U. S Money Velocity Dropping?

[interestrateripoff]

http://market-ticker.org/akcs-www?post=181721

That which cannot work - and which isn't working.

The entire premise of the alleged "recovery" is that "growth" will return as a consequence of debt increases. That velocity will increase.

How are they doing?

Interesting charts.

Anyone agree with what Denniger is pointing out here? Money velocity isn't something I'm too hot on.

[fellow]

The deflationary collapse begins.

[interestrateripoff]

Why would more money go round more quickly?

You could put it on a roundabout and spin it really fast?

[chronyx]

You could put it on a roundabout and spin it really fast?

If we put the roundabout on a generator that will solve the energy crisis too.

[ken_ichikawa]

The deflationary collapse begins.

I doubt it!

The USA simply cannot stop printing....

If they keep on printing they go Zimbabwe

If they stop printing the default, China and Japan get wiped out, they also go Zimbabwe because nobody wants their stuff any more for a long period.

Its Harare or Harare....

[scepticus]

Anyone agree with what Denniger is pointing out here? Money velocity isn't something I'm too hot on.

velocity of assets up, velocity of money (liabilties) down.

http://liminalhack.wordpress.com/2010/11/22/sublimation/

[_w_]

Deflationary constipation?

or expansionary incontinence?

[General Congreve]

I doubt it!

The USA simply cannot stop printing....

If they keep on printing they go Zimbabwe

If they stop printing the default, China and Japan get wiped out, they also go Zimbabwe because nobody wants their stuff any more for a long period.

Its Harare or Harare....

Totally agree.

[aa3]

Rich people are capturing the money and hoarding it. This is also why bonds are yielding such absurdly low amounts.

What you have to do is print so vastly much money.. that people holding money are forced out into the open.. to do something with the money. Given good opportunity rich people will invest in productive assets. But if there is next to no demand, there is no point investing in capital. So they do lame things like buy mortgage bonds, municipal bonds, or national bonds. That are not capital investments, they are simply liens on future income of other people.

Part of the US problem has been printing money in decent quantity but then giving it all to the richest few. So demand doesn't go up, and the hoarding just goes on. Japan is there too, it is printing money every month and has been for years.

Its only when insane amounts of money pours into the system.. like WW2 spending, that was 30% of gdp deficits, that velocity starts rolling.

[aa3]

PS.. good example of people hoarding money.. China with 1.3 trillion in USD and Japan with 800 billion.

[interestrateripoff]

http://market-ticker.org/akcs-www?post=181721

Interesting charts.

Anyone agree with what Denniger is pointing out here? Money velocity isn't something I'm too hot on.

I'll expand on my own thoughts looking at the charts. Both show velocity to have peaked in the 80's M1 in the late 80's and MZM peaked in the early 80's. Since these points have been reached they are in terminal decline, there hasn't been any recovery in the velocity. Was the first peak reached due to inflation? Therefore is M1 only significant when at extremes?

How significant are M1 and MZM in past economic performance, because if they are indicating a depression the US has been slowly slipping into one for over 20 years and the starting point for this cycle was the Reagan administration.

Hence my query about whether M1 and MZM velocity's are important?

Edited March 8, 2011 by interestrateripoff

[The Eagle]

M1 is cash, which is becoming more and more irrelevant since people mostly use credit cards when spending money (especially in the US).

So I think the whole article is meaningless.

[aa3]

I'll expand on my own thoughts looking at the charts. Both show velocity to have peaked in the 80's M1 in the late 80's and MZM peaked in the early 80's. Since these points have been reached they are in terminal decline, there hasn't been any recovery in the velocity. Was the first peak reached due to inflation? Therefore is M1 only significant when at extremes?

How significant are M1 and MZM in past economic performance, because if they are indicating a depression the US has been slowly slipping into one for over 20 years and the starting point for this cycle was the Reagan administration.

Hence my query about whether M1 and MZM velocity's are important?

It correlates well with the fall in real earnings for the median male since 1980. Meanwhile productivity has more than doubled since 1980 in the industrial world.

So the median worker is getting only just over 1/3rd the share of his production as he was in 1980.

[Georgia O'Keeffe]

I'll expand on my own thoughts looking at the charts. Both show velocity to have peaked in the 80's M1 in the late 80's and MZM peaked in the early 80's. Since these points have been reached they are in terminal decline, there hasn't been any recovery in the velocity. Was the first peak reached due to inflation? Therefore is M1 only significant when at extremes?

How significant are M1 and MZM in past economic performance, because if they are indicating a depression the US has been slowly slipping into one for over 20 years and the starting point for this cycle was the Reagan administration.

Hence my query about whether M1 and MZM velocity's are important?

Nonono it started in 97, its all Browns thought dont you know

[Traktion]

velocity of assets up, velocity of money (liabilties) down.

http://liminalhack.wordpress.com/2010/11/22/sublimation/

That is a fantastic post - I just re-read it again and it illustrates the idea of rates tending to zero, along with yields, very well. The discussion in the comments about the workers in the developing world being first in line for the spoils of this sublimation process (to coin your phrase) should please those who are (rightly) disgusted with aspects of globalisation*.

I would recommend that everyone reads it and digests it.

I hadn't tied in the point about velocity tending to zero with the reality of what is occurring. Houses certainly aren't selling frequently, which would certainly tie in here, along with the implications for securitisation. It seems that much money is still thrashing between various investments, in the search for dwindling yield, but I wonder how many are getting poorer as a result? I would also have thought the wealthy would be getting poorer relative to the average person as a result of this thrashing money.

* I watched a bit of the new Zeitgeist movie ('moving forward') and watched the Free Domain Radio responses and it all ties in very well with the above too. The former want to force things to be made locally and some how centrally manage the global economy. Of course, that won't work (history shows this) and it's essentially a form of communism (the idea of a central computer managing requests, instead of money is daft too - that essentially is money). Stefan Molyneux seems to understand the situation better, but he is too caught up on the fiat money debate, IMO.

Anyway, onto my point... both factions want to see wealth more evenly distributed around the globe. However, they also both miss the point that this is already happening. I agree with the premise that rates and yields are tending to zero and that it is impossible to force yield by fiat - it will be like pissing in the wind. It seems that while people are discussing 'the final solution' to the world's problems, the world is getting on with solving itself. Sure, it's going to be a rocky ride, as various powers that be attempt to struggle against it, to protect their capital, but they are going to have to work far harder for it and most will lose out.

[Traktion]

I'll expand on my own thoughts looking at the charts. Both show velocity to have peaked in the 80's M1 in the late 80's and MZM peaked in the early 80's. Since these points have been reached they are in terminal decline, there hasn't been any recovery in the velocity. Was the first peak reached due to inflation? Therefore is M1 only significant when at extremes?

How significant are M1 and MZM in past economic performance, because if they are indicating a depression the US has been slowly slipping into one for over 20 years and the starting point for this cycle was the Reagan administration.

Hence my query about whether M1 and MZM velocity's are important?

Take a look here too - yield on 30 year treasuries, over the last few decades reflect this trend:

http://finance.yahoo.com/echarts?s=^TYX#chart9:symbol=^tyx;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

Yield is tending to zero, with fiat base rates following them.

The easy gains for those with capital is over. This has to be a good thing for the rest of us in the long run, but not before those on utterly low wages in the global economy start getting paid more first.

[Traktion]

Rich people are capturing the money and hoarding it. This is also why bonds are yielding such absurdly low amounts.

What you have to do is print so vastly much money.. that people holding money are forced out into the open.. to do something with the money. Given good opportunity rich people will invest in productive assets. But if there is next to no demand, there is no point investing in capital. So they do lame things like buy mortgage bonds, municipal bonds, or national bonds. That are not capital investments, they are simply liens on future income of other people.

Part of the US problem has been printing money in decent quantity but then giving it all to the richest few. So demand doesn't go up, and the hoarding just goes on. Japan is there too, it is printing money every month and has been for years.

Its only when insane amounts of money pours into the system.. like WW2 spending, that was 30% of gdp deficits, that velocity starts rolling.

You just need to remove the arbitrage, gifted by fiat, from the poor to the rich. This is what zero rates are doing.

In the past, a rich man could lend the government money, with (virtually) no risk, with a guaranteed return. Who was paying this return? The average tax payer. Has it made the majority of use wealthier or reduced the gap between rich and poor? No, of course it hasn't. Borrowing from the rich was never going to make the poor better off in the long term and the reasons should be obvious to anyone who has borrowed money*.

This chapter is over and I will not be shedding a tear for it.

[Consider public debt in the above context and it is obvious why government borrowing to spend is only going to make the rich, richer in the long run. Then consider that this debt is given to those too young to vote and even those not yet born. It is despicable. IMO, there could be a good claim against public debt being against human rights - the day that reaches the courts will be an interesting one!]

*EDIT: Of course, borrowing and investing wisely can return gains, but government "investment" often seems to be more like "consumption", in order to win votes. Either that or so inefficient that it is ineffective use of borrowed money anyway. Regardless, productivity would probably result in the owners of capital demanding more yield, defeating the gains made by the poor.

Edited March 8, 2011 by Traktion

[Traktion]

Just one point and that is in regard to the activity of 'speculation' which is slightly different from the hunt for yield. I see the hunt for yield being a fairly steady activity carried out by pension funds and the like.

However, there is the other side of this money supply coin and trend towards increased liquidity (driven by both technological and financial innovation where underlying physical assets can be parcelled up and sold at the press of a button across borders).

As soon as any move in price is perceived and there are people willing to bet on a direction then the vast amounts of liquidity will pounce. This can be due to any discontinuity from a natural disaster to a man made one like the uprisings in the middle east.

All I'm saying is that increased liquidity increases volatility of prices when coupled with unfettered speculation. And people pounce on price moves even more than yields.

But who has the money to gamble in this way? Additionally, who is the real winner at the casino?

Not everyone can gamble and win and most people suffer to the downside in the long run. As long as it is rich folk, betting against other rich folk, then the distance between the rich and poor will reduce in time, as the 'staff' (ie. the workers) pull their salaries from the profits of the casino. As most workers aren't the players, I think it would be fair to say that the wealthy are fighting a war of attrition and as long as the taxpayer avoids picking up the bill, it will benefit the majority in the long run.

[Realistbear]

I doubt it!

The USA simply cannot stop printing....

If they keep on printing they go Zimbabwe

If they stop printing the default, China and Japan get wiped out, they also go Zimbabwe because nobody wants their stuff any more for a long period.

Its Harare or Harare....

If the rate of deflation exceeds the rate of inflationary pressures due to a rise in credit or money supply the negative forces of contraction will grow exponentially causing a deflationary cycle that is incapable of being broken by increasing debt. At least this is what the Japanese have found. Its known as the Tokio effect and is the unexpected result of excess credit being applied to a scenario where excess capacity and falling demand are extant.

[Injin]

I'm just observing, not making a judgement on the rights and wrongs.

But to answer your question, it is always best to speculate on something that is 'needed'. Some of the money that comes into the market has to come from underlying demand and real world use by ordinary people. Fundamentally, it is whatever the real world price limits are and their usage that underpins any 'market' price. If the price is too high for too long, other effects take over such as avoidance, substitution etc.

The issue with our economy currently being we aren't allowed to substitute or avoid the one thing nobody wants - the money.

[Injin]

That is a fantastic post - I just re-read it again and it illustrates the idea of rates tending to zero, along with yields, very well. The discussion in the comments about the workers in the developing world being first in line for the spoils of this sublimation process (to coin your phrase) should please those who are (rightly) disgusted with aspects of globalisation*.

I would recommend that everyone reads it and digests it.

I hadn't tied in the point about velocity tending to zero with the reality of what is occurring. Houses certainly aren't selling frequently, which would certainly tie in here, along with the implications for securitisation. It seems that much money is still thrashing between various investments, in the search for dwindling yield, but I wonder how many are getting poorer as a result? I would also have thought the wealthy would be getting poorer relative to the average person as a result of this thrashing money.

* I watched a bit of the new Zeitgeist movie ('moving forward') and watched the Free Domain Radio responses and it all ties in very well with the above too. The former want to force things to be made locally and some how centrally manage the global economy. Of course, that won't work (history shows this) and it's essentially a form of communism (the idea of a central computer managing requests, instead of money is daft too - that essentially is money). Stefan Molyneux seems to understand the situation better, but he is too caught up on the fiat money debate, IMO.

Anyway, onto my point... both factions want to see wealth more evenly distributed around the globe. However, they also both miss the point that this is already happening. I agree with the premise that rates and yields are tending to zero and that it is impossible to force yield by fiat - it will be like pissing in the wind. It seems that while people are discussing 'the final solution' to the world's problems, the world is getting on with solving itself. Sure, it's going to be a rocky ride, as various powers that be attempt to struggle against it, to protect their capital, but they are going to have to work far harder for it and most will lose out.

I agree, Scepticus seems to have finally grasped it's all about force and rent seeking, versus every individuals natural inclination to crack on and do stuff they want to.

I agree about Stef's position as well, fwiw. He's been part of the managing class for a time and I see it colour his thinking on these issues. Iirc his solution for rents being too high was for the workers to buy the land......which means he didn't get the issue at all.

The fiat regimes going towards zero is an attempt mostly to stay relevent, imo. They can either ride the process and look like they are the cause of/running it, or they can swan off into history (and given the shit their runners have done to others over the last century, those folks will almost certainly be wiped out of existence by enemies. )

[scepticus]

That is a fantastic post

Thanks traktion!

Anyway, onto my point... both factions want to see wealth more evenly distributed around the globe. However, they also both miss the point that this is already happening.

exactly. Kinda scary, but there you go. It has to happen.

Also, for those still keen on the notion of velocity, this:

http://liminalhack.wordpress.com/2010/11/17/155/

[scepticus]

I'm just observing, not making a judgement on the rights and wrongs.

But to answer your question, it is always best to speculate on something that is 'needed'.

Speculation would occur in any situation in which unnatural yields are present.

Removal of the speculation requires either removal of the forces creating yield or suppression of the speculation by force majeure.

The latter option will initiate a rot in the social fabric that will have an unhappy ending.

Assuming an equilibrium is reached in which arbitrary yields are not present, then speculation would reduce to a level that just reflects underlying churn in technology and demographics and energy sources.

[Georgia O'Keeffe]

Speculation would occur in any situation in which unnatural yields are present.

Removal of the speculation requires either removal of the forces creating yield or suppression of the speculation by force majeure.

The latter option will initiate a rot in the social fabric that will have an unhappy ending.

Assuming an equilibrium is reached in which arbitrary yields are not present, then speculation would reduce to a level that just reflects underlying churn in technology and demographics and energy sources.

i´ll go with the flow of history and Force Majeure

[Injin]

i´ll go with the flow of history and Force Majeure

Gonna have a job on stopping crops from growing and people learning more, idd.

What's the plan? Block out the sun?