Tuesday, January 31, 2023

Recommended reading: Steve Moore's Hotline

I've known Steve Moore since the 1980s, and he's one of the best economists out there, especially when it comes to understanding and explaining the relationship between government policies, the economy, and what creates prosperity. For several years now he has been publishing a daily Hotline newsletter that is always full of must-know facts and figures. And it's free, just for the asking.

Today’s edition features Chart #2 from my last week's post. I used the chart to make the point that bad economic policies have resulted in very slow growth for the US economy for the past 14 years. He translates that into a number that people can more easily relate to: "if we had stayed on the 1984-2004 growth path, the average American would be about 22% richer today – or at least $15,000 more income per median income family."

Once again I would encourage all to subscribe to the Hotline.


  1. The elimination of government-enforced property zoning would result in a building and development boom on the West Coast that would last for generations and much higher living standards.

  2. What would be the number if the median is used instead of the average?

  3. done, thanks Scott! 2 others I follow - Brian Wesbury and Lawrence Fuller on Seeking Alpha - all must reads. Thanks again for all your contributions!


  4. Benjamin -
    Why do we have to always have more growth/development? More people? The improvement in living standards brought on by science, medicine and tech is what we want - and is enough. With almost 50 million people in California I think it is safe to say that the quality of life, otherwise, is much lower than it was 40 years ago. Although I am no fan of regulation, like you, I am also no fan of "growth", i.e. increased population.
    So many of our problems in the world could be solved by population control, especially the enviornment. Why not? California is mandating everything else one does, why not how many babies you can have? As long as the climate activists are afraid to touch this issue, I can not take them or any thing they say seriously.

  5. " With almost 50 million people in California I think it is safe to say that the quality of life, otherwise, is much lower than it was 40 years ago."

    As has been posted on this blog before, California has voted in its current circumstances. Between 1990-2000, the state went from a roughly 50-50 distribution of elected officials to ~80% D now.

    What has happened? Highest poverty rate in the country (it competes for this honor with DC some years)...is proud that it will not build needed infrastructure ("environmentalism")...spends billions of state govt dollars on the problems it creates every year.

    Enable poverty instead of economic success = a declining quality of life. Californians got what they voted for: modern feudalism/socialism.

    (disclosure- I have two college degrees from back when CA was a great place, and have had family continuously living in the state for 100+ years.)


  6. re: "bad economic policies have resulted in very slow growth for the US economy for the past 14 years."

    Ignorance is not just confined to Congress. Larry Summers is wrong. Secular stagnation is as Martin Wolf says: "chronically deficient AD". Secular stagnation is the result of a deceleration in the velocity of circulation. The secret to economics is that banks aren't intermediaries. Banks don't lend deposits. Deposits are the result of lending. That's why Dr. Philip George's "The Riddle of Money Finally Solved" works.

    Richard Werner gets most of it right:

    The Japanese problem was that their people saved more and kept more of their savings impounded in their payment's system. They also have unlimited transaction deposit insurance.

    “Japanese households have 52% of their money in currency & deposits, vs 35% for people in the Eurozone and 14% for the US.”

    Bankrupt-u-Bernanke instituted the payment of interest on interbank demand deposits. That destroyed velocity as well as the FDIC raising transaction deposit insurance to unlimited until January 2013.

    This whole mess was predicted in: “Should Commercial banks accept savings deposits?” Conference on Savings and Residential Financing 1961 Proceedings, United States Savings and loan league, Chicago, 1961, 42, 43. by the smartest man that ever lived, Dr. Leland James Pritchard, Ph.D. Economics Chicago 1933, M.S. Statistics Syracuse, Phi Beta Kappa.

  7. If you drain the O/N RRPs, you inject cash and reserves back into the commercial banking system. That’s going to keep the award rate high, and longer-term rates lower. That implies a prolonged interest rate inversion accompanied by stagflation.

    The FED's correct response to stagflation is the 1966 Interest Rate Adjustment Act.

    Waller, Williams and Logan seem to agree. They "believe the Fed can keep unloading bonds even when officials cut interest rates at some future date."

  8. Scott -

    I was surprised to see John Cochrane WSJ article arguing for the benefits of a consumption tax. I was also surprised to see the most liked comments were generally open minded (even in favor) - if it coincides with abolishing income taxes.

    WSJ Editorial

    Is he an outlier among the maverick economists?

  9. "The money supply growth rate for December was a negative 1.3% versus a year ago, the lowest ever and marking the first-ever decline in M2 based on all data available. The Fed started publishing data on M2 in 1959. November’s growth was already at 0.01%, well below the peak of 27% growth in February 2021."

    Well, if M2 is important, we are going to see the bus hit the wall....

    Something may have gone hooey with our trusted macro-indicators in the last few years, perhaps related to the COVID-19 economy. The latest employment situation figures, 500k+, are way hot...

    M2 cratering....

    Worker productivity actually declining (as measured)....

    Well, strange times....

  10. Salmo, keep it coming. You are a joysprite.
    Although, can you occasionally flush things out more? Sometimes it is just too cryptic, if not obtuse, if not maddingly opaque, if not a riddle wrapped in a ...
    As a follow up to my question about banks ability to buy Treasuries with Reserves, to which both you and Scott said they cannot, I came across this from Joseph Wang - FedGuy - from his post "Can Banks Spend Their Reserves": (a question from a reader and his answer):
    "... when banks sell their treasuries to the Fed as part of a QE transaction they get in exchange bank reserves. Can they then use those reserves to go and buy more treasuries. Either at an auction or in the market?"
    Joseph Wang (Post author)
    December 29, 2021 at 6:57 pm
    "Yes they can"

    Where does this leave us?

  11. Hi Richard,
    The reserves-money axis exists between the Fed and banks. Reserves cannot leave this exclusive financial plumbing. Banks keep a minimum amount of cash on their balance sheets and this minimum has risen with the new ample reserves regime. When reserves-money moves around, it happens between banks. Look here:
    Related to the previous thread, new money is created by the system (loans, QE to non-banks and banks net buying of government debt) and this 'new' money, once created, has to move around and all this excess cash held by banks is indeed swapped for higher yielding securities than 'regular' (or non-reserves) money. Look here:
    All deposits + currency is a very good proxy for M2. The three other added measures are a good proxy for the essential money creators of the last few years. Spend a few minutes to dissect. It's not that complicated.

  12. Carl, you're in a class by yourself.

    Link: “Bank Reserves And Loans: The Fed Is Pushing On A String” by Charles Hugh Smith
    Bank Reserves and Loans: The Fed is Pushing On a String – InvestingChannel

    "one in 1960, where the ratio was 10:1, and the other in 2008, where the ratio was 219:1."

    DECEMBER 2022

    First time Divisia M4 has turned negative since the GFC.

    Recessions are associated with negative rates-of-change.

  14. @Salmo Trutta
    Trends in M4 are interesting but understanding key areas where money growth is changing may be more specific when looking at potential turning points. The key area is the private loan growth which, based on leading indicators, may be about to turn. ?
    About bank reserves
    This is a typical example showing why the concept of money "demand" may be flawed when it is being brought up here some of the times. Banks show elevated levels of reserves but it's not because they demand it, it's because they are forced to accumulate them and if they want to get rid of them, they simply end up somewhere else, on another bank's ledger. A similar principle applies for inside money. A deposit which is spent simply ends up on someone else's ledger. The aggregate amount has basically nothing to do with "demand". Anyways..

  15. Salmo,
    What to look at, to get the sense of long term money flows vs. short term money flows. As you point to it as a cycles real factors.

  16. William Barnett uses the wrong distributed lags. Contrary to Nobel Laureates Dr. Milton Friedman and Dr. Anna Schwartz’s “A Program for Monetary Stability”: the distributed lag effects of monetary flows (using the truistic monetary base, required reserves), have been mathematical constants for > 100 years.

    The 1st qtr. 2023 is setting up like the 1st qtr. 2022.

    Commercial and Industrial Loans, All Commercial Banks (BUSLOANS)

    Real Estate Loans, All Commercial Banks (REALLN)

    Consumer Loans, All Commercial Banks (CONSUMER)

  17. Keep an eye on de-dollarization and the emerging BRICS alliance for guidance about the future of the dollar and by extension the US economy. Everything rides on the dollar. We can only hope that the US has the tools needed to win that war. Everything else is irrelevant. Be safe out there...

  18. Salmo,
    Thank you, also for pointing into prof. Richard Werner interview. This is really helping to get the sense of many issues.

  19. Adam, you should read about William Barnett's Divisia aggregates


  20. Topic: Media/famous "investors": Swung for the fences and connected- once. (One Trick Ponies).

    It's almost like you have to be "bad" at investing to get on the TV investment shows, actually.
    Update some of the folks from "The Big Short"


  21. Salmo,
    Thanks, I do appreciate your hints.

  22. https://www.econlib.org/argentinas-comeback/

    What say you, Scott?

  23. Steve: “What say you, Scott?”

    I added a comment to the article you linked to.

  24. thank you and quite interesting!