tag:blogger.com,1999:blog-6616959642391988608.post3730077025085537774..comments2024-03-28T00:18:25.641-07:00Comments on Calafia Beach Pundit: Swap and credit spreads say no recessionScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger67125tag:blogger.com,1999:blog-6616959642391988608.post-63775229319394792742023-03-20T22:05:25.725-07:002023-03-20T22:05:25.725-07:00Scott: “Reserves are not money and cannot be spent...Scott: “Reserves are not money and cannot be spent on anything by the average person.”<br />But the public, at any time, can demand physical currency (this is not just some theoretical concept) and if there is not enough currency in bank vaults then Reserves are exchanged for this needed currency. Thus, Reserves can very quickly be turned into money, and can be spent by the average person. Why Richard H.https://www.blogger.com/profile/11837604197337217284noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-44883146678704945392023-03-19T16:34:34.719-07:002023-03-19T16:34:34.719-07:00See this for a complete accounting by the Fed of t...See this for a complete accounting by the Fed of the components of M0, M1, and M2. It should be clear here that M1 and M2 do NOT include bank reserves.<br /><br />https://www.federalreserve.gov/releases/h6/current/default.htmScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-35653850310673429212023-03-19T15:42:04.503-07:002023-03-19T15:42:04.503-07:00This comment has been removed by the author.Carlhttps://www.blogger.com/profile/17137163333934052456noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-35582423611528683202023-03-19T15:41:52.844-07:002023-03-19T15:41:52.844-07:00^If you click on the monetary aggregates link whic...^If you click on the monetary aggregates link which is found in your reference, <br />below Understanding M2:<br />These measures are typically classified as “M”s and fall along a spectrum from narrow to broad monetary aggregates. Typically, the “M”s range from M0 to M3, with M2 typically representing a fairly broad measure.<br /><br />you will find:<br />"MO Physical paper and coin currencyCarlhttps://www.blogger.com/profile/17137163333934052456noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-59600380133339866182023-03-19T15:14:47.219-07:002023-03-19T15:14:47.219-07:00Carl: bank reserves are a part of M0 but they are ...Carl: bank reserves are a part of M0 but they are NOT a part of M1 or M2. <br /><br />https://www.investopedia.com/terms/m/m2.aspScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-6150427624930036942023-03-19T15:09:09.367-07:002023-03-19T15:09:09.367-07:00More thoughts on the current bank crisis:
By cal...More thoughts on the current bank crisis: <br /><br />By calling into question the value of a significant portion of the country's bank deposits, the failure of one or more regional banks is equivalent to a sudden tightening of monetary policy in which the supply of money is perceived to have contracted while the demand for the remaining portion has increased. <br /><br />Background: The &Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-38609697350488970652023-03-19T14:24:20.124-07:002023-03-19T14:24:20.124-07:00“NEW: The Fed and other global central banks annou...“NEW: The Fed and other global central banks announce an expansion in the frequency of dollar swap line operations. <br /><br />The standing swap lines currently conduct weekly dollar loan operations. Starting Monday, they will offer daily operations”Aihttps://www.blogger.com/profile/10299050777704233559noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-8574080664726557562023-03-19T13:07:07.063-07:002023-03-19T13:07:07.063-07:00M2 as reported includes M0 (monetary base).
It is ...M2 as reported includes M0 (monetary base).<br />It is as simple as that.<br />If your assertion is that M0 is irrelevant, that's an interesting question but that does not negate that M0 is part of M2 official reporting by the Federal Reserve (H.6 releases etc).<br />https://www.investopedia.com/terms/m/monetarybase.asp#:~:text=M1%20is%20a%20narrow%20measure,checks%2C%20and%20other%Carlhttps://www.blogger.com/profile/17137163333934052456noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-86697907339002980732023-03-19T12:28:32.664-07:002023-03-19T12:28:32.664-07:00M0, which includes bank reserves and currency, bec...M0, which includes bank reserves and currency, became largely irrelevant once the Fed adopted QE and became willing to tolerate an abundant reserves regime. <br /><br />M1 and M2 are the only meaningful money supply measures today, and neither include bank reserves. Since 2008, bank reserves have become functionally equivalent to T-bills: they are a risk-free, default-free asset that carries a Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-361703792952780662023-03-19T09:14:09.616-07:002023-03-19T09:14:09.616-07:00M0 = monetary base = currency in circulation and a...M0 = monetary base = currency in circulation and all reserves deposited at the Fed by commercial banks (whether required or excess).<br />If you don't like the law, change the law otherwise..<br />QE does not create a new liability, it only swaps liabilities (money vs government paper) but government paper doesn't count in M2, but money does.<br />Before going into deep theoretical and Carlhttps://www.blogger.com/profile/17137163333934052456noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-18838221559992855322023-03-19T07:05:29.177-07:002023-03-19T07:05:29.177-07:00@Fred
re: "Fred said...
Scott- Should the FE...@Fred<br /><br />re: "Fred said...<br />Scott- Should the FED and US Govt not intervened in 2008 with the TARP and QE?"<br /><br />Bernanke caused the GFC all by himself, as was predicted in May 1980 by Dr. Leland James Pritchard, Ph.D. Economics Chicago 1933, M.S. Statistics, Syracuse (Phi Beta Kappa).Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-29218692185934605592023-03-19T06:58:18.154-07:002023-03-19T06:58:18.154-07:00@ AI
re: "it makes no sense to have money in...@ AI<br /><br />re: "it makes no sense to have money in a low interest rate bank “savings” account. Right now."<br /><br />Savers never transfer their funds out of the payment's system unless they are hoarding currency or convert to other National currencies. The deposits are just redistributed across the system.Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-84034172852082833542023-03-19T06:53:51.869-07:002023-03-19T06:53:51.869-07:00Monetary savings, income held beyond the period in...Monetary savings, income held beyond the period in which received, or income not spent, flowing through the nonbanks (investors leaving the banks and buying Treasuries), increases the supply of credit (loan funds), but not the supply of money (a velocity relationship). I.e., the NBFIs are the DFI's customers.<br /><br />That's part of the reason why yields fell.Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-26854759261159069102023-03-19T06:51:59.018-07:002023-03-19T06:51:59.018-07:00Savers never transfer their savings outside the ba...Savers never transfer their savings outside the banks. <br /><br />Reg. Q ceilings were enacted by the Banking Act of 1933 to decrease the competition for deposits. Banks used to store their liquidity, and now they unrestricted in the buying of their liquidity through open market devices. This creates the need to "reach for yield".<br /><br />The competition between the regional banksSalmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-70334385353446247262023-03-19T06:50:19.276-07:002023-03-19T06:50:19.276-07:00@Carl
re: "It's a financial plumbing mea...@Carl<br /><br />re: "It's a financial plumbing measure to help money liquidity for banks"<br /><br />The BTFP is expensive. “Banks can now bring this impaired collateral to the Fed and get cash to meet deposit outflows, but the Fed charges the short-term market rate, which is closer to 4% or 5%.”<br /><br />BAGEHOT’S DICTUM: the central banks should lend early and ‘without limits’Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-17758431021796522802023-03-19T06:43:59.362-07:002023-03-19T06:43:59.362-07:00@Carl
M0 is monetary base
Not true. The monetar...@Carl<br /><br />M0 is monetary base<br /><br />Not true. The monetary base was required reserves. The increase in the currency component is contractionary.Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-4505100779761781662023-03-18T17:12:32.056-07:002023-03-18T17:12:32.056-07:00Scott,
Look forward to your next post - incredibl...Scott,<br /><br />Look forward to your next post - incredibly insightful and valuable in volatile times such as the past two weeks!<br /><br />Tom<br /> Unknownhttps://www.blogger.com/profile/04067053299094535546noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-74822928344699921052023-03-18T16:20:30.539-07:002023-03-18T16:20:30.539-07:00M2=M0+M1+some stuff
M0 is monetary base
M0=currenc...M2=M0+M1+some stuff<br />M0 is monetary base<br />M0=currency in circulation + total "reserves"<br />In the graph below. you will find that the above is true.<br />This is not a multi-variable subjective argument.<br />https://fred.stlouisfed.org/graph/fredgraph.pdf?hires=1&type=application/pdf&bgcolor=%23e1e9f0&chart_type=line&drp=0&fo=open%20sans&graph_bgcolor=Carlhttps://www.blogger.com/profile/17137163333934052456noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-53782488172385536532023-03-18T15:34:20.412-07:002023-03-18T15:34:20.412-07:00Carl: reserves are not included in basic money sup...Carl: reserves are not included in basic money supply measures. Reserves are not money and cannot be spent on anything by the average person.<br /><br />Re swap spreads: I follow 2-yr swap spreads and they have actually gone down a bit since my last post. I'm hoping to do a post this weekend that features a chart of swap spreads.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-21457129129570481682023-03-18T06:35:01.448-07:002023-03-18T06:35:01.448-07:00"Any thoughts on this exchange?"
Where w..."Any thoughts on this exchange?"<br />Where will deposits go?<br />"Did Fed helicopters just drop $300 billion of new cash into the US economy? We won't know for a while, and that's very unfortunate."<br />The new facility is only a modified Discount Window where money reserves are exchanged with defined depository institutions at par value (versus fair market value) Carlhttps://www.blogger.com/profile/17137163333934052456noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-16086517917324086792023-03-18T03:51:03.587-07:002023-03-18T03:51:03.587-07:00From the WSJ:
"If banks were suddenly forced...From the WSJ:<br /><br />"If banks were suddenly forced to liquidate their bond and loan portfolios, the losses would erase between 77 percent and 91 percent of their combined capital cushion. It follows that large numbers of banks are terrifyingly fragile."<br /><br />Elon Musk in response to this quote: FDIC needs to change to unlimited coverage to stop bank runs and Treasury needs toAihttps://www.blogger.com/profile/10299050777704233559noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-12487156619778246222023-03-18T01:47:35.008-07:002023-03-18T01:47:35.008-07:00Scott,
Has there been any significant change in th...Scott,<br />Has there been any significant change in the various swap spreads since you last posted them on March 9? The regional bank problem at least as indicated by their stock prices doesn’t seem to be responding very favorably to the deposits by the large banks or the statements by various bank executives. Those spreads have been a very reliable indicator of what is really going on as you Kennethhttps://www.blogger.com/profile/01366772652626173281noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-60382888159153584112023-03-17T23:12:07.804-07:002023-03-17T23:12:07.804-07:00Was QE Inflationary? Yes.
What happened?
- Banks ...Was QE Inflationary? Yes.<br />What happened?<br />- Banks make bad loans to homebuyers, which pushes up prices of homes (inflation) - as well as prices for everything else (based on people’s psychological valuation of their homes)<br />- Homebuyers default and then banks begin to default which, either:<br />1) cause home prices to fall and other dependent prices to fall. Final result regardingRichard H.https://www.blogger.com/profile/11837604197337217284noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-17723272632981980652023-03-17T14:01:30.126-07:002023-03-17T14:01:30.126-07:00I hasten to add to my previous comment. This past ...I hasten to add to my previous comment. This past week's $300 billion increase in the Fed's balance sheet (which also shows up as a $300 billion increase in the supply of bank reserves) does not necessarily reflect an equivalent increase in the M2 money supply. Unfortunately, we won't know how this has impacted the money supply until the March number is reported on April 25. In other Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-56824090533817871352023-03-17T11:55:16.550-07:002023-03-17T11:55:16.550-07:00Fred, re "the unprecedented increase in the F...Fred, re "the unprecedented increase in the FED's balance sheet." The Fed's balance sheet expanded from about $4 trillion pre-COVID to a peak of almost $9 trillion in April 2022. It then shrunk moderately (-7%) to $8.33 trillion at the end of Feb. '23. In the past week it increased by $300 billion to $8.64 trillion. Relative to GDP, it rose from 19% pre-COVID to 32.5% as of Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.com