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Force Majeure Markets~ How long can this Alice in Wonderland Market ignore the numbers?
For those who claim jumps in M1, money in circulation plus checking account deposits, or almost tripling the MZ Monetary Base since April 2008 mean either inflation or recovery, we repeat what we posted here previously:
With a contracting money multiplier of 78.6% as of 2/24/2010, neither this economy or inflation may be going anywhere but down for a long time, despite ebullient corporate government PR. Real interest rates may increase because of credit risk of insolvency.
(Money Multiplier is the ratio of M1 to the adjusted monetary base.)
http://research.stlouisfed.org/fred2/series/MULT
In other words, for every money multiplier transaction, there is a loss of
-21.4%.
This is not explosive hyperinflation, but implosive uberdeflation folks.
The best way to tell the weather is to look outdoors.
The weatherperson is often wrong.
Some gold bugs confuse or conflate expanding bank deposits as money creation driving inflation.
In fact, big banks with bad balance sheets from bad loans, mortgages and derivatives trades, dumped bad assets on the Fed, The Fed increased its balance sheet to buy them, which does not mean inflation if the assets are declining in value.
In the past the Fed’s charter was to only buy Treasuries, so they Fed has assumed great risk. With 20 times leverage, a 5% decline in Fed assets can finish the Fed or Maiden Lane.
Toxic assets, despite the taxpayer funded PPIP Public-Private investment Program, may eventually be dumped on taxpayer-backed Agencies like Fannie, FHA, Freddie and Ginny Mae at higher than market prices.
Big Bad Banks took money from TARP or borrowed it from the Fed at a zero carry cost to buy Treasuries. They sat on the money and raised more by issuing dilutive equity as convertible preferred, common stock or warrants. Then the dollar and interest rates ran up, giving them losses or reasons to sell.
