"www.freedomtofascism.com"  wrote in message 
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> "www.freedomtofascism.com"  wrote
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> news:4962387b$0$22671$7836cce5{at}newsrazor.net...
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>> "www.freedomtofascism.com"  wrote in message 
>> news:7uu3m4tqh9gq8tn0bbu5o5rer634ibasfu{at}4ax.com...
>>> Uh Oh....  Monetary Flat Spin
>>>
http://market-ticker.denninger.net/archives/703-Uh-Oh.....-Monetary-Flat-Spin.html
>>>
>>> M1 money multiplier
>>> http://market-ticker.org/uploads/MULT_Max_630_378.png
>>>
>>> That has gone "just below" 1.0.
>>>
>>> What is this?
>>>
>>> I could go through the derivation of how money supply works in a 
>>> fractional
>>> reserve monetary system (any), but won't, because most readers would 
>>> have
>>> their eyes glaze over.
>>>
>>> The important part of this graph is what it denotes.  Bernanke has lost
>>> control of "N" (or velocity), which is the actual
knob that he is trying 
>>> to
>>> diddle when borrowing rates are changed (and in fact its the market that
>>> sets that, despite his protests.)
>>>
>>> In fact the most useful tool in The Fed's box in terms of influencing
>>> monetary policy is the soapbox, that is, jawboning (whether it be by
>>> cajoling or threatening.)
>>>
>>> The problem with an M1 multiplier below one is that the effect of 
>>> printing
>>> money is of course multiplied by the velocity.  That is, if
you print up 
>>> $10
>>> into the economy the impact it has on economic activity depends on how 
>>> many
>>> times that $10 circulates in a given amount of time.  The more it 
>>> circulates
>>> the higher the impact and the more your efforts do for the economy.
>>>
>>> The bad news is that when the multiplier is less than one the
more money 
>>> you
>>> spew into the economy the worse the impact, as you get less for each
>>> additional dollar.
>>>
>>> If you remember the "GDP for each dollar of debt" graph....
>>> http://market-ticker.org/uploads/debt-contribution.serendipityThumb.jpg
>>>
>>> M1's multiplier going below 1 strongly implies (but does not yet prove) 
>>> that
>>> we have reached that "zero hour".
>>>
>>> Why?  Because all money is in fact debt; this is inherent in all modern
>>> monetary systems.
>>>
>>> When Bernanke "creates" money he is doing so against
an asset - that is, 
>>> he
>>> is issuing debt.  A Federal Reserve Note (whether electronic or paper) 
>>> is in
>>> fact effectively a bond of zero maturity and indefinite expiration 
>>> against
>>> the future tax collection capacity of The United States.
>>>
>>> That is, it's a treasury bond (via a circuitous route)
>>>
>>> The paradox that Bernanke is in danger of discovering (the hard way) is 
>>> the
>>> paradox of a pilot who finds himself in a flat spin.  As the ground
>>> approaches he wants to pull back on the stick but if he does so, the 
>>> spin
>>> simply tightens as the wings are not producing lift - the angle of 
>>> attack is
>>> too high, not too low.  As such if he does what his brain
screams at him 
>>> to
>>> do instinctively, he dies.
>>>
>>> Or the scuba diver who sucks on the reg and gets nothing. 
Your instinct 
>>> is
>>> to hold your breath and kick for the surface.  If you do it you die.
>>>
>>> In both cases your only hope of survival is to do exactly the opposite 
>>> of
>>> your instinct.  In the case of the pilot you must not only give
>>> counter-rudder (to stop the rotation) but also push the stick forward. 
>>> In
>>> the case of the diver you must exhale that last breath you have in your
>>> lungs, knowing there are no more in the tank while you kick to ascend.
>>>
>>> If you succumb to instinct you are dead.  Really dead, as in splat (or
>>> exploded lungs.)
>>>
>>> Bernanke is effectively in the same box.  The foundation of his entire
>>> thesis as a banker is that a central bank can always reverse a
deflation 
>>> by
>>> printing money.  Unfortunately as he has done so velocity has
fallen and 
>>> the
>>> multiplier has now gone below 1.  If this induces him to do even more of
>>> what caused this decrease there is a very real risk that the actual 
>>> market
>>> reaction will be to tighten the monetary flat spin.
>>>
>>> This is because the underlying problem in the economy isn't the lack of 
>>> debt
>>> (money) in the system.  It is that there is too much debt of all sorts, 
>>> and
>>> since money is in fact a form of debt, you can't fix the problem by 
>>> playing
>>> helicopter drop!
>>>
>>> As I have said for more than a year the only way out is to force the bad
>>> debt out into the open and default it.  Yes, this will produce 
>>> bankruptcies
>>> - lots of them, including some for "inconvenient"
people like Paulson's
>>> buddies on Wall Street.
>>>
>>> But until and unless that happens adding more debt to the system 
>>> depresses
>>> the multiplier effect of that debt on circulation further, and harms, 
>>> rather
>>> than helps the situation.
>>>
>>> I don't expect our government officials to understand the math on this, 
>>> nor
>>> would trying to go through it help 99% of the readers, but 
>>> unfortunately,
>>> mathematics is the only true science - and you can't twist it,
no matter 
>>> how
>>> hard you try.
>>>
>>> Bernanke knows this at an intellectual level, just as the diver - or 
>>> pilot -
>>> knows that if he holds his breath (or pulls the stick) he is going to 
>>> die.
>>>
>>> The question now becomes whether Bernanke can overcome not
only instinct 
>>> but
>>> also political pressure to do the wrong thing and instead use his 
>>> intellect
>>> - and the math - to do the right thing.
>>>
>>> What is the right thing?  Paradoxially, it is to withdraw liquidity and 
>>> by
>>> doing so force the bad debt into the open where it does (and must) 
>>> default.
>>>
>>> How far can the above ratio contract before we cross an
"event horizon" 
>>> from
>>> which there is no escape?
>>>
>>> I don't know.
>>>
>>> But I do know that there is a "too late" point, as
there is for all such
>>> things, and that we are approaching it, as I have been saying for 
>>> months.
>>>
>>> BTW, evidence that Bernanke's Monetary Flat Spin is already impacting 
>>> the
>>> economy in ways that may do critical (if not fatal) damage was found 
>>> this
>>> morning in the Case-Schiller numbers.  Everyone, including Bernanke, was
>>> expecting the rate of home price declines to start to slow in the second
>>> half of the year.  Instead, they accelerated.
>>>
>>> We're in uncharted territory folks, and the forecast is for 
>>> dark-and-stinky
>>> storms.
>>>
>>> Buckle up.
>>>
>>> PS: Congress, and the rest of America, can't say they weren't warned. 
>>> They
>>> were - right here:
>>>
>>>
http://market-ticker.denninger.net/archives/618-Congress-What-Bernanke-and-Hank-Arent-Telling-You.html
>>>
>>>
>>>
>>>
>>>
>>> This post originated from Supernews,
>>> not newsrazor.net. The idiot posting
>>> from newsrazor.net is forging the nym
>>> www.freedomtofascism.com in hopes that
>>> people reading Google will think we're
>>> the same person.
>>
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