Obamanomics: M1 Multiplier and M2 Money Velocity Fall to New Lows, Labor Participation Collapsing

Confounded Interest ^ | 10/13/2013 | Anthony B. Sanders

[whitedog57]

According to The Federal Reserve G.19 Report for August, consumer debt topped $3 trillion! Of course, Federal government debt has topped $16 trillion, over 5 times the amount of consumer debt. Note that pickup in Federal debt growth compared to consumer debt growth after Q2 2008 (red box).

feddebtconsumer

Here is a chart of revolving consumer credit versus non-revolving credit. Non-revolving debt (e.g., auto loans) have effectively replaced revolving debt.

revnonrev

Business loans have finally grown past the prior peak in 2008.

frbusloasn

On the government side, current expenditures (purple line) continue to grow, but the rate of growth flattened out starting in 2011. But government transfer payments (Social Security, Medicare, etc.) keep growing. The interest payments on the Federal debt (green line) are a small fraction of government spending.

usgovt

And here is a chart of WHO the government owes money to.

pm-gov_debt_v-624

So with a recovery in business lending, staggering government spending and transfer payments and consumer debt topping $3 trillion, one would think that the M1 Money Multiplier would have started rising. But alas, no. It continues its decline.

m1multi10132013

Likewise, the M2 Money Velocity (GDP/Money Supply) is declining like a paralyzed falcon.

m2veloc101313

Of course, labor force participation in the US is the second lowest in modern economies (only Mexico is lower). And has accelerated its declining starting in 2009.

lfpus

And real median household income has fallen dramatically since 2000 and then again in 2009.

rhoinmbrate

household-income-monthly-median-since-2000 (3)

The M1 Money Multiplier and M2 Money Velocity continue to fall despite staggering government spending (and debt). Not to mention a return of business borrowing and consumer loans.

paralyzedfalcon

[Toddsterpatriot]

If you take $85 billion per month (~$1 trillion per year),

Take it where?

$85 billion per month in checks that are being written to “somebody”;

Checks are being written to the banks.

They get cash earning 0.25% and give up, bonds earning 2%-4%. Sounds like the banks are losing here.

all of a sudden “somebody” isn’t getting $85 billion per month - they’re going to notice.

Yes, banks will notice more interest income.

Why does ending QE put us into depression?

[theBuckwheat]

Thanks.

[M Kehoe]

You need any more info before you explain why the end of QE puts us into a depression within 3 months?

I enjoyed our banter.

5.56mm

[Toddsterpatriot]

Yes, it’s always fun when you make silly claims.

[expat_panama]

Interesting charts, and they'd give a more honest picture if they included one showing how much money people are making:

The loony left only wants people to see only the doom'n'gloom in your post so as to believe Obamanomics is business as usual.  It isn't.  Before '09 people worked less and less because they could --they were earning more and more.   Since '09 the reason they're not working is they can't.  There are no jobs.

The loony left has presented a situation entirely different from what we've had in the past, this is something posters on a conservative forum need to remember.

[expat_panama]

If the Fed quit printing $85 billion a month tomorrow, we would be in a depression in 3 months.

Somehow it's hard to believe that you're really grateful the Fed's printing $85B/mo and keeping us safe from a depression.  My bet is maybe you're saying the Fed & wallstreet's our problem and not the loony left's war on business.

If that is your point, then it's crazy.

[Justa]

“you explain why the end of QE puts us into a depression within 3 months”

Removing $85b/month from the GDP (Fed spending) reduces yearly GDP by..... (1020/15893) -6.4%.

2.5 - 6.4 = -3.9% GDP growth.

Healthy recession, not depression.

Removing QE just takes the lie out of the ‘recovery’.

Excluding recipients of QE the 2008 recession never ended. Time for reality to return.

[Toddsterpatriot]

Removing $85b/month from the GDP (Fed spending) reduces yearly GDP

Fed bond buying doesn't add to GDP. If it did, it would have added 6% to GDP when it began.

If the Treasury cut spending by $85b/month, I agree, it would reduce GDP.

[Justa]

The negative GDP growth from removing QE is only the beginning. Once banks are no longer receiving Fed infusions they will need to raise interest rates to make up the loss of income. Adding that to the QE recession would likely cause the depression Kehoe speaks of. Furthermore, when QE is no longer devaluing the dollar there is nothing to prop up the markets, the banks’ balance sheets and suppress interest rates, ergo the markets will tank. No recovery, no credit, crashed markets and lots of debt.

So there will be no end to QE until the dollar is fully discredited and destroyed.

[Justa]

I see your point. However I consider Treasury’s issuance of bonds as deficit spending.

[Toddsterpatriot]

The negative GDP growth from removing QE is only the beginning. Once banks are no longer receiving Fed infusions they will need to raise interest rates to make up the loss of income.

I'm not sure you understand how these "Fed infusions" work.

If you get a chance, tell me how they give a bank income.

[Toddsterpatriot]

However I consider Treasury’s issuance of bonds as deficit spending.

The Treasury finances deficit spending, whether the Fed buys a bond from Citibank or not.

[Justa]

“tell me how they give a bank income.”

By giving Fed banks a pretense for issuance of their fiat currency directly to the Tresury which repays them with interest when the bonds mature. The interest on the repayment guarantees the Fed banks profits, ergo it is their income.

[Toddsterpatriot]

The interest on the repayment guarantees the Fed banks profits, ergo it is their income.

Yeah, the Fed makes big money. But we're talking about the profits of regular banks, not the Fed.