Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (105693)	4/20/2014 7:50:48 PM
From: bart13	1 Recommendation Recommended By dvdw© Read Replies (3) \| Respond to of 217666

Bart from your graphs I conclude that we are far from the economic activity as represented by money velocity before the economic crash, am I correct? ..... and we do not even touch the Y2K period. As usual with those type of evaluations, it depends on how it's measured but my straightest answer is that at best we're only a few percent above 2000 levels. That assumes not using the bogus GDP deflator but rather a more accurate inflation measure like my CPPI, and also using GDP per capita. The situation looks worse when using John Williams full corrections, but it's my belief that he's substantially over stating inflation (his CPI-U correction is about +7.2% currently where mine is about +3.2%). As an aside, the basic reason that velocity is dropping is that nominal GDP is growing slower than the various money supply aggregates. I should also note that the biggest growth in the Fed's balance sheet is in excess reserves, which is currently about $2.7 trillion alone and has grown from only about $2 billion since mid 2008. Excess reserves is almost literally "dead" money from an inflation or deflation viewpoint, the money is not in circulation, except that the Fed pays 1/4% interest (total paid since the Interest On Reserves programs started is just under $20 billion). Excess reserves money is simply waiting for banks to lend more, and could support roughly $27 trillion more in loans before the banks would have to kick in more reserves. QE wise, it's more of a CONfidence, PR and sentiment boosting game. Low and dropping velocity is by far the major reason that we don't currently have high inflation in my opinion, and is likely the basic reason for the taper... the Fed is freaked out. It's also in my opinion the basic purpose behind the huge Fed reverse repo operations lately, i.e. to have another tool to slow down velocity suppressed total money supply growth. Here's the total picture of credit growth (from the Fed's Z1 report) and anyone can easily see the huge growth drop since 2000, but do note the large relative growth since late 2013 - from 3% YoY to just under 5% YoY. One last chart - total credit growth with both the non-financial and financial sectors, in annual change rates. Only recently has the financial sector (green line) actually shown an annual growth rate above zero.