"www.freedomtofascism.com"  wrote in message 
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> "www.freedomtofascism.com"  wrote
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> news:496238bf$0$22709$7836cce5{at}newsrazor.net...
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>> "www.freedomtofascism.com" 
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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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