borodog's mistaken understanding of M3...don't listen to his drivel

[DcifrThs]

[ QUOTE ]
I like econ but this thread makes me want to bang my head in to the wall. It appears to me that Barron and Borro are both very well versed in economics so I would like to ask a couple of simple questions.

Money Supply as measured by M2 has grown rapidly but CPI figures have not, some have speculated that the excess liquidity has bid up real estate and stocks resulting in asset inflation rather than price inflation as measured by the CPI. How do you feel about that explanation?

[/ QUOTE ]

this is something i stated and a very possible explanation for the lack of increase in CPI.

in my other thread i wanted to test this. basically, if M2 increases eventually hurt everybody by bidding up the prices for the relative fixed goods (i.e. money increases far faster than the supply of things and stuff), then this will definitely be seen in the CPI #s no matter how well the govt messages them (i.e. 1970s).

the excess liquidity has to find a home. that risky assets aren't included in CPI is a controversial issue in my mind (they should be in some form or another)....but housing, specifically is in CPI. there is something in there called "owner equivalent rents." this is basically a measure of both what a renter has to pay to reside in an area or what an owner could rent his/her house out for should he/she choose to do so. it definitely captures the increase in housing prices and has jumped a ton in the past few years.

i'd obviously expect this year that it falls by some 2-5%.

stocks, money market accounts and the like are not included in CPI though they may influence how people consume and in the end how much money is bidding for a fixed (relatively speaking) supply of goods.

[ QUOTE ]


Repos are a source of financing and add liquidity to the system, it would therefore seem that M3 levels are meaningful. I think I remember in Greenspan's book he talked about the FED being in the repo market but I am not 100% certain. What are the consequences of the rapid growth in M3? Inflation? Not meaningful?

[/ QUOTE ]

the rapid growth of M3 is i don't think anywhere near as meaningful as M2. the reason is because even the fed's open market operations are justa drop in the bucket in terms of the total notional value of repos outstanding (the "repo" line item in M3). ALL financial institutions use them, almost ALL hedge funds use them (so some huge % of $1.4trillion) all over the world. they provide leverage where there was none before (illiquid bond markets, some asset backed securities markets).

until i see some concrete data that show the fed has a ton of outstanding repos i'm going w/ the above. (also the fed's repos are basically overnight always).

[ QUOTE ]

Finally, do both of you feel that CPI numbers will eventually go up dramatically based on the rapid growth of M2 and / or M3?

[/ QUOTE ]

yes, as a result of economic factors, of which M2 is included, most likely.

Barron

[Richard Tanner]

Couldn't find a specific reference to M3 sadly so this will have to do:



Cody

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
the main reason M3 departs from M2 from 1995-2007 is the increasing use of repurchase agreements by hedge funds and financial institutions as a means to generate leverage.


[/ QUOTE ]

What i didnt see you address is the use of repos by the fed to buy things like mortgage backed securities. This can prop up the housing market and allow for further expansion of credit through home equity leveraging while offsetting the eventualy downturn. This is good reason to make this info public.

Anyway, any exposure that is taken by the holding of the security, even if temporary, must have a long run effect on the money supply at least in a marginal way since markets aren't perfectly stable over time. Lastly, if the fed pays a repo rate that should add to the money supply too, no? If the fed receives a repo rate this should deplete from the commerical bank reserves?

[/ QUOTE ]

who engages in repos (in terms of total notional value)?

what % of that population is the federal reserve (again in terms of total notional value of all repurchase agreements entered into)?

how does the action those who engage in repos, as a result of that engagement affect the real economy?

the point is that the effect is so small as to totally distort anything M3 can give you. you said it imo..."...must have a long run effect on the money supply at least in a marginal way"

Barron

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
It seems they are arguing over whether Boro is miseducating less informed posters on economics. I'd say that has some meat. But word is Boro hit on DCFR's girl too. That make it way more interesting.

[/ QUOTE ]

he hasn't hit on my girl. but the first thing is definitely part of why he upsets me so.

i can't wait for him to respond to this though:

[ QUOTE ]
you can't change the fact that you have used numerous times in the past the cessation of the printing of M3 as ammunition saying that "they just stopped doing it because it looks worse." well, if you took 3 seconds to look up what was actually contained in M3 you'd see there are things that are distortive, informationwise as the use of repos has exponentially increased, without increasing the value of the indicator....

...or maybe you did look up M3 and saw it contained things that you didn't understand or know the extent of (repos) and just assumed it was a govt conspiracy anyways.

now you want to say "well it doesn't matter M2, M3, who gives a sh*t," but you can't. why? simply because you've used the not publishing of M3, like i just said, as evidence against the fed.

NOTE: please reread that before continuing. i'm not delving into a fed interest rate debate here. i'm simply saying that evidence you've used in the past is that it is fishy that the fed chose to stop publication of M3. Ron Paul has used the same in his speaches, but none of the opposition understood what could have been the real reason. notice that ron paul DIDNT say that when ben bernanke was the one being questioned because he would have gotten it shoved down his throat while he DID delve into almost every other major issue he had while he had his time at the M&B committee testimony.


[ QUOTE ]


I scoffed at the idea that the reason they stopped publishing it is cost




[/ QUOTE ]


ok, so you scoffed that they stopped the publication b/c of cost. but why? what was your alternative hypothesis?

you didn't possibly consider the reason they stopped publishing it is a combination of usefulness (repos distorting it) and cost...like they (the fed) said.


[ QUOTE ]

No more, no less. Oh, but I forget! The government would never have any motives that aren't pure as the driven snow. No, it couldn't POSSIBLY be that M3 just looks worse than M2.




[/ QUOTE ]


well, a poster below me said it so i'll just quote his reply:


[ QUOTE ]

Boro I don't think you can both at the same time say "No more, no less." and "No, it couldn't POSSIBLY be that M3 just looks worse than M2." I have yet to see something that the M3 numbers are more accurate then the m2 numbers. You have stated that the M3 number is the important one, and the only reason that you have given is that it's looks worse. Nor have you made a statement regarding the cost to the fed to acquire M3 versus extra knowledge that can gleamed above M2. I'll grant you motive that the fed might not want to publish numbers that make them look bad, but is there any other reason then a MO, that this is a conspiracy?




[/ QUOTE ]


so boro, call me crazy, keep belittling me and getting backing, it doesn't matter. the fact that you won't "let me get away with it" will only back you into a acorner until you will have to admit you are wrong...which is what i want.

you might even say something like "OK FINE, scoffing at the cost was a means i used to sell people on the conspiracy to stop printing it" or some other quick one liner to now discount this discussion without actually admitting being wrong. that won't fly and we'll keep at it until you have admitting your incorrectness here.

if that makes me crazy, so be it. but all the crazy insults, therapy cats, or other belittling words (no matter how funny...because therapy cat was not a 9/10, it was 10/10) won't distract from the goal i set out here of insulting you (may or may not be accomplished, but either way i'll concentrate more on the next goal) and to prove you wrong.

Barron


[/ QUOTE ]

Barron

[/ QUOTE ]

Borodog,

you can't possibly expect the mayor of crazytown to go through all the trouble of making this thread and then have you get away with not addressing the above issue.

please to be addressing it now, thanks,

Barron

[/ QUOTE ]

Borodog,

this will get at least 2 bumps a day until you address everything in the above post. don't make me start in with the PM's again.

you will never hear the end of this. ever.

ever.

did i say ever?

i'm not sure i did, but just to be sure...ever.

ever....until you own up to your incorrectness and/or address every issue/question i brought up.

Your humble Mayor.

[iron81]

[ QUOTE ]
you will never hear the end of this. ever.

[/ QUOTE ]
Yes, he will. Shortly.

[ALawPoker]

Iron, apparently you missed this part:

[ QUOTE ]
ever.

did i say ever?

i'm not sure i did, but just to be sure...ever.

[/ QUOTE ]

[Moseley]

This is an excellent post. I would like to confirm my longstanding belief as accurate:

That the Federal Reserve, by inflating the money supply, has more impact on the declining value of my father-in-law's fixed income (ssi, police retirement and 425k in bonds) than any other economic actor.

[pvn]

[ QUOTE ]
[ QUOTE ]
you will never hear the end of this. ever.

[/ QUOTE ]
Yes, he will. Shortly.

[/ QUOTE ]

YES!!! M0D WARZ!!!! GOGOGOGOGOGOGOGOGOG!!!!!1!!!!!eleven!!!

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
you will never hear the end of this. ever.

[/ QUOTE ]
Yes, he will. Shortly.

[/ QUOTE ]

YES!!! M0D WARZ!!!! GOGOGOGOGOGOGOGOGOG!!!!!1!!!!!eleven!!!

[/ QUOTE ]

I PM'd iron. thread will not be locked utnil it actually deteriorates to utter garbage.

if i don't see boro's reply by monday i'll PM him rather htan bumping this thread.

Barron

[vulturesrow]

Boooooooooooo!!