US money supply plunges at 1930s pace as Obama eyes fresh stimulus

[groovedaddy]

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

[DJ13]

1. It will be hard for Obama to simultaneously say he wants more stimulus

while his hand picked deficit commission claims we need to reduce 'entitlements' to try and balance the budget.

Imagine the outcry should Obama throw more money at corporate america while reducing Social Security and Medicare to our seniors.

[Donnachaidh]

3. If that happens all bets are off.

Even with all the incredibly stupid and short-sighted gaffs by the pukes - this will really piss off ALL the wrong people. And Dorgan is saying they are going to raise taxes on the middle class?

November will be really interesting.

[northernlights]

10. what middle class?

or is middle class now defined by part time $7/hour? :shrug:

[notesdev]

2. It was only last year

that we blew $1T in "stimulus", and the best they can say about it is that it "saved" jobs, with a nicely fudgeable definition of what a saved job actually is

the year before it was $850 billion in TARP plus its pork riders

How much will it have to be this next time around? What's the endgame, just wait until we simply can't borrow any more money?

[bahrbearian]

4. Tax the Rich and bring the troops home.

[denverbill]

5. +1. Only worded as 'end the tax breaks given to the rich by Shrub.

And I would add 'end the war on drugs' and 'force corporations earning money in the US to pay US taxes on their US earnings'

[dmallind]

6. Why is it that the necessary solution to doomers' complaints causes them more doom?

If you want to (and you should want to) ensure banks can remain solvent so that they do not fold and leave depositors penniless, how can you complain when banks take steps to avoid excessive risk of insolvency by becoming very conservative and risk-averse? If you complain about banks taking too many risks, why is M3 contraction a bad thing? Why do I get the feeling many people crying doom over this also cry doom over "just printing money willy nilly".

Which is really the harbinger of doom - too much risk or not enough?

[girl gone mad]

7. That's kind of a strange way to spin it.

First, depositors would not be left penniless, and among those pushing for the big insolvent banks to be put into receivership, there was unanimous support for the FDIC covering depositors.

This collapse in lending is precisely the outcome those who opposed the way the bailouts were structured predicted. Now you want to belittle them with the "doomer" label and proclaim it to be their fault for not understanding the quagmire the poor, helpless banks are in.

Obama and Summers don't agree with you, by the way. They've laid the blame on wider economic malaise, not bank recapitalization requirements. It's actually hard to argue with them when the banks have virtually unlimited access to cash at near zero percent interest and are free to engage in mark to myth accounting.

[westerebus]

9. Embrace your inner Doomer.

Why resist it?

Set yourself free and enjoy the power of the Doom.

Or.

Why would you give the banks more money to play with?

Having lost a considerable amount of it all by themselves and nearly collapsing the world economy.

So, no to printing more money for the banks.

Plus, the banks are recapitalizing with a check signed by John Q. Public without any oversight.

Three wrongs are not gonna make a right.

Now.

How do you get this economy moving forward?

You write off $200,000 against each primary residence mortgage not in foreclosure.

Say you owe $105,000 on your mortgage. Your mortgage holder gets $105,000 as payment and you take
title to your home. If you owe $500,000, your mortgage lender gets $200,000, you owe the rest.

What will that due?

Firstly, it will pay off a whole lot of mortgages and free up a whole lot of money.

Secondly, the banks will be solvent enough to write down the bad debt still on their books.

Thirdly, it will allow the tax structure to be amended to cover universal health care and social security expenditures into the future. We could do something for education too.

Fourth, you can eliminate corporate taxes at the same time. You pay for them as the consumer anyway, so why not give yourself a tax cut in one place to offset the tax rise to pay for the benefits you want. Universal health care and a funded retirement system. It would also eliminate tax breaks for corporations. You would end corporate welfare.

Where are we going to get all this money?

That's right! We're gonna print it. And put it on the FED's books.

For collateral they get the Social Security Trust Fund.

Can you see me smiling?

Embrace the DOOM.

[northernlights]

11. what about those of us who were stup...sensible enough

to buy our houses outright? And then lost our retirement savings to long-term unemployment? And have taken on debt to retrain for (now disappearin) healthcare jobs that were going to grow forever? Can't we get some help too?

I could do one *hell* of a lot good spending with $20K, never mind $200K...

[westerebus]

12. Sorry my friend.

That's not what I had planned on. The premise of the $200,000 buy down was two fold; one, get money flowing and two, tax reform to move the economy in a direction that helps Main Street.

Now if we could get universal health care funded out of this, you would have a job in health care. Small consolation, I know.

[northernlights]

13. well luckily your plan is not being put into action

it is the epitome of what rethugs complain about..."big guv" selecting one group of people to favor over the rest of us.

My plan, which sadly also has no chance of happening, consists of dumping $50-100K on every adult citizen to spend as they please. So people who got in over their head in debt can use it to help pay down that debt. People who lived within their means and were frugal and saved can use it to invest (in themselves or in business) or vacation or whatever they want.

More equitable; same result. Money gets moving again.

[westerebus]

14. At least "we" have a plan.

:)

[amandabeech]

15. Folks like me who never got into the housing market should get something, too.

Homeowners already get large tax preferences, and can even deduct interest on a second mortgage if they have some equity.

What's in it for the renters?

[westerebus]

16. Not much.

Unless you consider fully funded universal health care and fully funded social security as something you might be interested in.

Job creation and tax reform. Money for education and ending corporate welfare. If it's done right.

It is not a wad of cash to individuals, the idea here is to remove the overhang of mortgage debt. That's part of a larger plan to remove the toxic paper held by our government and the banks.

There is only two ways I can think of to clear that debt. One, forgive it out right. Or two, pay it off using the Fed's power to buy the mortgages with the Social Security Trust Fund as collateral.

We would not be creating "new debt" to retire old debt. It would not create a new tax burden. It would return the TARP bank's to a solvent state so they can be reformed. You can't delver them without opening their books. If we opened their books you would find they are insolvent and so inner connected, if one big one goes, it's over for the rest of them. At least that's my opinion for what its worth.


Northern lights would like to give everyone $50,000 to $100,000 for what ever purpose they like. I have a few problems with that. One, we can create that money, but, that would devalue the dollar to junk. Two, the volume of that money would cause hyper-inflation and the markets would crash again. Three, there is no tie in to tax reform, health care and retirement funding. At least he didn't mention any.

If the check was in the mail, I'd cash it in a heart beat any way. His plan is much more equatable than mine.

In the reform of the tax code, home mortgage deductions would be phased out over two generations. So would dependent deductions, health insurance and medical deductions. You would pay a flat tax on any income. Every one who has income would pay some thing. It would not matter if it came from dividends, rental income, or wages. Pensions, UE benefits,and welfare benefits would not be taxed.

The Alternative Minimum Tax would go away. State taxes including property tax above 5% of your income would be deductible. Federal bond interest and state bond interest would be tax exempt. Charitable contributions would be deductible.

Corporations would lose their tax exemptions and special incentives/treatments as the mortgage reduction plan is phased in.

There's more. I think you see where this is going. I want to strip down the tax code to bare bones. I want to get the government out of business. Except as regulators.

[econoclast]

8. Not so sure about M3

The Fed stopped publishing data on M3 a ggod while ago. I understand that there are several folks out there who try to "reconstruct" M3 based on some of M3's components that the Fed still publishes separately. However, two pieces of the old M3 that the Fed no longer publishes are Eurodollars and repos. I believe that the folks putting out their various M3 reconstructions have to "calculate" these pieces. Just looking at the Fed's balance sheet it appears that they are taking in everything but the kitchen sink as repo collateral ..... so my guess is that repos are up pretty handily. However, the models the "reconstructors" use are back-tested to be accurate to when M3 was still published .... and I think that the repo number today is substantially higher than it was back then. Same with Eurodollars. I think in the current fear & crisis atmosphere today the Eurodollar number could be up as well.

So if it is true that repos and Eurodollars make up the same percentage on M3 today as they did whem M3 was last published ... then the reconstructions are probably in the ballpark. But if not .... and my gut feeling is that they are substantially higher today than before .... then the M3 numbers being calculated are probably much too low.

Which is not to say that Money Supply isn't an issue .... but I wouldn't be painting my "The End Is Near" sign just yet.