Crash coming? The fed seems to think so.

[DenverDem]

"the Federal Reserve has confirmed our Stock Market Crash forecast by raising the Money Supply (M-3) by crisis proportions, up another 46.8 billion this past week. What awful calamity do they see? Something is up. This is unprecedented, unheard-of pre-catastrophe M-3 expansion. M-3 is up an amount that we've never seen before without a crisis - $155 billion over the past 4 weeks, a $2.0 trillion annualized pace, a 22.2 percent annualized rate of growth!!! There must be a crisis of historic proportions coming, and the Federal Reserve Bank of the United States is making sure that there is enough liquidity in place to protect our nation's fragile financial system. The amazing thing is, the Fed's actions mean they know what is about to happen. They are aware of a terrible, horrific imminent event."

(more)
<http://www.safehaven.com/article-1597.htm>

[Virginian]

1. HUH?

Is that a reliable site?
If so, what should investors who are close to retirement do to protect their nesteggs?

[Tigermoose]

2. Never trust a man who uses too many adjectives.

Or at least take what he says with a grain, or perhaps a whole shaker, of salt. Then throw it over your shoulder and pray for the best.

[dweller]

3. 2nd time i've seen this article

in as many days here...i keep waiting for one of the market gurus from DU's stock market thread to pick it up, maybe give us an indicator of the reliability.

why don't you post it on the stock market (LBN) thread?

dp

[Sinistrous]

4. This appears to be utter nonsense.

Growth in M-3 has more to do with a growing economy than actions by the Federal Reserve. Check out the meanings of the various measures of the money supply:

http://www.ny.frb.org/aboutthefed/fedpoint/fed49.html

The money supply measures reflect the different degrees of liquidity -- or spendability - that different types of money have. The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds. M3 includes M2 plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada.



These folks (below) seem to think the rise in M-3 is a function of increased borrowing by businesses:

http://www.bondtalk.com/global.cfm?S=marcom&SS=market_commentaries&ID=3343

M3 Accelerates in January

By itself, the strong economy should have been enough to quiet the bears about the money supply’s weakness, but it wasn't. Perhaps new developments will. Over the past seven weeks, M3 has seen very rapid growth, expanding at a 13.4% pace and bringing M3 to an all-time high of $8.993 trillion. The recent growth is all the more impressive when considering the fact that the incentive to flee from zero-maturity assets remains firmly in place and therefore continues to act as a drag on money supply growth.

The recent surge in money supply growth appears to at least partly reflect a recent turnaround in commercial & industrial loans, which have posted rare increases of late. Indeed, following persistent year-over-year declines of about 7% or so, commercial & industrial loans have actually expanded over the past four months. This is helping to expand the money supply because increases in bank lending tend to expand the banking sector’s balance sheet. The increase in C&I borrowing might reflect the recent increase in inventory investment, a positive sign for economic growth. The jump in money supply growth may also reflect more rapid income growth for both individuals and corporations, given that income growth tends to boost deposit growth as well as expenditures.

Disclaimer: I will yield to anyone with a more intimate knowledge of money and banking.

[rapier]

7. notes

"The recent surge in money supply growth appears to at least partly reflect a recent turnaround in commercial & industrial loans, which have posted rare increases of late."

This is from a March 1 article. The news is old and worthless. Commercial and industrial loans are again on the sickening path lower. Total lending this year is far below last years growth rate of 7.5% and ALL the growth is in real estate. Other lending is actually down.

It should be noted that last years drop in the M's from Aug. thru Nov. occured even as that lending growth was happening.

The mortgage bubble is THE engine of liquidity for the system. To a greater or lesser extent it has been the main liquidity driver for the last 10 years and right this moment it is EVERYTHING. Mortgage activity is cratering. Due to the lag between signing and funding mortgages there is a lag. The engine will now proceed to sputter. even if, somehow, they can engineer a sudden drop in rates of 1 year and longer duration, it will take a month or two for the new liquidty to flood the system.

For all the Feds blabbering starting in mid to late 02 about deflation and the possibility that they would take unprecedented measures to insure liquidity the fact is that they have not been all that profligate in their open market operations. What Al says and what he does are two different things.

You see Al is a con man. His task is to con everyone into borrowing to the hilt and ignore all risk. "Risk? What risk? , says Al.

[Sinistrous]

9. OK. The mortgage bubble. No problem. But borrowing is still driving M-3

My intent in quoting the March 1 article was to support the contention that it is primarily borrowing activity that drives the changes in M-3 and not any set of actions by the Fed. I did not mean it to be a statement on current conditions.

I would be interested to hear your comments on the relative impact of Fed policy versus the impact of borrowing on changes in M-3. I admit to being at the limit of my current knowledge on the subject.

14. Mortgage bubble, relating UK and US

With relative debt levels higher in the US than the UK, and a debt panic starting in the UK, do you think the US bubble is actually closer to popping than the UK? Or vice versa?

Home price levels in the US seem to have reached the final threshold of affordability--when income is stretched by the lowest possible interest levels to afford the highest possible home price. Seriously, statistics have started to show this.

What say you?

I just did a piece on some of the things you mention. The M3 rant escapes my analysis.

www.libertywhistle.us

[tritsofme]

5. So buy GOLD!!!!

gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold gold

That will solve all your problems, $99999999 oz by September!

[rapier]

6. notes

The Fed does not, normally, control M3 to a significant degree.

Most likely the M3 surge is at an end as the final orgy of mortgage borrowing from the low rates in March, and then the reversal which made people jump to borrow, works thru the system. Those mortgages are about all done.

The one thing the Fed does control which directly and immediately affects liquidity is their buying of securites, Tresaury bonds mostly and some agencies. They have not been ultra agressive adding to their holdings for like a year. In the 02 to 03 period they were far more agresive.

Now if the Fed did start doing refundings at the rate of $40 billion a week it would show up in the M's and you would have a case. I If they did or when they do you will know the sky is falling.

[section321]

10. They also control the money multiplier through reserve ratios.

That can be a powerful and does affect M3.

[tritsofme]

11. When is the last time the fed touched the RR? nt

[section321]

12. Actually, I don't know. But now you've motivated me to find out... n/t

.

[section321]

13. Evidently they don't use it actively.

The RR were tweaked in December, but it more along the lines of a annual adjustment.

From my quick reads off the Fed BOG website, it looks like the RR was used more frequently in the past (60s and 70s) but now is generally used for stability.

15. So then the M3 surge may be a symptom worth at least noting

The Fed didn't do anything...

Let's not forget, total mortgage debt controlled by Freddie and Fannie is bigger than US Treasury debt.

So the M3 surge is just the mortgage beast "farting" at the end of a cycle, no?

Now is it a really stinking juicy fart? That will eat through something else, like acid?

[rapier]

16. notes

M3 dropped a bit the last week of May. The surge might be over.

The reserve requirement was lowered to I think 15% some time ago. This was perhaps the December move mentioned by someone above.

The banking system is now a minor player in the credit creation world. Fiddleing with reserves doesn't really mean a thing in the big picture, but Al's lowering it to what is possibly an all time low is indicative of his absolute determination to ingore risk.

(I should give credit to the source of some of my information. That concerning the M's levels is simple fact. Taken straight from the St. Louis Feds weekly report. The stuff on the mortgage markets influence on the M's recently should be considered an informed opinion, but not necessarily a fact. That source is Capital Stool, which to roughly quote the WSJ is a combination of juvinile scatological humor and serious technical market analysis. The Fed stuff isn't technical analysis per say, but it is informed and sophisticated. It is a pay site. The message boards are mostly free. Non Politial pretty much.}

http://www.capitalstool.com/subscribe.htm

The Fed watch part which comes with the subscription.

As always I recommend Doug Noland's Credit Bubble Bulletin. A mostly weekly column on a very serious and WAY WAY off consensus view of the financial world.

http://www.prudentbear.com/archive_home_com.asp?category=18

[patriotvoice]

8. Dupe. See also:

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=105&topic_id=1214217