The monetary base is unencumbered money not debt. That's to say it's put in your pocket federal reserve notes and coins. No matter what happens to the digital dollars in the system the cash and coin stays (unless it's physically destroyed) M1 is a measure of cash and coin plus easily liquidated checking accounts and traveler's checks.

The traveler's checks and checking accounts, if there was a complete run on the bank by checking account and traveler's check holders, could never be paid because all that exists is cash and coin... the rest like M1, M2 is debt, a product of fractional lending velocity of money.

Hope this helps.

M1 doesn't determine monetary velocity. It's just the dependent variable resulting from velocity of money. M1 indicates the size of "cash, coin, checking accounts, and traveler's checks".

If velocity of money drops, M1 drops... checking account and traveler's checks lose leverage on the monetary base, cash and coin. That is to say the ratio of checking account deposits and traveler's checks to cash and coin decreases.

Since the only way a fractional reserve money system can function is to parabolicly increase the issuance of debt such as though loans so as to provide money in the system to pay back earlier issued debt, a decreasing M1 means ever more debt (parabolicly) must be taken on in any specific unit of time to keep the fractional reserve money system humming.

What must happen in any fractional reserve system... is a reset or default on debt. It is the only possible way to clear the debt load from the system.

As KD mentioned, we could have reset the monetary system in the U.S. and cleared the debt back in the tech wreck 8 years ago for a third of the damage we will experience now because of the parabolic function made worse through rapid debt generation via government intervention.

Okay, New Years Eve fireworks not needed, my brain just exploded reading this thread.

Seeking:

Right now money changes hands 0.954 times per unit of time.
I will assume in a year, but that's not a lock.

So B&H pump 9000B into the economy now.
Out comes 8586B.

B&H pump 10000B more into the economy in March 2009.
Out comes 5400B.

B&H pump an additional 10000B into the economy in April 2010
Out comes 1000B, or less.

Finally B&H pump $10,000B into the economy in 2011, and doing so REMOVES -1,000B from money flow.

Cost: $39,000B or 39Trillion
Results: $13,986 B or 14T in usable money.

Money velocity grinds to a halt as the 10T immediately goes to the mattresses or out of the country. Inflation goes parabolic.

Well, enough of this. Sorry to ruin your New Years...

You can see this is a problem.

We are messing with MZM, not Vm.
In order to fix this, we need to adjust N or Vm.
To do so we need to clear the system of debt.
Either clear the debt or reset the system. That's our choice. To go back to having control of N, BB must change course. We change policy, and N becomes controllable again.

We don't, and this simple first order equation will destroy us.

Lera,

I haven't done the extrapolation, but did you really peg the 12/17 multiplier at 0.95 from past data?

If it's actually that predictable, that's wild--it essentially predicted the Fed's reaction to this whole scenario.

Vm began to tank when Lehman went TU. Then B&H scared congress, the move for a massive bailout began, BB was rumoured to say in private 'there is nothing more we can do...'.

If you look at the EFF and FFR graph, it was this week that BB lost control of the monetary policy.

Data shows this to be true.

So if he lost control of policy, he lost control of N or Vm, and must now go after MZM or M1.

The solution is for him to re-gain control of Vm or N, via clearing the debt. But he won't do that and instead is bailing out the Financial Sector.

It's simple to clear out debt and increase monetary velocity: stimulus checks and tax cuts until the CPI hits a given figure, paid by 100% monetized t-notes. This is the helicopter.

Monetary velocity in my opinion has been going down steadily because more and more of the money is concentrated into rich people who park it.

The above policy would change that, and put some money back in the "human base".

In the end, all the debt is obligations upon the labor and production of average humans.

Bailing out financials --- who have no incentive to increase monetary velocity --- isn't the way.

These are issues of political power, not just monetary policy. Different policies change the balance of power. The people who have gained power (financial industry) don't want to lose their relative power over others.

"It's simple to clear out debt and increase monetary velocity: stimulus checks and tax cuts until the CPI hits a given figure, paid by 100% monetized t-notes. This is the helicopter."

Is this sarcasm?

The stimulus check money will do what it has to this point - go right into Tsys or the mattress.
Monetized T-Notes to that scale will cause yields to rise as foreigners shun our debt.

The helicopter doesn't work, BB's thesis is simply wrong, but he will prosecute it to the bitter end.

Leranconteur.

Well i think i got the basics thanks to Leranconteur and Lemonaid. Doesn't seem so good. Maybe the .954 print is a fluke lets hope so but for some reason i don't have much confidence in believing that. Argh.

I think we have to remember that the Fed is acting in "concert" with FCB's...

Phirang, that doesn't matter. Those who think Ben will succeed take the opinion that Economics is a relative science. If everyone else does something, then it doesn't affect us.

We are about to discover that The Laws of Economics are just like The Laws of Physics. We do not get to chose when where and how they apply.

There aren't reserve currencies in physics.

Sold to you.

Lera -

Want to make sure I understand you... M1 decreases when M0 increases due to hoarding outside of banks?

I'm still trying to wrap my brain around this as I thought that M1 *includes* M0 at all times, which would make this N < 1.0 nonsensical.

Mo in my calcs is Original Money Supply, Ms is Money Supply After Velocity is applied.

My Mo is NOT M0.

Sorry about the ZERO and LETTER OH confusion.

Mo Mor | are original aggregate money supply
Ms | Money supply AFTER adding in velocity of money.
This is just a shorthand to show that if Vm<1 then output is less than input.

MULT here is Vm or GDP/MZM
Vm = GDP/MZM

http://research.stlouisfed.org/publicati....

If you look at the above chart you see that GDP/MZM is the MULT stated above.

H = Ms or total monetary base

MZM is what M3 was.

MZM = Σ currency in circulation + checkable deposits + traveler's checks + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals + large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets.

M2 = Σ currency in circulation + checkable deposits + traveler's checks + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals .

M1 = Σ currency in circulation + checkable deposits + traveler's checks.

M0 = Σ currency (notes and coins) in circulation and in bank vaults.

M0 is the physical stuff, the line item on the H.4.1 and H.3 of FRN's in circulation.

Quote:

My Mo is NOT M0.

This is very confusing to Mo.

Lera - Excellent statement, one of the few who has reached this basic and simple understanding:

Quote:

We are messing with MZM, not Vm.
In order to fix this, we need to adjust N or Vm.
To do so we need to clear the system of debt.
Either clear the debt or reset the system. That's our choice. To go back to having control of N, BB must change course. We change policy, and N becomes controllable again.

Good job -

http://www.marketoracle.co.uk/Article764.... Is there any correlation between V and MULT?

Ah- V is based on M2...Not direct correlation, but important on its own. Thanks Lemonaid for the nfo- I wondered why it seemed off.

That's not a graph of M1

Amazing that a simple, 1st Order, first week of Algebra in 9th Grade, equation has our doom in its grasp, isn't it?

Leraconteur, what's going to happen to S. Korea when the U.S. can't afford to keep troops in the DMZ?

South Korea has mandatory enlistment for all men - ages 18-22 is when most do it.

They will just mobilise all men 18-40. That's about 8.0 Million men.

New data point:

12/17 .954
12/31 .945

-.009

At this rate we have 4 years and 4 weeks left.

This HAS to get to at least 1.000, and it needs to get there ASAP.

Simply put, this data point confirms we are currently in the midst of a monetary reset.