Baldy - The MULT metric is based on M0 and M1, which are published Fed figures. SOMETHING baked into these numbers is causing MULT to go below 1.0

The above post is just my best guess.

Based on, not entirely comprised of. Something else going on.

The total Monetary Base consists of, amongst other things, all the ABC soup of programs Ben and Hank invented over the last 24 months. Those hundred's of billions made their way to FOMC balance sheet, where they securitize our Dollars and T-Complex. The money the banks got for them, was taken by the banks and used for anything BUT lending. These uses were all low V(x) metrics, thus the Monetary Supply doubles, but the money in circulation did not.

This caused MULT to dive. It also gets us into feedback loop land, with an icing of exponential functionality. I like to be right, and this is one time I dearly hope that I am WAAAAY wrong.

The next figures are released Thursday, February 5, approximately 5:50 pm CST.

Jason, this is a good thread, thxs for bringing it back to ground.

Quote:

If those definitions are correct, there's no possible way M1 can be less than M0 unless demand deposits are actually negative. Yet, that's what appears to be happening. If those definitions are not correct somebody needs to go fix Wikipedia.

I think your on to it. The math does not fit its use (I have always wondered how M0, M1, ... is actually counted/reported/the timing/the source of/and therefore reliability of these numbers; money, currency, credit, is so fungible today).

15+years ago I was involved in a cost analysis for a major program and at the end of the day, although the equations were valid (an audited requirement), the numbers (can) move all over the place based on what went into the Table of Definitions for the variables, and what went into the Table of Notes, the exceptions applied to the math.

We have homework on this part.

Isn't M! MULT supposed to be roughly (there is leakage- not all money is spent?) equivalent to inverse of reserve percentage of banks? If it is below 1.0, then required reserves are OVER 100%. Something obviously is amiss.

Leraconteur wrote..

Based on, not entirely comprised of.

Lera, can you explain how MULT is not based entirely on M0 and M1?

It is, in fact, and if you do the math you will find that MULT = M1 / M0, every single time. I think you're getting this confused with the ACTUAL money multiplier, which is a direct function of fractional reserve lending and cannot be manipulated by the Fed.

I think it's very confusing that they called this a "Multiplier" as it tends to get people very confused about what it actually is. I know I was/still am.

This number, as 9pin pointed out, is made up of variables which the Fed can mess with at will.

I actually just today found the OFFICIAL Fed definition of M0 (fromhttp://www.federalreserve.gov/releases/h.... and M1 (from http://www.federalreserve.gov/releases/H....

M0:

Quote:

5. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally adjusted, break-adjusted total reserves plus (2) the
seasonally adjusted currency component of the money stock plus (3), for all quarterly reporters on the "Report of Transaction Accounts,
Other Deposits and Vault Cash" and for all those weekly reporters whose vault cash exceeds their required reserves, the seasonally adjusted,
break-adjusted difference between current vault cash and the amount applied to satisfy current reserve requirements. (Also, refer to
footnote 3 in table 2 and footnote 4 in table 3.)

M1 is:

Quote:

M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of
nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and
foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits
(OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union
share draft accounts, and demand deposits at thrift institutions. Seasonally adjusted M1 is constructed by summing currency, traveler's checks,
demand deposits, and OCDs, each seasonally adjusted separately.

M1 doesn't seem to always include M0 based on those definitions, and I think Baldy may have hit on it with the reserves in excess of requirements.

I found a comment Lee Adler made about the demand deposits, he seems to think it implies a run on the bank.

In other words, MULT < 1.0 means that people are pulling actual physical money out of banks faster than the Fed can pump it in. That's some wacky ****.

Quote:

Lo and behold, Demand Deposits had been spiking along with the gain in IMFs until the week of December
29. From then until the last data point on January 19, the series collapsed. This is concurrent with the
shrinkage of the Fed’s balance sheet, the bond price crash, and the swoon in stock prices over the past
month. I assume that this chart will only look worse when the data from the past two weeks is appended.

The abrupt reversal in the chart of demand deposits not a good sign. I have been arguing for a long time
that the massive increases in money supply numbers were pure fantasy. Now we may be beginning to see
a dose of reality. Looking ahead, if a whole lot of people decide that they want their money they will find
that it’s not there, just like Bernie Madoff’s clients did. The reported money supply data is no better than
Madoff’s account statements were.

Edit: Wacky as in scary. As in, I'm wondering if I need to go get more physical notes.

Quote:

However, there are times when the two measures behave in dramatically different ways.
For example, in December of 1929 the currency-to-deposit ratio was about .17 and the reserve
ratio was about .14. These numbers imply that the money multiplier was about 3.77, and since
the monetary base was about $7 billion dollars, M1 stood at about $26.4 billion. Over the next
four years the U.S. experienced the worst series of banking panics in its history. By 1933 the
panics had driven the currency-to-deposit ratio up to .33 and the reserve ratio to .21. The money
multiplier in December of 1933 was therefore about 2.46, only two-thirds its 1929 value, and
even though the monetary base increased over the same period to $8.3 billion, M1 fell to about
$20 billion.2 During this period an increase in the base of a bit over 4% per year occurred at the
same time that M1 was falling at a rate of about 6.5% per year!

http://www.sba.muohio.edu/davisgk/Teachi....

"Nothing" mentioned something last year:

Quote:

When debt service exceeds circulation, the process of money creation goes into reverse, this process of money destruction does not stop until the revaluation of the currency is complete.

http://www.tickerforum.org/cgi-ticker/ak....

Ok, then

There is about $829 billion dollars of U.S. currency in circulation; the majority is held outside the United States. (PS if you google this, the header says there is $575 Billion dollars of US Currency in circulation so this number was recently revised on their webpage)
http://www.newyorkfed.org/aboutthefed/fe....

In Fiscal Year 2008, the U. S. Government spent $412 Billion of your money on interest payments* to the holders of the National Debt.
http://www.federalbudget.com/

Quote:

When debt service exceeds circulation, the process of money creation goes into reverse, this process of money destruction does not stop until the revaluation of the currency is complete.

Not necessarily true for all boundary condtions. With ZERO reserve requirement, debt/money creation can got to infinity. Look out for Uncle Sambo's credit card bill.

Good thing Jason put me on ignore. Wheew, he might have learned something.

Quote:

When debt service exceeds circulation, the process of money creation goes into reverse, this process of money destruction does not stop until the revaluation of the currency is complete.

That would make sense... actual physical currency becomes infinitely more valuable as the purely ephemeral debt-based money disappears from the system.

BTW I believe we have already passed this point. Passing that point triggered a chain reaction which is destroying money at an incredibly fast rate, and cannot be stopped until it has run its course.

Yes Jason you are partialy correct, but since you shoved your head right up your own ass and "ignore" some of the other boundary conditions, you are neglecting basic mathematics and the dangers that lie with potential unbounded debt growth due to a lack of physical contraints. <snicker, snicker, snicker>

ooops.

Quote:

Chameleon officially goes on the list of people who add nothing intelligent to a discussion. Also called the ignore list.

I just don't see how the health of our economy is that dependant on how fast we can manufacture currency to circulate, yes I think it's a factor, but my gut tells me it's not the big one.

Nothing was not talking about physical currency.

The compound interest component of debtmoney begins to eat the monetary base and create geometrically larger parasitic drag on it because the only way to get money into the system is to lend it. If real demand for credit wanes as it should in an economic downturn, the situation becomes akin to using a credit card to pay another credit card. There is nothing to pay the interest except more credit.

You can only roll your loans over until your growth stops. When GDP peaked, systemic implosion of debtmoney became seemingly inevitable.

The Fed is attempting now to dip its toes in the QE/printing arena, because printed money does not have a compound interest component. This may "solve" the monetary problem but it CANNOT change what goes on in the real world. The situation facing us is therefore quite unlike GD1. We now face BOTH a monetary problem and a real-world resource constraints/economic problem. Even if oil were free, there is no way now to extract materially more of it than we did in 2005. All processes that depend upon energy now must compete in a scarcity environment instead of a growth climate. To put a concrete example into play, Pemex's output is now totally impervious to the BoM's interest-rate policy. Insofar as pumped barrels are GDP and the activities those barrels support are GDP, the interest rate regime in Mexico is irrelevant to GDP. This discontinuity is precisely why the central bankers seem to be so impotent. Inflection points in major trends are by definition black swans.

The next figures are released Thursday, February 5, approximately 5:50 pm CST, 3:50 pm PST, 6:50 pm EST.

Just posted, 0.885!

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

This is BAD BAD BAD.

Current extrapolation of -0.035 per reporting period (average of decline since MULT dipped below one) has us hitting zero hour near Jan 2010.

2/11/2009 0.85
2/25/2009 0.815
3/11/2009 0.78
3/25/2009 0.745
4/8/2009 0.71
4/22/2009 0.675
5/6/2009 0.64
5/20/2009 0.605
6/3/2009 0.57
6/17/2009 0.535
7/1/2009 0.5
7/15/2009 0.465
7/29/2009 0.43
8/12/2009 0.395
8/26/2009 0.36
9/9/2009 0.325
9/23/2009 0.29
10/7/2009 0.255
10/21/2009 0.22
11/4/2009 0.185
11/18/2009 0.15
12/2/2009 0.115
12/16/2009 0.08
12/30/2009 0.045
1/13/2010 0.01
1/27/2010 -0.025

I have no words.

What's worse is if you take the average decline since the rate of deceleration increased percipitously (~ the beginning of Aug/08) the average drop is 0.055 per reporting period, which trended yields:

2009-02-11 0.830
2009-02-25 0.775
2009-03-11 0.720
2009-03-25 0.665
2009-04-08 0.610
2009-04-22 0.555
2009-05-06 0.500
2009-05-20 0.445
2009-06-03 0.390
2009-06-17 0.335
2009-07-01 0.280
2009-07-15 0.225
2009-07-29 0.170
2009-08-12 0.115
2009-08-26 0.060
2009-09-09 0.005

Edit: And as we've discussed these are both LINEAR trends, if something isn't done about this quick it's going to accelerate.

Come on no wammies. Maybe it will get better?! (right)

"That's great, it starts with an earthquake, birds and snakes and aeroplanes, Lenny Bruce is not afraid...".

We've had a problem, Houston.
Houston, we've had a problem...

Gen, would you consider doing an update ticker to "Uh Oh Monetary Flat Spin" ?

Here is last year on graph- shows it quite clearly: It won't work...ANyway, if you look at Feb 2008-2009, it goes along fairly level, than drops off at a fairly steep angle. Very dramatic URL has brackets...doesnt work

can you post that link baldy?
split it in 2 or something so we can copy and paste

Here's the 1 year graph.

Thank you Alsace. Sometimes a pic is very helpful. My wouldnt post then I put it on Desktop instead of Documents, and it did?