The federal reserve is going to pull another ONE TRILLION DOLLARS OUT OF THEIR ASS!

[Toro]

OPEC had little to do with it, or a little to do with it.

You're being ignorant again. Your graph shows you that M2 is rising in the 70s! That means liquidity IS BEING TAKEN OUT OF THE SYSTEM!!!

This was a reaction to the price increases, inflation, being caused by OPEC.

No, it does not mean liquidity is being taken out of the system. Its quite the opposite. Liquidity started to be withdrawn when Volcker started jacking up interest rates.

 

[LiberalNut]

could mean a massive repatriation of capital away from America back to China

Could schmould. Instead of reacting to your made up boogiemen, the fed is actually reacting to a problem that exist on the ground in America RIGHT NOW.

 

[LiberalNut]

No, it does not mean liquidity is being taken out of the system. Its quite the opposite.

WTF are you talking about? When M2 is increasing, MB and M1 are decreasing. IT'S DEFINITIONAL! You are going on about how the fed buying bonds is increasing liquidity but not recognizing that selling bonds decreases liquidity. You are spouting fantasy land bullshit!

Liquidity started to be withdrawn when Volcker started jacking up interest rates.

And, if rates are lowered by decreasing M2 in favor of M1 like is being done now, how does the fed increase rates through open market operations?

tick tock
tick tock

 

[Toro]

Gold has risen from $300 to $1400 this decade. That doesn't happen by accident. There are a lot of rational people who are fearing inflation.

Classic bubble. The utility value of gold hasn't risen. The supply hasn't decreased. The price has risen. Why? Cause all that money that the idiot righties give rich people has to go somewhere! Since there's no demand to justify capital investment, the money goes from stocks to exotic real estate assets to commodities and such. Gold is only a "hedge" against inflation if people are fucking buying it! This bubble will burst like all the others. Then the roving bubble of capital will move somewhere else.

Clearly, the utility value of gold has risen, otherwise people wouldn't be demanding it. People don't buy things "just because." They buy it for a reason. And that reason isn't the money that "righties give rich people," which is, of course, ridiculous.

I'm sure one day the gold bubble will crash. But that "roving bubble of capital" is all the money that has been created over the past decade and a half. The reason why it has created asset price inflation but not consumer price inflation is because, for one reason, global cost curves have fallen, which should have lead to declining prices. That didn't happen, so the money has to go somewhere. Now, the Fed has exploded the monetary base and monetary velocity has collapsed. If velocity accelerates, that liquidity will get sucked out of asset prices and into consumer prices, and voila! Inflation.

 

[Toro]

No, it does not mean liquidity is being taken out of the system. Its quite the opposite.

WTF are you talking about? When M2 is increasing, MB and M1 are decreasing. IT'S DEFINITIONAL! You are going on about how the fed buying bonds is increasing liquidity but not recognizing that selling bonds decreases liquidity. You are spouting fantasy land bullshit!

Liquidity started to be withdrawn when Volcker started jacking up interest rates.

And, if rates are lowered by decreasing M2 in favor of M1 like is being done now, how does the fed increase rates through open market operations?

tick tock
tick tock

Dude, you're just flat out wrong. There is no inverse correlation between the monetary aggregates. It's quite the opposite in fact. Changes in the aggregates tend to track one another, if not always in magnitude then certainly in direction, sometimes with a lag.

Again, M2

M1

 

[Toro]

could mean a massive repatriation of capital away from America back to China

Could schmould. Instead of reacting to your made up boogiemen, the fed is actually reacting to a problem that exist on the ground in America RIGHT NOW.

And gold goes to $1400 and silver to $26.

Not a coincidence.

Silver has risen nearly 10% since 2:30pm Wednesday.

 

[LiberalNut]

Clearly, the utility value of gold has risen, otherwise people wouldn't be demanding it.

Is that right? Tell me genius, what new way to use goild has been devised that justifies the increase in price? Hmmm? Don't know what utility value is, do you?

People don't buy things "just because." They buy it for a reason.

People buy things because the price is going up ALL THE TIME.

If velocity accelerates

And how do you propose to increase velocity? That's what the fed is trying to do by increasing M1!

 

[LiberalNut]

Changes in the aggregates tend to track one another

Would you fucking look at your own charts!!! Specifically, look at the mid 80s and the mid 00s. Now tell me what the correlation coeficient is.

ticl tock
tick tock

 

[Mr.Fitnah]

Clearly, the utility value of gold has risen, otherwise people wouldn't be demanding it.

Is that right? Tell me genius, what new way to use goild has been devised that justifies the increase in price? Hmmm? Don't know what utility value is, do you?

People don't buy things "just because." They buy it for a reason.

People buy things because the price is going up ALL THE TIME.

If velocity accelerates

And how do you propose to increase velocity? That's what the fed is trying to do by increasing M1!

You have reached terminal velocity

[/IMG]

 

[Toro]

Clearly, the utility value of gold has risen, otherwise people wouldn't be demanding it.

Is that right? Tell me genius, what new way to use goild has been devised that justifies the increase in price? Hmmm? Don't know what utility value is, do you?

None. People view gold as a store of value. That's why it is going up.

People don't buy things "just because." They buy it for a reason.

People buy things because the price is going up ALL THE TIME.

Right. But the primary reason for gold going up now isn't because of momentum investment strategies. It is because people are losing confidence in the dollar.

If velocity accelerates

And how do you propose to increase velocity? That's what the fed is trying to do by increasing M1!

I don't know how to increase velocity, other than to withdraw reserves from the system. On his website, John Maudlin recently wrote a piece where he regressed monetary velocity to the reserve base over four-year intervals over the past few decades. The relationship is inversely correlated. But velocity can increase if people decide that inflation is coming. That is what happened in Germany in the 1920s, and in the Latin American hyperinflation of the 1980s.

 

[Toro]

Changes in the aggregates tend to track one another

Would you fucking look at your own charts!!! Specifically, look at the mid 80s and the mid 00s. Now tell me what the correlation coeficient is.

ticl tock
tick tock

Regress it with a lag around changes in policy and you will see that the correlation is positive. At turning points in Fed policy, i.e. when the Fed is starting to cut or raise rates, there will be discrepancies in the aggregates. But most of the time, the Fed isn't changing policy.

 

[LiberalNut]

None. People view gold as a store of value.

Good morning. That would mean that utility value hasn't changed.

But the primary reason for gold going up now isn't because of momentum investment strategies. It is because people are losing confidence in the dollar.

Bullshit. You can empirically measure the investment strategies. People who were in CDOs and CDSs, who were in the stock market before that, are now in gold. Plus there's just a bunch of ignorants who are just doing what Beck tells them to do. Bubbles are what they are. Unjustified asset appreciation.

This bubble will burst like all other.

And gold will be what it always was, shiny, maleable, kind of attractive metal.

 

[LiberalNut]

when the Fed is starting to cut or raise rates, there will be discrepancies in the aggregates.

Good morning! And, if the fed is selling bonds, what happens to M1? What happens to M2? What happens to rates (theoretically).

Now, the flip side, what happens when the fed buys bonds?

 

[Toro]

None. People view gold as a store of value.

Good morning. That would mean that utility value hasn't changed.

No, not really. If people become more worried, then the utility value of gold will rise.

Besides, if utility is a constant, the supply of gold is constant, and the supply of money rises, the price of gold will rise.

Gold doesn't have a utility in the sense that it has a practical purpose, but that doesn't mean it doesn't have utility. What is utility? Utility is mostly the positive feelings we get from something. What is the utility of drinking a Coke? Coke is nothing but caffeinated sugar water. It gives you diabetes and makes you fat. Where is the utility in that? We don't need to drink Coke. We can drink water. But Coke tastes great! We don't need to eat a steak at Morton's for $40. We can eat bread and lentils for $1. We don't need to drive in a BMW 735, a Toyota Corolla will do. We don't need a water-front property. We can live in an apartment building. But we drink Coke, eat steak, drive Beamers and live by the water because we want to. They give us something beyond the what we truly need in life. Gold is no different. Gold is shiny and pretty, and people believe it is a store of value. If it sits there on your table doing nothing but it makes you feel safe, or on a necklace around your wife's neck, it gives you utility like drinking a Coke, eating a good steak, driving a nice car and living in a nice house does.

But the primary reason for gold going up now isn't because of momentum investment strategies. It is because people are losing confidence in the dollar.

Bullshit. You can empirically measure the investment strategies. People who were in CDOs and CDSs, who were in the stock market before that, are now in gold. Plus there's just a bunch of ignorants who are just doing what Beck tells them to do. Bubbles are what they are. Unjustified asset appreciation.

This bubble will burst like all other.

And gold will be what it always was, shiny, maleable, kind of attractive metal.

I am an institutional investor. I talk to people all the time about why they are buying things. And the main reason why people are buying right now is because they believe that the government is debasing the currency.

I don't know if gold is in a bubble or not. I don't know how to value gold well. And if we can't value gold, how do we know it is a bubble? But I certainly think that it will exhibit bubble-like tendencies. And I also think that one day, the price of gold will be lower than it is here. But between now and then, there is absolutely no reason to think it isn't going higher.

 

[Toro]

when the Fed is starting to cut or raise rates, there will be discrepancies in the aggregates.

Good morning! And, if the fed is selling bonds, what happens to M1? What happens to M2? What happens to rates (theoretically).

Now, the flip side, what happens when the fed buys bonds?

The Fed doesn't usually sell bonds in open market operations. Instead, it usually alters its rate of buying. So - usually - if the Fed wants to increase interest rates, it slows its rate of buying, and when it wants to cut interest rates, it increases its rate of buying. The reason for that is because the nominal rate of economic growth is positive. If the money supply remains constant and the economy is growing, then the real rate of interest will rise because the demand for monetary balances will rise. And if the demand for monetary balances rises, then the price, i.e. the interest rate rises. Thus, since buying bonds increases the supply of money, and the demand for money is almost always growing, the Fed is usually buying bonds. This is also why the monetary aggregates are usually rising no matter what the designation. For example, you can see that the aggregates have been rising for most of the time, regardless of the rate of economic growth and the policy of the Fed.

You are sort of missing the point. M1 and M2 and all the monetary aggregates can diverge from time to time because the money supply is more than just bank reserves. There is a lag between Fed operations and the broader economy. So when the Fed wants to slow the rate of money growth, it will most affect the nearer aggregates. It may or may not positively affect the farther aggregates, depending on the demand for balances, technological innovation, etc. The Fed is trying to steer a battleship. The nose of the boat - M0, M1 - turns sharpest first. But eventually, the back of the boat - M2, M3 - turns last.

 

[Big Fitz]

you can't pull a trillion dollars out of your ass and say it has value!

Boy, I wish I knew anyone who could pull money out of their ass. You're spewing bullshit.

Oh, one of those idiots who thinks the Federal Reserve doesn't create money out of thin air.

It's amazing to me that people who don't even understand how the Fed's open market operations work have the audacity to get involved in debates like this.

Fitz, why are you arguing with this idiot?

It's a hobby? LOL I almost wish I could make a living out of it.

 

[LiberalNut]

What is utility? Utility is mostly the positive feelings we get from something.

Oh, I see, you conjure utility value by redifining utility. How typical. Not buying it bud. In the words of the immortal El Rushbo...words mean things.

the main reason why people are buying right now is because they believe that the government is debasing the currency.

But, as you say, the price of gold has been rising for a decade. During that period, the fed has eased and tightened. I'm not saying irrational fear has no effect. What I'm saying is that irrational fear isn't a good thing to set policy by.

 

[Paulie]

Bank reserves are not included in M1,

FRACTIONAL reserves you moron! If the reserves are lendable or "excess reserves", they're M1 dipshit!

Until reserves are actually lent, creating a new sum of money, they are not a part of the M1 statistic.

Bank reserves could, for the sake of argument, sit in perpetuity without a single dollar being lent. That money is the M0 aggregate.

 

[Paulie]

A brand new bank opens up.

You and I each open a checking account and put $100 in.

$180 is lendable, but does not get counted in M1 until it is lent.

How can that $180 multiply if it's never actually lent out? That's why it isn't in M1 until it's actually MULTIPLIED.

 

[LiberalNut]

Toro, post 135 is a pretty good analysis and supports everything I've said for the most part. The point is, and this point has not been substantively opposed, that the net effect of selling bonds is to decrease liquidity and buying bonds is to increase liquidity. ALL ELSE HELD EQUAL, when M2 rises, M1 falls and vice versa. What you are saying is that all else is not equal in the real world. Well, duh. In the real world the fed pushes a constant rate of inflation and hence has institutionalized a constant redistribution of wealth. This has many stabilizing effects on the economy.

The question at hand is whether or not the increase in liquidity will be inflationary. Now we have to stop acting as though the supply of money is the only thing that effects prices. It is not.