The attachment is a three line graph made from FRED graphs by simply printing over one paper with the three different
Graphs.
SO. ?
Question: When the Fed (not Treasury) sells treasuries, do they record the money received on their books or write it off (reverse of creating it).
If less base money is being created, does the law of supply and demand cause the price (value) of the dollar to rise?
I think the dollar value is rising.
Is base money now an investment, people (banks) holding it because it is increasing in value?
Could this be the base cause for the repo issue of late?
As the only way base money can be off our books is for it to be used to pay down foreign debt, we have that
and the double affect of a rising dollar favoring imports.??
--
You received this message because you are subscribed to the Google Groups "Understanding Money" group.
To unsubscribe from this group and stop receiving emails from it, send an email to understandingmo...@googlegroups.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/5dc86d18.1c69fb81.1f22c.975aSMTPIN_ADDED_MISSING%40gmr-mx.google.com.
Attachments are the FRED pdf’s I used.
The drop in base money is about %20 since the start of QE, etc. I think that is substantial relative to its abruptness.
I agree that it can become very complicated and maybe my suggestions are just another view but I am going, as always, from
A basic standpoint and the strength or weakness of the dollar is pretty basic. So whose the dog and whose the tail? (Menger’s cause and
Effect)
The cause here seems to be the Fed stepping big into the attempt to start bringing the reserves back to “normal”. I won’t go into their
Reasoning because they don’t seem to have any except maintaining their position with the ruling cohort.
But, less money means less supply = higher price. Also, leverage in immediately increased as demonstrated by the increasing
multiplier. A stronger dollar is good for domestic importers (Walmart) and the exporter (China) they import from, complicated
by the US corporations getting the profits from their manufacturing in China, etc.
It looks like my possibility was the 3rd one mentioned in the article. The Fed shot itself in the foot again.
Question: Is that $125 million in loans? I would assume so because reserve base money would be created otherwise.
Thanks for the explain on the disappearing reserves. That little detail is the difference between money not being destroyed
And being destroyed, something I tend to get confused about without that little detail in strong mind.
James
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg50GNgChU3RkvouYn1yhgScgWM%2BFNhtGLnCdWzr24CgzVQ%40mail.gmail.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/5dc8fe16.1c69fb81.e61e0.bfb6SMTPIN_ADDED_MISSING%40gmr-mx.google.com.
Monetary Base = Currency Outside Banks plus Bank Reserve Balances
M1 Money Supply = Currency Outside Banks plus Nonbank Transaction Deposits
Multiplier = M1/MB
Do you agree with this basic simplified scheme for the purpose of discussion? If so my comments are below.
Using underline to distinguish posters
Agree so far.
1. When Fed buys a security from a bank it increases MB via a credit to reserve balances. When Fed sells a security to a bank then it decreases MB via a debit to reserve balances. Thus MB goes up or down via transaction records on the books of Fed which impacts the corresponding level of bank reserve balances.
2. When Fed buys a security from a nonbank it increases MB by a credit to reserve balances in the name of the payment clearing bank. The payment clearing bank increases M1 by a credit to nonbank transaction deposits in the name of the nonbank seller. When Fed sells a security to a nonbank this decreases MB and M1 via the reverse accounting logic.
3. The multiplier is a residual of Fed actions and actions of the aggregate bank when dealing with nonbanks to keep reserve payments flowing in the bank payment clearing system. For example say Fed injects some MB/M1 via what we call large scale asset purchases or quantitative easing by buying securities mostly from nonbank sellers. Then the aggregate bank would be stuffed with more MB as assets and more M1 as liabilities on its balance sheets. But then if some banks need to free up reserves for making interbank payments they offer to pay interest on deposits or on other short term borrowings which include repurchase agreement liabilities of banks. This reduces M1 by converting some bank transaction deposits to other liabilities on the books of the aggregate bank and therefore changes M1/MB multiplier.
4. When nonbanks withdraw currency from banks this increases currency outside banks in the formal definitions of both MB and M1. However it also decreases nonbank transaction deposits in M1 and decreases bank reserve balances in MB by the net amount of currency withdrawal over some period. In the long run currency outside banks goes up with the growth of the economy etc. Fed can service the currency drain, putting both MB and M1 back into the aggregate bank balance sheet, by making purchases of securities from nonbanks as described in item 1 above.
The multiplier ratio is a residual of several processes which does not seem to indicate any useful analytical indication. If there is a rapid spike in the repo market interest rates then it does indicate some sort of shortage of liquidity in the financial dealer markets which could be caused by Fed reducing MB rapidly per your theory. The other side of the supply of MB is the demand for MB which the articles say might be triggered by Primary Dealers clearing large tax payments and by Primary Dealers seeking finance to purchase a large auction of Treasuries at the same time. The discussion above does not discuss the discount window lending to banks or the credit facilities for nonbanks which may also be used to implement Fed's policy and mission in any situation.
Joe
Very good description.
James
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg536odBNd%2BJh7oMe1CqWJmTPeb7%2BCgAhPH7K2nM1S8eH_A%40mail.gmail.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg536odBNd%2BJh7oMe1CqWJmTPeb7%2BCgAhPH7K2nM1S8eH_A%40mail.gmail.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/1831744646.2522953.1573503039719%40mail.yahoo.com.
Much agreed to and deleted for clarity.
Taxes, fees, and other payments to the federal government paid by nonbanks reduce reserve balances in MB and transaction accounts in M1 on the aggregate bank balance sheet although only M1 goes down at first when funds are temporarily stored in TT&L for subsequent transfer to Treasury General Account TGA at Fed. This drains money. This drains M1 money, not MB money.
James
Joe
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg53jb5Suj6E69gzTu3TdzXNt4WSJTpVg%3DbLbcSjoXih4ug%40mail.gmail.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/5dc9fce3.1c69fb81.eb325.c735SMTPIN_ADDED_MISSING%40gmr-mx.google.com.
Your “explanations” is one of the most confusing posts I have seen you make.
The issue is simple. TT&L accounts are reserve accounts or not. If they are reserves then MB is not decreased.
I think they are reserves. Do you think they are not?
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg520q6Zmbj3P%2Bw-GhSj9uB975bSpZU6%3DutZhdCpq0js2zg%40mail.gmail.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/5dcaddd1.1c69fb81.41d8e.c727SMTPIN_ADDED_MISSING%40gmr-mx.google.com.