[ExI] M0 singularity... you're soaking in it

[samantha]

Gordon Swobe wrote:
>> Ben Bernanke's Fed has doubled the monetary base in a single year! 
>> Holy cow.
> 
> Normally the Fed responds to tough economic times by reducing short term interest rates. But short term rates have reached their lower bound. We're in a zero interest rate economy. The Fed has run out of bullets, or at least it has run out of bullets of the conventional kind.
> 
> To stimulate the economy in this zero interest rate economy, the Fed can try to expand the money supply directly. The code phrase for this is "quantitative easing". 
> 

The patient is succumbing to years of extremely dangerous economic 
fever.  But the "doctors" would be out of business unless the fever 
increases.  They would of course also be out of business if the patient 
dies.  What a conundrum.

> The Bank of Japan tried something like it in the 90s. It didn't work very well. Banks held onto the money 

instead of lending it. The Japanese economy languished for years. It 
seems we face the same scenario in the US.
>

Of course they did since they were leveraged to the gills.  If they lend 
it then the people are on the hook for 10 times the amount (fractional 
reserves) plus interest.   Quite a racket.   Makes you wonder how they 
managed to screw such a fat scam up.

> This chart below shows the M1 Multiplier. Normally the multiplier is well above 1, meaning that for every dollar 

added to the banking system, more than one dollar is added to the money 
supply.

It can easily be 10 to 1.

The Multiplier is normally well above 1 because banks lend the money, 
which gets spent and saved and re-lent. As the chart shows, the M1 
Multiplier has fallen off a cliff. As far as I know, this is the first 
time in modern history that the M1 Multiplier has fallen below 1.
> 
> http://research.stlouisfed.org/fred2/series/MULT?cid=25
> 
> As for inflation concerns, in response to the financial crisis the spread between the yields on ten year treasury bonds and TIPS (ten year treasury inflation protected securities) dropped radically from more than 2% to near 0%. This means investors in treasury bonds have stopped demanding compensation for inflation risk. If this market is efficient (and it might not be, but that's another discussion) then the TIPS spread is telling us to expect virtually no inflation for the next ten years. But a little inflation is a good thing; this indicator is as worrisome as the others, and suggests that deflation/depression is the greater risk going forward.
> 
> These disturbing developments argue for fiscal stimulus: tax cuts and government spending.
> 

I think the TIPS business is telling us that China and other countries 
who bought Treasuries heavily no longer believe they are worth much 
because they no longer have hardly any faith in the US economy or US 
long term solvency.  The message is not low estimate of inflation I am 
afraid.

The government has bled this richest economy on earth dry.  They have 
put us into the poor house turning the US into the largest debtor nation 
on earth.  How would more of the same possibly help us?  Bring on the 
leeches!  Let us hurry to build mutant super leeches!

- samantha