Posted on 07/01/2009 6:20:18 PM PDT by sickoflibs
The Federal Reserve is lying about the nation's money supply (M1). The current figure for money supply is being given as $1.6 trillion. The actual number is $2.34 trillion. The reported number is equivalent to an increase of 16% over the past year. The actual number is equivalent to an increase of 70% over the past year. This compares with the nation's high money-supply increase of 16.9% in 1986.
Astute observers of the Federal Reserve have noticed that, since the large infusion of money of last autumn, the monetary base has exceeded the money supply:
Figure 1reported monetary base ($1.8 trillion) Figure 2reported money supply ($1.6 trillion) These figures are from Federal Reserve releases H-6 and H-3.
However, the monetary base is a part of the money supply. How can the part exceed the whole? (Money is created in 2 basic steps. First, the Federal Reserve prints up paper money. This is called special money and is usable by private banks as reserves. It is treated in the system in the way gold used to be. This money is measured by Federal Reserve credit, or Reserve Bank credit. With a few adjustments, this becomes the monetary base, which can be thought of as the special money that is available to the banking system for the second step. In the second step, the private banks create money in the form of demand, and other checkable, deposits. They do this in the process of making loans. Essentially, the nation's money supply is cash — the special money — plus bank deposits.)
In pursuit of the answer to how the monetary base got to be bigger than the money supply itself, I called the St. Louis Federal Reserve, and they were good enough to send me the following reply:
Half of all transaction deposits do not appear in M1 [the money supply] due to retail deposit sweeping. Adding these back into M1 causes M1 to be larger than the monetary base. (In retail deposit sweeping, banks reclassify checkable deposits as savings deposits so as to reduce statutory reserve requirements. Within certain legal bounds, such behavior is acceptable to the Fed. Bank customers are unaware that such reclassification is occurring.)
Plus the FOMC has increased the Fed balance sheet to levels never before seen. Banks are holding deposits at the Fed and not making a great deal of new loans (they are making some, but it is a recession after all). If the banks made new loans, that would generate more deposits to be included in M1.
Transactions deposits are simply demand deposits plus other checkable deposits. That is, they are total bank deposits and, as such, are an important part of the money supply. Immediately prior to the crisis of last autumn and the massive creation of over one trillion dollars out of nothing by the Federal Reserve, total bank deposits were about 40% of the money supply, with the monetary base as the other 60%. According to the St. Louis memo, half of these deposits are "swept," that is, they are reclassified as time deposits. (The memo did not say, but probably it is done overnight or over the weekend.)
This process of reclassifying bank demand deposits as time deposits is the fraudulent part of the new procedure. Despite the fact that both are called deposits, time deposits are fundamentally different from demand deposits as follows:
A demand deposit is money given to a (banking) institution that does not earn interest and can be withdrawn by the person who gives it (the depositor) whenever he wants (on demand).
A time deposit is money given to a (banking) institution that earns interest but cannot be withdrawn except after giving notice for a defined period of time (usually 90 days). A time deposit at a bank should be thought of as similar to a certificate of deposit. You can't get your money out for a certain period of time, but while it is there, it earns you interest.
Because of these differences, economists, for many centuries, have classified demand deposits as money but have said that time deposits are not money. A simple example will illustrate the point. Money is that economic good which can be used to buy things. Suppose you go to the store and see an item that you want. If you pull out your checkbook, which is a demand deposit, it will be accepted as money. But if you pull out your passbook to the savings account, then you will politely be told to take the passbook to the bank and get money for it. The passbook is not money (because of the time restriction on it), and you cannot buy things with it.
Notice that the St. Louis memo tiptoes around the question of telling a depositor that he has a demand deposit while telling the rest of the country that he has a time deposit. It states, "Within certain legal bounds, such behavior is acceptable to the Fed."
Well, since the Fed is trying to lie to the American people, I imagine that it certainly would be acceptable. The question is not whether the banks' behavior is acceptable to the Fed; the question is whether the Fed's behavior is acceptable to the nation. At least the memo is candid when it concludes, "Bank customers are unaware that such reclassification is occurring."
According to the June 1, 2009, Federal Reserve release H-6 (table 3), demand deposits plus other checkable deposits are equal to $740 billion. But, according to the memo, this reported figure is only half of the real deposits. Thus the true number for bank deposits is $1,480 billion. Adding back the missing $740 billion gives us a money supply of $2.34 trillion (1.6 + .74).
Calculating from the end of May 2008 to the end of May 2009, the US money supply has grown from $1.37 trillion to $2.34 trillion. This is an increase of 70%.
To put this figure into context, the previous high one-year growth in US money supply was 16.9% in 1986. The money supply figures for the late '70s, which gave us a 13.3% rise in the consumer price index, were in the range of 8%–9% per year.
Barack Obama has projected a budget deficit for the coming year of $1.8 trillion. (To be honest, it seems strange to me to be using the T-word.) There is something that is not understood about budget deficits. We are always told that this is bad because it is borrowing from the future and that our children will be responsible for our debts. This, however, is an earlier-day lie. No government in history has ever been able to borrow the money for any sizable spending program from the people. The government's deficits are simply too big and would overwhelm the credit markets of the nation.
What every government has done when it faces sizable deficits is to simply print the money. If America is facing a $1.8 trillion deficit later this year, then it will probably print (another) trillion dollars to finance this. And then, as a political reality, it will be impossible to significantly cut the deficit for the next year, and the year after, etc., etc., etc. In this way, our children do not get poorer in the future. We get poorer, here and now. But we get poorer by having our dollars worth less. We have a bigger quantity of dollars but a smaller quantity of goods.
This means printing of money (the Fed prints the money and then "lends" it to the Treasury) of $500 billion to $1 trillion addition to the money supply, each year for the next several years. A few years down the road, we could easily be looking at a money supply of $4 trillion to $5 trillion.. This is 3–4 times the level of a year ago.
Last year practically every newspaper in the country was telling you that the problem we faced was "deflation." That was a gigantic piece of propaganda designed to frighten you into holding cash. Remember the flight to "safety" into T-bills and T-bonds? Most people fled from hard assets. These are the victims. They believed the propaganda of the establishment. When the debris of our collapsing society starts to come down, they will be its victims. Their assets will be "safe" in the US dollar as it loses its place as the world's reser
If you realize both parties in Washington think our money is theirs and you trust them to do the wrong thing, this list is for you.
If you think there is a Santa Claus who is going to get elected in Washington and cut a few taxes and spend a few trillion and jump start the economy, and get our lost money back, this list is not for you.
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The other day I saw Donald Trump complaining about OPEC and how OPEC will destroy us with oil prices. (How about GOLD prices Don?). Yet he is a big supporter of BoB and supported his stimulus and other spending. So Donald doesnt see a 'flight from dollar to oil' and other limited assets, he never mentioned it. He also called for "Destroying OPEC". Now how does he think his hero Obama will 'destroy OPEC' when he is shutting down OUR domestic dollar based oil production? Am I alone here?? Is Obama stopping North Korea missile development by cutting missile defense spending?
History of Counterfeiting The counterfeiting of money is one of the oldest crimes in history. At some periods in early history, it was considered treasonous and was punishable by death.
During the American Revolution, the British counterfeited U.S. currency in such large amounts that the Continental currency soon became worthless. "Not worth a Continental" became a popular expression that is still heard today.
During the Civil War, one-third to one-half of the currency in circulation was counterfeit. At that time, approximately 1,600 state banks designed and printed their own bills. Each bill carried a different design, making it difficult to detect counterfeit bills from the 7,000 varieties of real bills.
A national currency was adopted in 1862 to resolve the counterfeiting problem. However, the national currency was soon counterfeited and circulated so extensively that it became necessary to take enforcement measures. Therefore, on July 5, 1865, the United States Secret Service was established to suppress the wide-spread counterfeiting of this nation's currency.
Although the counterfeiting of money was substantially suppressed after the establishment of the Secret Service, this crime still represents a potential danger to the Nation's economy.
Today, counterfeiting once again is on the rise. One reason for this is the ease and speed with which large quantities of counterfeit currency can be produced using modern photographic and printing equipment.
You can help guard against this threat by being more familiar with our currency. Only with the public's cooperation and the aid of local law enforcement agencies can the United States Secret Service hope to reduce and control this crime.(Emphasis added by me)
ps did you see the latest celente video?
calls him obamageddon lol
http://www.youtube.com/watch?v=RIPSrKbYp0U
I don't agree with the assessment that this is a nefarious attempt to cover up some dramatic evil deeds. My time at the Bureau of Labor Statistics in the early 90s led me to the conclusion that in the modern economy - just like with one-size-fits-all price indexes like the CPI - the decreasing behavioral differences & increasing subtitutional flows between various of money and close substitutes (from base money, to M1, to M2 & MZM, to M3, to lines of credit, even to things like government debt) make the measurement and interpretation of money aggregates much more difficult today than in Volcker's time - and therefore less useful as a target for managing price stability. In other words, they're probably not evil, just really ignorant.
For those Greenspan & Bernanke worshippers who want to flame me because you think I besmirch the name of those you think are the greatest economic minds alive, don't take my word for it because the Fed has known this for decades.
From Greenspan's most famous speech ever in 1996: "At different times in our history a varying set of simple indicators seemed successfully to summarize the state of monetary policy and its relationship to the economy. Thus, during the decades of the 1970s and 1980s, trends in money supply, first M1, then M2, were useful guides. Unfortunately, money supply trends veered off path several years ago as a useful summary of the overall economy... One factor that will continue to complicate that task is the increasing difficulty of pinning down the notion of what constitutes a stable general price level... How will we measure inflation, and the associated financial and real implications, in the twenty-first century when our data--using current techniques--could become increasingly less adequate to trace price trends over time?... How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? ... We should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy... Doubtless, we will develop new techniques of price measurement to unearth them as the years go on. It is crucial that we do, for inflation can destabilize an economy even if faulty price indexes fail to reveal it."
Volcker wrote in the 1991 book "the Risks of Economic Crisis": "The first question I have to ask is, "What money supply is being stabilized?" That question sounds very easy after a crisis but is hard to answer during one. Say that the rule is high-powered money, which is very fashionable with the Shadow Open Market Committee and many other monitors these days. By this rule, the Federal Reserve did a superb job in the Great Depression, and it is only in retrospect that one can say, "Well those dumb bunnies, why didn’t they recognize that velocity was going way off course; why didn’t they react more intelligently?"... I think it is very likely that with a severe financial crisis affecting confidence in the banking system, there would be quite different behavior between high-powered money, narrow measures of the money stock, and broad measures of the money stock."
I don’t think The Donald is that stupid. He has probably positioned his investments to profit from “green” energy and therefore has a vested interest in sacking oil companies and/or convincing us that we must invest in “Green” technology. He’s really not that stupid. Well, with that comb-over, maybe he is, but I don’t think so.
The info that Mises gathered can be found here http://www.federalreserve.gov/releases/h6/Current/
Pretty scary indeed. We need to get the word out. This is the worst of all Obama’s offenses IMHO
shenanigans!
Some are surely ignorant, but others are getting rich from our money.
“Money is created in 2 basic steps. First, the Federal Reserve prints up paper money. This is called special money and is usable by private banks as reserves. It is treated in the system in the way gold used to be.”
Reserves aren’t paper money, they are accounting entries. Paper money is an insignificant part of the money supply and moreover they are printed by the Bureau of Printing and Engraving, not the Fed.
I wonder if there is going to be a sequel to “Secrets of the Temple” for this last decade.
I picked up on that too but I notice when I inform people on the topic I regularly use the word 'print' because of the historical context. In theory they could contract the money supply as fast as they expand it now with a computer. But they dont because of politics, delaying the crash and making it worse.
Tett’s “Fool’s Gold” will do if you’re looking for something on the development of derivatives over the last few years. Buffett warned that they would be “financial weapons of mass destruction” and right now he’s looking like a prophet.
I’m surprised to find the Mises Institute publishing something with such an elementary error of fact. Maybe you’re right that they are using it as shorthand.
“In theory they could contract the money supply as fast as they expand it now with a computer.”
I’m not sure that that can be done even in theory. The money supply ultimately is determined by thousands of local banks. The Fed can influence lending by raising short rates, raising reserve requirements, selling their stock of Treasuries, but I doubt that contracting the money supply is all that easy. It’s happening right now because of debt defaults on a massive scale, but that’s not something the Fed is controlling. Their role in this mess was done when Greenspan lowered rates to 1% after 9-11.
Donald... YOU'RE FIRED!
Somebody should notify the Secret Service! We have a counterfeiter in the White House and we think he's a foreign agent because we haven't been able to check his birth certificate!
The deeper one digs into the definition of money, the clearer the illusion becomes. There are those who struggle for a paycheck all of their lives and there are those who know how to create money out of thin air...
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