Money Supply is, EXPLODING: art cashin

[Country]

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/18_Art_Cashin_-_Money_Supply_Going_Parabolic,_Gold_%26_Inflation.html?utm_source=rss&utm_medium=rss&utm_campaign=art-cashin-money-supply-going-parabolic-gold-inflation

[68Camaro]

The money supply is expanding while the normalized velocity of money is at a multi-generational low.

Interesting comments on this. He attributes it to fear. I'm not sure the reason, but it is one of the most notable statistics out there. I think the Fed is really trying (in their own way) to stimulate the economy while keeping the competition (other fiat currencies as well as PMs) at bay, but in so doing they are just contributing to instability. When the markets go unstable they can (and will, this time) go out of control too fast for the Fed to deal with. I tend to think we will continue to drift around, until a "big one". The longer this goes on the faster this will come on, in the end.

[inflationhawk]

The longer it goes and the greater debt is built up the harder it will be to raise interest rates to high enough levels to control inflation. The debt service payments will kill us.

[Mossy]

The more the economy is propped up, the harder, and deeper, it's going to crash.

Idiots.

[Fusion]

The more the economy is propped up, the harder, and deeper, it's going to crash..

That's what people thought in:
73-75
80-82
90-91
2001
08-09

So this time its different? We're seeing 2.5% GDP growth, sequestration, housing prices stabilized/recovering, unemployment data improving. I'm not convinced the world is going to end...yet.

[inflationhawk]

The difference is the QE and the spiraling debt. Our debt to GDP is at levels that are unsustainable and we're growing the debt by a trillion more every year. Interest rates are nil and if rates go up the debt service cannot be paid for long. The recent "growth" is not natural and only exists due to the Federal Reserve's manipulation. Take QE away and we're in recession in a heartbeat. This charade can't continue forever.

[Fusion]

Just playing devils advocate. I agree in theory we have never experienced easing on the scale as seen today. Where I am forced to stop is when I understand that the economists at the Fed aren't dummies. You see and use the same catch phrases as many over and over but what if when they start unwinding QE and everything is OK? They know they'll need to be very sensitive to the markets since they've been propping up the economy. I'd have to guess they have a plan and will be watching this very closely. Just a guess.

[Diggin4copper]

Just playing devils advocate. I agree in theory we have never experienced easing on the scale as seen today. Where I am forced to stop is when I understand that the economists at the Fed aren't dummies. You see and use the same catch phrases as many over and over but what if when they start unwinding QE and everything is OK? They know they'll need to be very sensitive to the markets since they've been propping up the economy. I'd have to guess they have a plan and will be watching this very closely. Just a guess.

But the problem I see is none of the SMART guys are doing anything to fix things.. Isn't Bernake stepping down? He has not turned things around to a point where his work is done... There is going to be some pain in the future... the longer we wait, the worse it will be..

[68Camaro]

Smart people are wrong all the time. Even if they are honest (and I'm sure not these are - I wouldn't put money on it) they can easily be deluded by their own biases. You have to ask yourself what it takes to make things OK, and then develop your own convictions. What they are attempting has never, ever been successfully done in history and every possible early warning bell has already gone off. Their solution is simply that "a miracle happens". Which, of course, won't.

[IdahoCopper]

To start the hyper-inflation, they could send a check for ONE MILLION DOLLARS (index finger to cheek) to everyone who filed a tax return last year. Then the inflation would hit the hands of the masses first, they could pay off all their debts, and then hunker down for the storm.

[Fusion]

Just playing devils advocate. I agree in theory we have never experienced easing on the scale as seen today. Where I am forced to stop is when I understand that the economists at the Fed aren't dummies. You see and use the same catch phrases as many over and over but what if when they start unwinding QE and everything is OK? They know they'll need to be very sensitive to the markets since they've been propping up the economy. I'd have to guess they have a plan and will be watching this very closely. Just a guess.

But the problem I see is none of the SMART guys are doing anything to fix things.. Isn't Bernake stepping down? He has not turned things around to a point where his work is done... There is going to be some pain in the future... the longer we wait, the worse it will be..

Good point. Yeah i think Bernanke's poker face is starting to show a few tells these days. It is certainly a thankless job and not a job I would want. Seriously though, the probability is so much greater that people think you did a crappy job versus approving. The dual mandate is crap. "Hmm, lets see I need to maximize employment and keep inflation low...so I'm going to mess with interest rates". Back in the real world; this week the Fed Funds Effective rate, which is the REAL rate at which banks lend funds to eachother, dropped from 15bps to 8bps. The liquidity in the banking system today is immense, yet lending standards are still incredibly constrained.
I look around, and having been through a few cycles (in the industry for almost 25yrs) I believe we are about to see some consolidation. The number of bank failures have slowed to a trickle these past few quarters. I suppose if you're used to 5-10 bank failures a week like in 08-10, 2-3 a month is booring. My paranoia is that we haven't seen failures because the FDIC still can't handle them. Even though the DIF is positive, mostly bc the made banks prepay their assessments and made the biggest banks pay the lions share due a change in formula, I believe the FDIC is trying to capitalize to plan for a systemic failure. Yes, there is a line to the Treasury, but one money center bank goes down would change everything. This is why we are seeing so much interest in Brown-Vitter (Too Big To Fail).
Thread drift...yes back on point. If you're really interested in understanding how money moves and from where. Here is a great source. To understand the actual money supply (M1, M2) please take a look here and now you can do your own analysis...http://www.federalreserve.gov/releases/h6/current/
The data is very interesting. Plus they provide a easy to understand definition of M1 and M2. So now you can see where funds actually are. And there is very little velocity of money in this economy. Lots of people saying this who don't really understand the meaning.

[Fusion]

Smart people are wrong all the time. Even if they are honest (and I'm sure not these are - I wouldn't put money on it) they can easily be deluded by their own biases. You have to ask yourself what it takes to make things OK, and then develop your own convictions. What they are attempting has never, ever been successfully done in history and every possible early warning bell has already gone off. Their solution is simply that "a miracle happens". Which, of course, won't.

Yes, I agree that smart people are wrong all the time. Do you really believe the Federal Reserve's solution is a miracle? Wow...i simply have no response. Just because they haven't told you what their 50 different back up plans are doesn't mean they don't have a plan. Traditionally they will run regression analysis for multitudes of scenarios and my guess is that the computers are blowing through hard drives to try and make the pull back of QE a non-event. Here is a decent article I just read. I think the graph of LT and ST rates tells the story. The authors last sentence is accurate IMHO. "But others argue that long-term rates are distorted and ready to go up when QE ends. If this is the case, then stopping QE will suddenly increase all rates up and it will certainly be be bad news for financial markets."

http://wallstreetpit.com/100056-what-wi ... n-qe-ends/

[68Camaro]

Smart people are wrong all the time. Even if they are honest (and I'm sure not these are - I wouldn't put money on it) they can easily be deluded by their own biases. You have to ask yourself what it takes to make things OK, and then develop your own convictions. What they are attempting has never, ever been successfully done in history and every possible early warning bell has already gone off. Their solution is simply that "a miracle happens". Which, of course, won't.

Yes, I agree that smart people are wrong all the time. Do you really believe the Federal Reserve's solution is a miracle? Wow...i simply have no response.

You don't know me, and misunderstand... Sure, the Fed's "solution" (whatever that is, QE to infinity, or whatever) is a miracle - it'll be a miracle if it works! In fact it can only work in the short-term, for kicking the can down the road, and at that usually at some other entities expense. In the long-term it mathematically has to fail. The only questions are the time-scale, and what lengths they are willing to go to to keep it alive.

[Mossy]

The more the economy is propped up, the harder, and deeper, it's going to crash..

That's what people thought in:
73-75
80-82
90-91
2001
08-09

So this time its different? We're seeing 2.5% GDP growth, sequestration, housing prices stabilized/recovering, unemployment data improving. I'm not convinced the world is going to end...yet.

Those are the prop ups I'm talking about.

Paper money has an average life of 250 years. The US is on the fourth paper currency in the last 250yrs. "Continentals", "Greenbacks", the silver notes, and now the FRN's. That's just what I know of. The US has defaulted on paying in gold, and silver. Somehow the financial world has pretended that everything is just fine.

Lies cannot last. Sooner or later...

[Fusion]

I'm just playing around 68camaro. Don't misinterpret my comments as a supporter of the Fed. Of that you can have no doubt. I simply get tired of reading the same unoriginal thoughts about this topic.
People continue to say the same things over and over yet the economy is improving compared to 08-09-10-11-12. So in a sense it is working yet we all understand it is bubbly and will have to fail.
I wish they had allowed AIG to go down the toilet. But then we wouldn't have all this expensive gold ha ha ha

[68Camaro]

sorry, i don't see any improvement. the government is telling us things are improving but thats the big lie which MSM are also pushing. total employment is at all time lows, food stamps at all time highs, debt and money printing are atball time highs, real inflation running 8% and higher. house prices are only up because the government funded banks have finally controlled inventory and are rationing the supply to keep prices up. GDP is only "growing" because they are using stacked inflation numbers. etc etc.

[inflationhawk]

sorry, i don't see any improvement. the government is telling us things are improving but thats the big lie which MSM are also pushing. total employment is at all time lows, food stamps at all time highs, debt and money printing are atball time highs, real inflation running 8% and higher. house prices are only up because the government funded banks have finally controlled inventory and are rationing the supply to keep prices up. GDP is only "growing" because they are using stacked inflation numbers. etc etc.

I agree with all this except I do have to object to the inflation statistic. While the BLS's numbers can easily be refuted and challenged, I do not think we have rampant inflation currently. There are pockets of inflation that are probably hitting the lower to middle classes the hardest, but as an OVERALL economy we are nowhere near 8% or higher inflation. While the inflation of the money supply no doubt is plowing ahead at high rates, the VELOCITY OF MONEY is what is keeping prices from rising faster. That cannot go on forever as the facade of "improvement" will ultimately lead to the unleashing of the velocity and as the velocity increases on the new monetary base, THAT'S what will send inflation skyrocketing. The Fed will be hard pressed to try to contain it because higher interest rates may bankrupt our government with the current debt levels. It's a pickle of a situation to be in!

[John_doe]

The more the economy is propped up, the harder, and deeper, it's going to crash.

Idiots.

well said.

[Fusion]

This is all a bunch of hype. As I said before, this is regurgitating phrases from Zerohedge.
The only thing you said that was accurate was that food stamps are at all time highs.
GDP growth continues to improve.
Unemployment is coming down.
Brother these are universally accepted and understood formulas. And all the economists from conservative and liberal think tanks alike agree the economy is improving
I have yet to meet a bank that is funded by the govt. I'm wondering if you're referring to TARP. God I hope so, because a new CBO report out this morning shows that the US Taxpayer made $10 Billion return on the TARP investment.
I also don't know how you can say the govt controls home prices. I've built a few homes and I've yet to meet a builder who doesn't want to build me a home bc the govt says he can't. Home prices are based on the market and a sellers willingness to sell at a price and a buyer to agree to a price to pay. That's it. No govt intervention.
Inflation...well that's just silly. http://www.usinflationcalculator.com/in ... ion-rates/
Velocity of money is the key to all this printing. Without velocity all of this printing means nothing. Its not in circulation.
Can you cite some sources for your data points to support your arguement? That would help me understand. Thanks

[inflationhawk]

Just because GDP is going up and unemployment is going down does not mean all is good. There is a cost for how we are achieving this. The path that has been taken is not sustainable.

As far as banks being funded by the government, with the discount rate near zero percent the banks can get funding anytime they want for virtually free. So even if the banks are not dipping into this just having a free backstop in place is an adverse morale hazard.

The government has completely intervened in the housing market. Not sure how that can be refuted. The bad mortgages were simply transferred from private debt to public debt once the government stepped in at Fannie and Freddie.

I think we are on the same page with inflation. This will not be a back breaker until the velocity of money picks up and eventually it will. Once it does, how do you stop inflation? You raise interest rates. How can you raise interest rates if the US government can't afford the debt service payments?

There is no good ending here. Once you take away the government intervention in the treasury market, interest rates normalize and we get back to more historic norms for budget deficits and we sustain GDP growth for two straight quarters with lower unemployment, then I'll celebrate. I totally get that I'll have missed out on the full effect of the stock market rally by the time this would happen, but I'm confident enough in my assessment that this won't happen that I'm willing to take that chance. That being said, I do have some exposure to stocks as diversification is a must and there are no sure things in life.

[slickeast]

Working in the grocery business for many years I have seen ways to inflate prices without raising them. Many items that you regularly buy now come in smaller packages with fewer ounces. The price remains the same but the cost per serving has increased. I have also talked with management and we have seen the use of food stamps increase. Last year's food stamp use was 6x higher than the previous year.

I don't know how much truth there is to my next statement. I have read that the people who have stopped looking for jobs are NOT included in the unemployment rate.

[inflationhawk]

I don't know how much truth there is to my next statement. I have read that the people who have stopped looking for jobs are NOT included in the unemployment rate.

Spot on. Here are the stats on labor participation rate.

http://data.bls.gov/timeseries/LNS11300000

[inflationhawk]

Working in the grocery business for many years I have seen ways to inflate prices without raising them. Many items that you regularly buy now come in smaller packages with fewer ounces. The price remains the same but the cost per serving has increased. I have also talked with management and we have seen the use of food stamps increase. Last year's food stamp use was 6x higher than the previous year.

No argument or doubt that you have your finger on the pulse for food price inflation better than anyone, but food price inflation doesn't translate to overall inflation for the economy as a whole. Food prices definitely affect the lower and middle classes the most and no doubt there is pain here, but across the spectrum of all prices, inflation is not high...yet.

[Mossy]

Inflation...well that's just silly. http://www.usinflationcalculator.com/in ... ion-rates/

In 1954, 8oz of pop cost $0.05 and a gallon of gas $0.20 . House and lot, 1955, $5000, present "value" $125000. Do the math.

[68Camaro]

not going to get dragged into the weeds by those that either don't or won't see the obvious, but the "unemployment " statistic (like so many of the other calculations that hit the msm headlines) has been increasingly gamed over the past 20-40 years and is now near useless. The statistic that hasn't yet been gamed that correlates is the employment rate - which is those that are working. it's at an all time low.