.

Yes

This is the correct way around

[tallguy]

QE is done simply so the bankers don't get lynched.

again

Yes

Please tell me no-one on here actually believes it was done to save our sorry arses......

[pilchardthecat]

Banks promises money to people.

This works while banks are being given the money back constantly.

When things go wrong, the banks don't get money in as people hoard it, so it has to be printed for them.

Then at some random point a year or two later, people's attitudes change so they spend the money they've hoarded. Velocity skyrockets. Inflation goes through the roof. The currency collapses.

The Weimar economists were surprised by this.

[Timm]

Then at some random point a year or two later, people's attitudes change so they spend the money they've hoarded. Velocity skyrockets. Inflation goes through the roof. The currency collapses...

Next Thursday?

[oldsport]

AEP keeps referring to a very big recent rise in M2 in the USA

Anyone know if this is true and if so if it's important?

Edited October 27, 2010 by oldsport

[oldsport]

when you say recent,over what timeframe are you talking?

since April, I think he said

I'd look at the stats myself but it's a bit beyond me to interpret them

the latest figure he quotes was in this article on 10 October

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8054066/Currency-wars-are-necessary-if-all-else-fails.html

Why now? Bank credit has stopped contracting. The M2 money supply growth has accelerated sharply to a 7.4pc rate over the last month of published data

EDIT add quote and link

Edited October 27, 2010 by oldsport

[yellerkat]

when you say recent,over what timeframe are you talking?

Nicked a terrible quality graphic from this article:

In a sense QE has worked all too well. M3 has stabilized. The M2 gauge used by the Fed – which was still contracting in May – has been growing annual rate of 8.4pc over the four weeks to mid-October. The pace has been accelerating for months.

OK, 8.4pc is not Weimar, but it is not imminent deflation either.

ED: Add quotes

Edited October 27, 2010 by yellerkat

[oldsport]

M2 is a measure of money supply defined here

http://en.wikipedia.org/wiki/Money_supply

the reality is that for rising M2 to be inflationary it needs to lead to expansion of credit which would appear in the broader measures of moeny supply.

so is M3 more important? - it seems to be picking up too but it's still negative y-o-y, which reminds me, for months AEP was going on about how deflation was the big problem in the USA because M3 was negative, and then he suddenly switched to talking about M2 and claiming inflation was nigh.

Edited October 27, 2010 by oldsport

[libspero]

http://globaleconomicanalysis.blogspot.com/2010/10/liquidity-traps-falling-velocity.html

you've gotta go to the article to see the charts.

- SNIP -

Bump

Very interesting read.. thanks PftF

[interestrateripoff]

Simply put, monetary policy is far less effective in affecting real (or even nominal) economic activity than investors seem to believe. The main effect of a change in the monetary base is to change monetary velocity and short term interest rates. Once short term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity.

And the Fed seek to print more money.

Excellent the plan is flawless.

[interestrateripoff]

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein.

[Coldberry]

Duplicate post.

Edited October 27, 2010 by Coolderry

[Coldberry]

Deflation is still order of the day.

[Alan B'Stard MP]

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein.

How many times have you said this.

[interestrateripoff]

How many times have you said this.

Had a quick google and it appears not as ofter as you seem to think.

[gf3]

How many times have you said this.

yes but oddly this time it has seemed to have produced a different result.

[Mikhail Liebenstein]

Falls in velocity lead to money printing.

100%, guaranteed.

They should just bite the bullet, print trillions in nice new notes and give it to the populous and not the banks.

[Arbitrage]

Falls in velocity lead to money printing.

100%, guaranteed.

Yes, Mish has got his chain of causality the wrong way around.