Go, Johnny, Go!
Posted on 04/27/2008 3:01:19 PM PDT by shrinkermd
When the Federal Reserve cuts interest rates for a seventh consecutive time this Wednesday, it will begin to wind down a pernicious campaign that has flooded the market with cheap dollars since last summer. At the same time, the whoosh of air from Europe's deflating credit bubble puts new pressure on the European Central Bank to begin cutting borrowing costs in order to goose growth.
The strategy shifts by central banks will drive a greenback comeback against the overpriced euro, turning back the 15% slide that since August has lifted the euro -- to a record $1.60 last week -- even as the dollar continues to struggle against the undervalued currencies of Asia.
Monetary policy isn't the only catalyst for a healthier dollar. "A lot of what has happened since last summer also is emotional, and that can change on a dime," says James Paulsen, Wells Capital Management's chief investment strategist. Among other drivers: mounting evidence that the credit crisis loosening its grip stateside is still tightening across the Atlantic, and a growing belief that the U.S. economy could bottom and rebound before Europe's.
The rehabilitation, ironically, is driven by a weak dollar, which makes bargains of our exports, fills Manhattan's 65,000 hotel rooms with European tourists, and entices foreign giants from Ikea to Toyota to open factories here to exploit our increasingly cheap labor.
Already, the dollar has begun to strengthen against commodity-driven currencies from the Canadian loonie to the South African rand, and odds are it is close to a bottom against the euro, sterling and most developed-world currencies. On top of that, "negatives about the dollar are more fully discounted compared to the potential positives," says Marc Chandler, Brown Brothers Harriman's currency strategist, who expects the euro to pull back to test the $1.40 threshold this year
(Excerpt) Read more at online.barrons.com ...
Sure I have. You need to examine the definition of MZM. I'll wait.
but it is really 6th grade math.
How sad for you that you failed.
I did and you didn’t.
Any time you want to explain why new loans don't increase M2, I'll be willing to listen.
First, it is not loans that are counted in M2, but rather the flip side, time deposits, and time deposits are subtracted from M2 in creating MZM. A man as smart as you could do that math.
Here is how it works. I take money I have on deposit with a bank and buy an debt instrument, ie,CD. The bank loans the money out to someone else who deposits the cash loaned in an account. My bank is out the MZM that was transferred to you and your bank. Net is zero increase in MZM. That is why it is called MZM.
Really? LOL!
I borrowed $10,000 to buy a car. That didn't increase M2 by $10,000? My loan check was deposited in the bank by the car dealer. He now has $10,000 more than he had before. Looks like the money supply was increased.
Here is how it works. I take money I have on deposit with a bank and buy an debt instrument, ie,CD.
Excellent!
The bank loans the money out to someone else who deposits the cash loaned in an account.
The bank already loaned it out, before you bought the CD. That loan increased M2. Which increased MZM. When you bought the CD, MZM dropped to its previous level. When your CD matures, MZM jumps again.
Go, Johnny, Go!
Several problems. First, we were talking MZM not M2 and you have switched aggregates. Second, M2 does not count debts. It counts time deposits. Look it up.
Third, when your bank sent your dealer $10,000 in a check, your bank did not just create $10,000. $10,000 in demand deposits is transferred by the Federal Reserve's clearing house from your bank to your car dealer's bank. That is a net zero transfer.
With constant reserves and reserve fractions, either your bank had excess reserves or for every $10,000 in new loans your bank makes $10,000 must have expired in old loans.
The mistake you and others make is not recognizing the centrality of the Federal Reserve in deciding who can create computer bits that represent deposits or who can print vault cash. All deposit bits and vault cash are printed or created by the Federal Reserve. Bits credited at one bank are either debited from another bank through the Federal Reserve's clearing house, or else, credited to the bank by the Federal Reserve in an open market operation. A bank can no more create its own computer credit bits than it can print its own bank notes.
At the end of the day, the total volume of loans that the bank can have outstanding is a multiplier of the reserves it has on deposit with the Federal Reserve or a member bank.
What you are confusing is how my deposit of $1,000 in your bank turns into $10,000 in total loans by the entire banking system. That is a different question, but when I deposit $1000, your bank cannot now lend out $10,000. In fact, it can lend out $900, depositing $100 with the Federal Reserve. The $900 gets deposited in the next bank which can then lend out $810, depositing $90 as reserves, etc. until the total amount of lending is $10,000, and the total reserves on deposit with the Federal Reserve will be $1000.
It is my deposit of $1000 and your banks subsequent loan of $900 that turns into $10,000 of total loans on the books, and, by the way, $10000 in total cash deposits, and $1000 in reserves on deposit with the Federal Reserve.
So my credibility is shot by the company I keep and yours is shot by opening your mouth. I'd say I'm one step ahead on that one.
Do you get the impression he thinks that a banker making a loan goes into the vault and grabs a bag of cash and gives it to the borrower?
You understand that M2 increased?
Second, M2 does not count debts. It counts time deposits.
M2 counts more than time deposits. Look it up.
Third, when your bank sent your dealer $10,000 in a check, your bank did not just create $10,000. $10,000 in demand deposits is transferred by the Federal Reserve's clearing house from your bank to your car dealer's bank. That is a net zero transfer.
My bank has depositors with checking account balances. Those balances are not reduced when the car dealer cashes the check.
It is my deposit of $1000 and your banks subsequent loan of $900 that turns into $10,000 of total loans on the books, and, by the way, $10000 in total cash deposits,
Loans can increase the money supply (M2) from $1000 to $10,000? Sounds familiar.
It’s called fractional reserve banking.
In this case, for example, a 10% reserve requirement means the bank can lend 10x its reserves, therefore a $1k reserve means the bank can lend $10k.
And to add some current events to the context, since the banks are running on borrowed reserves and reserves backed by the very suspect mbs paper now at the Fed, in theory the Fed has given the banks license to lend any amount they want.
Lend, securetize, sell, wash, rinse and repeat.
It’s how we ended up with 90T+ of derivatives on JP Morgan’s books alone.
Actually, although the vault consists of computer bits, that is exactly what happens. The bank has a certain amount of actual money on hand, and when it writes a check to the car dealer and it clears,the federal reserve clearing house debits the bank's "vault" and credits the car dealer's bank's vault. Real "money" changes hands. As we all just discussed, through fractional reserve banking the total amount of such transaction does multiply the money in the banking system in the sense that the total amount of cash your bank has to have on hand and the amount it has to have on deposit with FED or member bank is established by rules everyone can go look up. Your bank, however, did not just create all by its lonesome some of its own money, for which act it would go to jail either for conterfeiting or for fraud.
And as they have announced they are effectively monetizing a lot paper that used not to be counted as near money equivelents, which is how MZM has grown so rapidly in recent times.
But since you worked for a primary dealer, you already knew that when the paper you trade clears, one account is debited and another is credited and none of you got to print your own money.
Another way in which FED rapidly expands the money supply. Todd thinks that the only thing the FED does is to deal in treasuries.
Volker recently said, "What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in time of crisis: lend freely at high rates against good collateral; test it to the point of no return.''
What happened here: 
I know what fractional reserve banking is.
In this case, for example, a 10% reserve requirement means the bank can lend 10x its reserves, therefore a $1k reserve means the bank can lend $10k.
The problem is that a 1K reserve doesn't allow a bank to loan 9k that they don't have. Get it?
Making stuff up again? Did you ever figure out that loans boost M2?
But, if that bank credited the loan amount to the borrower’s checking account it would have additional deposits to loan out, minus reserves of course.
Dollar Rises to Five-Week High on Bets Fed May Stop Rate Cuts
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