No. What I am saying is that you take the multiplier, and you run it through the machine V(x) number of times.

Mult < 0 it shrinks.

Well it's that Thursday again...back under 1.0

0.957

http://research.stlouisfed.org/fred2/ser....

Bear flag forming....

Not good.

So I analyzed the standard deviation of the absolute change between readings. I noticed the January 28th to the February 11th jump seemed like a rather large jump. It was. It was actually an 8 Sigma jump! Smaller only than the 11/5/08 jump, which was a 12 Sigma event, and the 10/8/08 jump which was a 14 Sigma event! Something definitely went down those 3 periods. They all immediately preceded major legs down in the indices. Here's the top 10 sigma events, in terms of absolute change between readings...

1. 10/8/08 14.0-sigma
2. 11/5/08 11.9
3. 1/28/09 8.3
4. 9/10/08 5.1
5. 9/24/08 5.1
6. 12/3/08 4.9
7. 1/5/05 3.8
8. 2/11/09 3.6
9. 9/12/07 3.4
10. 10/22/08 3.2


Every single one of these "sigma" events happened immediately prior to or during a crash (i.e. the reporting period was always just prior to a crash).


What does everyone think, should we (I) look further into this, or is there an obvious reason for this?

The obvious reason is that an abrupt negative change displays a shock to the money supply. Margin calls, liquidations, cats sleeping with dogs, etc.

What Lemonaid said. It also is reflected in the credit markets. ABX etc. blowing out.

So, now that it's below one again, you have to wonder how they kick-start it this time.

Rate cuts. Done.

Stimulus. Done.

9 out of 10 were negative. The most recent one, the one that caught my eye, was positive. It was 3 times larger than any other positive move in the data set...

I'm not sure if your reasons make much sense. The data points are merely when the data is reported. There has to be a lag between the gathering and reporting of the data. That means the changes definitely precede the major drops (by weeks? not sure, haven't been able to find "gathering" info for the study from the FED). The major drops would be where you'd expect margin calls, liquidations, cats sleeping with dogs, etc... Not before.

so does this mean we are still swirling down the bowl?

It means that for each new dollar Timmy and Benny pump into the economy, we only get 98.5¢ of work out of it.

Yeah, we are swirling.

you guys better beware of the lag effect associated with all this. These things don't happen very often in history therefore it's hard to quantify how long the lag is if there's one. Problem is if it ever shows its head ....

There is no causation here. The MULT is not some magic machine that drains money from the system. It simply compares M0 and M1. M1 is hovering near M0.

This is either happening because people are taking cash out of the system or M1 money is moving into M2. If you actually look at the data you'll see that it's most likely moving into M2.

In which case M0 isn't doing its job, and with each addition of a dollar to M0, M1 shrinks. If people are taking cash out, then with each additional M0 dollar, we sink further into the abyss.

That can only be construed as really bad.

That means that M1 is shrinking and will continue to shrink as new money is added to M0. Until Benny and Timmy come clean, this will be the result of adding money to the money supply.

What happens if we have a year of M0>M1?

Right, the M1 money supply shrinks and continues to do so. We get a Depression and people hoard cash and capital doesn't enter the economy.

Quote:

In which case M0 isn't doing its job, and with each addition of a dollar to M0, M1 shrinks.

What if they add a dollar to M0 and somebody transfers two dollars from their checking to their savings account? MULT goes down, but M2 goes up. I don't understand how this has anything to do with anything.

I've looked through most of this thread and maybe I missed it but does anyone have historical figures on the Multiplier prior to 1984? It would be interesting to see what the multiplier was during other major economic contractions say 80-82,73-75, and 29-38.

I could not find another period when it was below 1. During the Depression i was above 1, and was about 4 at one point. A rough approximation of the number is the nverse of the reserve ratio, which at one point depression0-era was 25%. NOTE- To get an inverse of something which is less than one, the reseve atio muct therfore be more than 100%, which seems impossible, but if one looks at the extremely high reserves, and the unhinged ehavior of certain markets, I believe this signals something ominous.

" I don't understand how this has anything to do with anything."

It has to do with money not being circulated and not working.

Ben Bernanke:

Quote:

(1) The "money multiplier," M1/BASE. In fractional-reserve banking systems, the total money supply (including bank deposits) is larger than the monetary base. As is familiar from textbook treatments, the so-called money multiplier, M1/BASE, is a decreasing function of the currency-deposit ratio chosen by the public and the reserve-deposit ratio chosen by commercial banks. At the beginning of the 1930s, M1/BASE was relatively low (not much above one) in countries in which banking was less developed, or in which people retained a preference for currency in transactions. In contrast, in the financially well-developed United States this ratio was close to four in 1929.

http://press.princeton.edu/chapters/s681....

Quote:

4The actual ratio of M1 to the monetary base ranged from 3.69 at year end 1934 to 2.99 at year end 1938 (Friedman and Schwartz, 1963).

http://74.125.47.132/search?q=cache:PUrZ....

You guys can debate the significance of this number all you want. All I know is two things:

1. Anything called a "multiplier" that is below 1 can't be a good thing.
2. All those Fed graphs have one thing in common: they all SCREAM that something is ****ING BROKE.

Before OMO were the norm, didn't the Fed use reserves as the means to inject money into the system? I assume someone at the Fed has noticed this and is alarmed. For whatever reason, I have seen no comment on it yet on the website, such as they had when the non-borrowed reserves first went negative.

I give up. For this being in a forum about monetary theory there is a serious lack of interest in finding the truth here. Apparently fear mongering, hysterics, and bright shiny objects are more interesting than the facts, which is sad. Guess I had higher expectations for this forum.

Please resume your regularly scheduled thread. The end is near and so on.

Baldy, thanks for digging up some comparative historical data. This **** is above my grade level so do appreciate you and the others working this issue. Best.

FOR THE LAST (&^$*%% TIME:
"MULT is NOT the multiplier in the money velocity equation. It is simply the relationship of M0 (physical currency plus excess reserves) to M1 (M0 plus demand deposits). MULT being less than one simply reflects the explosion in excess reserve balances of high-powered money that the banks aren't using to make new loans."

In other words, I want to slap people that think this means anything like "$1 created now does $0.91 of actual work". That's GDP/MZM and that going below one is very bad, but has nothing to do with MULT.

MULT < 1.0 means that money is ceasing to work, as giving banks free money to loan out isn't working to stimulate the economy even with ZIRP. Banks normally want to create a loan with every single reserve dollar they have, look at the historical data for EXCRESNS to see that excess reserves have been close to zero until recently, then KAWHAM there's a huge spike of accumulated reserves that isn't being lent out.

"MULT being less than one simply reflects the explosion in excess reserve balances of high-powered money that the banks aren't using to make new loans.""

Right. Which means that new money is going to the mattress or cash or a savings account, thus it is not circulating, thus it is not doing any work.

If the money were in circulation and in a demand account, the ratio would be higher.

But it isn't.

If the HP money takes all the money and sits on it, guess what happens?
That's what the MULT<1 is revealing. That new money isn't doing what it should which is to work through the economy multiple times. It isn't. It is working through the economy < 1 time. Thus it isn't 'working' as it should. I am not stating that the new money is not working at all, I am stating that it isn't working as much as Ben wants it to, as it SHOULD or NEEDS TO.

If the HP money were entering the money supply and 'working', then MULT would be > 1 or higher to some degree. But it isn't. MULT<1 reveals that the HP money and excess reserves are not circulating as Ben intends.

You cannot force people to lend, and MULT<1 shows this in a visible metric.

You think that MULT<1 is TSHTF. No, that's what happens after a few years of MULT<1.

If MULT-->>0, THEN TSHTF, or if V(x)<1 or -->>0.

Well, currently MULT *is* -->>0 over the past few months.

V(x) has been in decline for years.

"It is working through the economy <1 time"

This is what I mean about confusing V(x) with MULT. V(x) measures how well money is moving through the economy in exchange for G&S that account for GDP. MULT just is M1/M0.

Even in a regular lending environment, a giant enough injection of money would cause MULT<1, as banks can't lend out money instantly. Loans have to be structured, loan officers hired, contracts written and signed, etc. In fact, I wonder if the $700B number was picked because it was *exactly enough* to put MULT at 1.000000.

V(x) is the SHTF measure. MULT isn't, and we need to stop thinking it is.

Grf- Good points. While MULT is not same as Velocity (used in GDP calcs I assume) it is an indicator of potential growth in the economy, through bank lending. A shrinking figure signals distress.