A Monetary Policy Primer, Part 1: Money

monetary policy, interest rates, central banking, money supply
Image from the film "The Wizard of Oz," produced by Metro-Goldwyn-Myer distributed by Warner Bros. https://i.ytimg.com/vi/-RQxD4Ff7dY/maxresdefault.jpg

WizardIt occurs to me that, despite the unprecedented flood of writings of all sorts — books, blog-posts, newspaper op-eds, and academic journal articles — addressing just about every monetary policy development during and since the 2008 financial crisis, relatively few attempts have been made to step back from the jumble of details for the sake of getting a better sense of the big picture.

What, exactly, is "monetary policy" about?  Why is there such a thing at all?  What should we want to accomplish by it — and what should we not try to accomplish?  By what means, exactly, are monetary authorities able to perform their duties, and to what extent must they exercise discretion in order to perform them?  Finally, what part might private-market institutions play in promoting monetary stability, and how might they be made to play it most effectively?

Although one might devote a treatise to answering any one of these questions, I haven't time to write a treatise, let alone a bunch of them; and if I did write one, I doubt that policymakers (or anyone else) would read it.  No sir: a bare-bones primer is what's needed, and that's what I hope to provide.

The specific topics I tentatively propose to cover are the following:

  1. Money.
  2. The Demand for Money.
  3. The Price Level.
  4. The Supply of Money.
  5. Monetary Control, Then and Now
  6. Monetary Policy: Easy, Tight, and Just Right.
  7. Money and Interest Rates.
  8. The Abuse of Monetary Policy.
  9. Rules and Discretion.
  10. Private vs Official Money.

Because I eventually plan to combine the posts into a booklet, your comments and criticisms, which I'll be sure to employ in revising these essays, will be even more appreciated than they usually are.

******

"The object of monetary policy is responsible management of an economy's money supply."

If you aren't a monetary economist, you will think this a perfectly banal statement.  Yet it will raise the hackles of many an expert.  That's because no-one can quite say just what a nation's "money supply" consists of, let alone how large it is.  Experts do generally agree in treating "money" as a name for anything that serves as a generally-accepted means of payment.  The rub resides in deciding where to draw a line between what is and what isn't "generally accepted."  To make matters worse, financial innovation is constantly altering the degree to which various financial assets qualify as money, generally by allowing more and more types of assets to do so.  Hence the proliferation of different money supply measures or "monetary aggregates" (M1, M2, M3, MZ, etc.).  Hence the difficulty of saying just how much money a nation possesses at any time, let alone how its money stock is changing.  Hence the futility of trying to conduct monetary policy by simply tracking and regulating any particular money measure.

For all these reasons economists and monetary policymakers have tended for some time now to think and speak of monetary policy as if it weren't about "money" at all.  Instead they've gotten into the habit of treating monetary policy as a matter of regulating, not the supply of means of payment, but interest rates.  We all know what interest rates are, after all; and we can all easily reach an agreement concerning whether this or that interest rate is rising, falling, or staying put.  Why base policy on a conundrum  when you can instead tie it to something concrete?

And yet…it seems to me that in insisting that monetary policy is about regulating, not money, but interest rates, economists and monetary authorities have managed to obscure its true nature, making it appear both more potent and more mysterious than it is in fact.  All the talk of central banks "setting" interest rates is, to put it bluntly, to modern central bankers what all the smoke, mirrors, and colored lights were to Hollywood's Wizard of Oz: a great masquerade, serving to divert attention from the less hocus-pocus reality lurking behind the curtain.

But surely the Fed does influence interest rates.  Isn't that, together with the fact that we can clearly observe what interest rates are doing, not reason enough to think of monetary policy as being "about" interest rates?  And doesn't money's mutable nature make it inherently mysterious — and therefore ill-suited to serve as the polestar of central bank policy, let alone as a concept capable of  demystifying that policy?

No, and no again.  Although central banks certainly can influence interest rates, they typically do so, not directly (except in the case of the rates they themselves charge in making loans or apply to bank reserves), but indirectly.  The main thing that central banks directly control is the size and make up of their own balance sheets, which they adjust by buying or selling assets.  When the FOMC elects to "ease" monetary policy, for example, it may speak of setting a lower interest rate "target." But what that means — or what it almost always meant until quite recently — was that the Fed planned to  increase its holdings of U.S. government securities by buying more of them from private ("primary") dealers.  To pay for the purchases, it would wire funds to the dealers' bank accounts, thereby adding to the total quantity of bank reserves.[1]   The greater availability of bank reserves would in turn improve the terms upon which banks with end-of-the-day reserve shortages could borrow reserves from other banks.[2]  The "federal funds rate," which is the average ("effective") rate that financial institutions pay to borrow reserves from one another overnight, and the rate that the Fed has traditionally "targeted," would therefore decline, other things being equal.

Because the Fed's liabilities consist either of the deposit balances kept with it by other banks and by the central government (the only other entity that banks with the Fed), or of circulating currency, and because commercial banks' holdings of currency and central-bank reserve credits make up the cash reserves upon which their own ability to service deposits of various kinds rests, when the Fed increases the size of its own balance sheet, it necessarily increases the total quantity of money, either indirectly, by increasing the amount  of cash reserves available to other money-producing institutions, or directly, by placing more currency into circulation.

Just how much the nation's money supply changes when the Fed itself grows depends, first of all, on what measure of money one chooses to employ, and also on the extent to which banks and other money-creating financial institutions lend or invest rather than simply hold on to fresh reserves that come their way.  Before the recent crisis, for example, every dollar of "base" money (bank reserves plus currency) created by the Federal Reserve itself translated into just under 2 dollars of M1, and into about 8 dollars of M2.  (See Figure 1.)  Lately those same base-money "multipliers" are just .8 and 3.2, respectively.  Besides regulating the available supply of bank reserves, central banks can influence banks' desired reserve ratios, and hence prevailing money multipliers, by setting minimum required reserve ratios, or by either paying or charging interest on bank reserves, to increase or lower banks' willingness to hold them. [3]

Figure 1: U.S. M1 and M2 Multipliers

MoneyMultipliers

If the money-supply effects of central bank actions aren't always predictable, the interest rate effects are still less so.  Interest rates, excepting those directly administered by central banks themselves, are market rates, the levels of which depend on both the supply of and the demand for financial assets.  The federal funds rate, for example, depends on both the supply of "federal funds" (meaning banks' reserve balances at the Fed) and the demand for overnight loans of the same. The Fed has considerable control over the supply of bank reserves; but while it can also influence banks' willingness to hold reserves, that influence falls well short of anything like "control."  It's therefore able to hit its announced federal funds target only imperfectly, if at all. Finally, even though the Fed may, for example, lower the federal funds rate by adding to banks' reserve balances, if the real demand for reserves hasn't changed, it can do so only temporarily.  That's so because the new reserves it creates will sponsor a corresponding increase in bank lending, which will in turn lead to an increase in both the quantity of bank deposits and the nominal demand for (borrowed as well as total) bank reserves. As banks' demand for reserves rises, the federal funds rate, which may initially have fallen, will return to its original level.  More often than not, when the Fed appears to succeed in steering market interest rates, it's really just going along with underlying forces that are themselves tending to make rates change.

I'll have more to say about monetary policy and interest rates later.  But for now I merely want to insist that, despite what some experts would have us think, monetary policy is, first and foremost, "about" money.  That is, it is about regulating an economy's stock of monetary assets, especially by altering the quantity of monetary assets created by the monetary authorities themselves, but also by influencing the extent to which private financial institutions are able to employ central bank deposits and notes to create alternative exchange media, including various sorts of bank deposits.

Thinking of monetary policy in this (admittedly old-fashioned) way, rather than as a means for "setting" interest rates, has a great advantage I haven't yet mentioned.  For it allows us to understand a central bank in relatively mundane (and therefore quite un-wizard-like) terms, as a sort of combination central planning agency and factory.  Central banks are, for better or worse, responsible for seeing to it that the economies in which they operate have enough money to operate efficiently, but no more.  Shortages of money wastes resources by restricting the flow of payments, making it hard or impossible for people and firms to pay their bills, while both shortages and surpluses of money hamper the correct setting of individual prices, causing some goods and services to be overpriced, and others underpriced, relative to others.  Scarce resources, labor included, are squandered either way.

Though they are ultimately responsible for getting their economies' overall money supply right,  central banks' immediate concern is, as we've seen, that of controlling the supply of "base" money, that is, of paper currency and bank reserve credits — the stuff banks themselves employ as means of payment.  By limiting the supply of base money, central banks indirectly limit private firms' ability to create money of other sorts, because to create their own substitutes for base dollars private firms must first get their hands on some of the real McCoy.

But how much money is enough?  That is the million (or trillion) dollar question.  The platitudinous answer is that the quantity of money supplied should never fall short of, or exceed, the quantity demanded.  The fundamental challenge of monetary policy consists, first of all, of figuring out what the platitude means in practice and, second, of figuring out how to make the money stock adjust in a manner that's at least roughly consistent with that practical answer.

Continue Reading A Monetary Policy Primer:

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1. Although people tend to think of a bank's reserves as consisting of the currency and coin it actually has on hand, in its cash machines, cashiers' tills, and vaults, banks also keep reserves in the shape of deposit credits with their district Federal Reserve banks. When the Fed wires funds to a bank customer's account, the customer's account balance increases, but so does the bank's own reserve balance at the Fed. The result is much as if the customer made a deposit of the same amount, using a check drawn on some other bank, except that the reserves that the bank receives, instead of being transferred to it from some other bank, are fresh ones that the Fed has just created.

2. Although amounts that banks owe to one another are kept track of throughout the business day, and settlement is instantaneous, the Fed itself takes responsibility for whatever part of their obligations banks themselves cannot immediately cover.  It is only at the end of the business day that banks that end up owing money to the Fed must come up with the reserves they need both to settle up with it and to meet any overnight reserve requirements.

3. The Fed first began paying interest on bank reserves in October 2008.  Although some foreign central banks are now charging interest on reserves, the Fed has yet to take that step; nor is it clear whether it has the statutory right to do so.

  • joebhed

    Dear Dr. Selgin,
    Thanks for this effort. Lot's there…. and to come.
    There's a good reason you seem unable to separate "money" from "banking".
    Think on that, please.
    Also, knowing how well read you are ….. it's about time.
    Read Soddy.
    https://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

    THE ROLE OF MONEY

    WHAT IT SHOULD BE,
    CONTRASTED WITH WHAT IT HAS BECOME .

    Thanks.

    • George Selgin

      Thanks, joebhed. I'm taking the connection between money and banking for granted only because it is real. I plan to address the normative question of whether it ought to remain so in the last of my posts in this series.

      • joebhed

        Thank you.
        Indeed there is a connection, as you say.
        But, to be a little more clear, what I'm asking you to see the connection between is not so much money and banking, but between money and 'debt'. With FR banking, all money is created as a debt ….. so no more debt = no more money.
        Can you say …. secular stagnation, balance sheet recession or, in the words of Dr. William White former BIS Director of Monetary and Economic Policy, Debt Overhang and monetary insolvency?
        There is tons more debt than money to pay that debt ….. already.
        The IMF has FINALLY come out and said Greece's debt is not sustainable …. being the central banker jargon for whistling past the graveyard ….. in order to avoid saying, it is UN-PAYABLE.
        Dr. White's candor includes that the debts are today, right now, unpayable
        Thus, insolvency. Thus, as he says, forget monetary policy.
        Monetary policy under debt-based money is 'done'.
        Only the reforms proposed by Soddy can enable the money system of the future.
        Please DO have a read.
        Thanks, Dr. Selgin.
        .

        • Lots of folks in the middle class became insolvent because of failure of monetary policy. I ask you guys, could the Fed have started buying bad paper from the banks in early 2007, at least stabilizing the housing market just a little bit? I realize that bill HR 1424 had not yet been passed, but it had been introduced in 3/2007. It is almost as if the powers that be knew at that time that excess reserves would need to be expanded and used to buy bad paper.

          But the Fed waited, and waited, and by then its benefactors, the wealthy, got the houses back at fire sale prices and the banks were paid by taxpayers to foreclose.

          That seems like a rigged policy, a conspiracy, even, especially after we learned that the CDO's were mispriced by faulty assumptions in the first place, and that that mispricing had been adopted by Basel 2 and S&P!

          The Fed simply did not care that NGDP was falling off a cliff, in 2007-2008.

          • They could have, right? But they were quite happy to see the brakes applied to inflation by sapping the middle class, IMHO, it was engineered. I'll never get over Greenspan's recommendation to get an adjustable rate mortgage when rates were at an all time low, knowing they would be testing a rate increase's effect on inflation in the modern environment… they sunk our battleship.

            And they did it while proving that if inflation becomes an issue they have plenty of ammo to deal with it, so IMO the only good news is that we should not be facing hyperinflation in the US any time soon, despite massive global money supply growth, quantitative easing or the constant refinancing of our own debt at lower and lower rates, and a negative real interest rate.

            Structural deflation continues to be the bigger risk, like stagnant wage growth, but also particularly in the form of popping massive bubbles continued investments by the wealthy are creating. Instead of markets settling at reasonable places that the common man can access through a normal economic contraction, inflationary monetary policy continues to grossly overprice assets – and the lower and middle class will continue to pay the price. One of the biggest disparities is clear; home ownership rates are at all time lows while rents skyrocket.

            For us to make more money we must be ever more ingenious while they continue to concentrate their wealth in real assets at our expense. Future productivity growth now depends on the backs and minds of millennial entrepreneurs – we are now DEPENDING on the American Dream to sustain future generations, instead of it being an opportunity for the few. Luckily the barriers to business startup are historically low, while opportunity is historically high.

            The only other hope on the horizon I see, which so many are afraid of, is a structural inflation based on wage growth – a higher minimum wage is the answer – and the reason is that poor and lower middle class people spend ALL of the new money they make. The velocity of their money is profound and has a revitalizing effect on the retail and services sectors, and the economy as a whole. When the minimum wage goes up, everyone else will demand a raise as well and we will have engineered a boost to the economy, despite the minor inconvenience businesses face initially.

            And while I'm posting, I must say to all beware the stock market. My analysis says we are are in a FINAL blow-off rally that will be short lived, just take a look at the following charts Margin Debt vs Dow/S&P & Earnings (EPS) vs. Dow/S&P. Both are leading indicators and the case is clear.

            P.S. Thank you for this series, I am looking forward to reading the rest.

  • Steven Horwitz
    • George Selgin

      Thanks Steve for reminding me of one of the "relatively few." I will be sure to cite it (and others I am aware of) in the finished primer.

  • Ralph Musgrave

    I have an absolutely fundamental objection to monetary policy. It's this. Monetary policy aims to adjust aggregate demand, and I agree that demand needs adjusting periodically. But I see no reason whatever for imparting more (or less) stimulus to the economy in the form of more (or less) borrowing and lending and investment (which is the intended effect of interest rate changes), than imparting more or less stimulus in the form of more or less spending on ice-cream, lollipops, cars, education or anything else. In other words, where more demand is needed, the additional demand should come in the form of increased demand for as broad a range of items as possible.

    If this idea is incorporated in the "booklet" I'd appreciate having my name emblazoned across the front cover (ho ho).

    • George Selgin

      Ralph, (1) it seems to me that, rather than objecting to monetary policy as such, you are favoring a policy that would keep aggregate demand constant.

      (2) Keeping demand constant is itself hardly the same as doing nothing, for as long as money's velocity varies, so must it's quantity vary if demand is to remain stable.

      (3) Who said anything about "imparting more or less stimulus" to the economy? So far, I have only described policy in the most general terms, without taking any stand at all on how money and aggregate demand out (ideally) to behave. To anticipate, though, I myself have long considered stability of aggregate spending or demand to be desirable. I therefore don't agree on the need for regular "adjustments" to aggregate demand.

      (4) Like it or not, in modern monetary systems practically every unit of money is backed by "credit" of some sort, whether that consists of a loan to some private sector borrower or of one to the government. It is therefore impossible to conceive of a change in money stock, or in aggregate demand, that doesn't entail a change in the nominal (though not necessarily in the real or inflation-adjusted) quantity of lending.

      • Ralph Musgrave

        George: My answers herewith.

        1. No: I’m suggesting that fiscal policy and that alone should be used to adjust demand (in an ideal world) – or to be more accurate, I’m saying that monetary policy ON ITS OWN should never be used. Fiscal policy enables an increase in public spending and a boost for household spending in the form of tax cuts. Of course in the real world, fiscal policy is under the control of politicians who know less about economics than the average garden snail. But all is not lost. Positive Money and co authors set out a system (link below) under which the size of all forms of stimulus (monetary and fiscal) are determined by professional economists, while strictly political decisions, like what proportion of GDP is allocated to public spending stays with politicians. Actually they advocate a merge of fiscal and monetary policy in that fiscal stimulus is all funded with new base money. In other words I object to monetary policy ever being used ON ITS OWN.

        http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf

        3. By “adjustments” to AD, what I meant was this. AD is clearly not stable if left to market forces (e.g. the 2007/8 crisis). Thus the state has to compensate for market instability. By “adjustment” I was referring to those compensation efforts.
        In addition, and given increased productive capacity, I doubt the market is too good at adjusting AD accordingly. So there again, state sponsored adjustments (upwards) are needed.

        4. I agree that a rise in AD will almost certainly be accompanied by a rise in lending and investment : when more customers come thru the door, the average business will invest more so as to meet demand. But that’s not a good reason to BRING ABOUT a rise in AD by artificially boosting lending. The latter causes a bias towards investment spending, which I don’t care for.

        Likewise, a rise in AD is doubtless nearly always accompanied by a rise in ice-cream, lollipop and car sales. But that’s not a reason to feed stimulus into the economy via subsidies for those three items.

  • Steve Fritzinger

    Depending on your audience, you might want to expand on the sections on how central banks influence but don't control interest rates and on how private money is created. When I first started studying these topics (reading you, Drs. Horwitz and White, et al.) it took me a long time figure those topics out. If your audience includes neophytes, going deeper into how that works would be appreciated.

    • George Selgin

      Thanks, Steve. I do plan to further address the topics you mention in future installments.

  • María Blanco

    The booklet should be translated into Spanish.

  • How much money is enough? Calculate the average daily consumption per person who has a decent living standard i.e. food, shelter (mortgage), education, cloths, cars, holidays, retirement, healthcare etc. but have them done at the highest quality level. At the end of the day, the amount spent should provide a pretty good picture on how much energy was required to be produced at the individual level. Using the materials balance calculations within an dynamic thermodynamic environment, we should be able to better assess the daily needs per individual. Now, what happens when the individual does not earn anything every day? What happens when some earn much more than they can possible consume per day?

    • George Selgin

      Alas, bitspec, like many people you confuse "money" with what money can buy. The Fed isn't a great milch cow from which the people draw their sustenance, or a cornucopia, or anything like that. Nor is it it's business to supply ration tickets to determine how much anyone consumes. Its job is to see to it that an economy in which people's incomes are themselves largely determined by factors other than monetary policy (including–so far–how much they contribute to the availability of valuable goods and services) has a sufficient supply of exchange media with which to accomplish those exchanges that people wish to take part in.

      As for what people do when they earn more than they consume, the answer is that they invest, and so allow both themselves and others to consumer more in the future. Practically all of the output we consume today exists only thanks to the fact that people have been doing this for centuries.

      • Hey George, what we could buy yesterday we will not be able to buy tomorrow due to thermodynamic processes. Money produced are the result of processes that happen at all levels therefore investments made yesterday in oil, led to increased levels of pollution etc…should I continue. Any investment done that was not for life to get better led to worsen conditions on Earth.

  • Unsal Cetin

    Selgin,
    Can we say that Figure 1 shows that Fed has not followed Bagehot Rule after the 2008 crash. Because there is no rapid money supply increase despite the expansion of Fed's balance sheet.

    • George Selgin

      I don't think so, Uncel. The charts only show the money multiplier, not the money stock. The Fed did not in fact follow Bagehot's rule, but the proof of that lies elsewhere.

      • Unsal Cetin

        So, I think that proof should be included to your booklet.

  • Tom

    "Before the recent crisis, for example, every dollar of "base" money
    (bank reserves plus currency) created by the Federal Reserve itself
    translated into just under 2 dollars of M1, and into about 8 dollars of
    M2. (See Figure 1.)"

    There is only about 5 years of data before the recession, but to my eye it looks as though the M1 multiplier is just under 7 dollars not 2.

    Thanks for the primer. I will buy the treatise if you find the time!

    • George Selgin

      Tom, the left scale of the picture is for M2, the right for M1. I regret that the picture misled you.

  • Tom

    near the end of the sixth paragraph, I believe the word "indirectly" should be "directly".

    • George Selgin

      Right you are, Tom. Thanks.

  • Frank Taussig

    Hello George! I have enjoyed your work for years and am thrilled that we will see this primer come to life in real time. Who is the target audience? i.e what type of comments are you looking for? I am a market practitioner (fx) with no formal econ training. If I see something that is confusing to me or hard for me to follow should I speak up or assume that a trained economist will not have the same trouble as I? Thank you.

    • George Selgin

      Frank, it's intended for non-economists, especially in policy-making circles. So do please speak up whenever you're so inclined–and thanks!

  • "I doubt that policymakers (or anyone else) would read it." I most certainly would read it and looking forward to reading parts one and two this weekend. Been hooked since finding Hayek's Denationalisation and your work, as well. Thank you!

    • George Selgin

      Thanks, Milton Hayek's pamphlet was also what got me started!

  • Counsellor

    "The object of monetary policy is responsible management of an economy's money supply."

    Any economic or social "policy" is established as the result of the objectives of some to influence, direct, or control the conduct of others, particularly in the nature of relationships and in determinations of the circumstances in which the relationships occur.

  • Counsellor

    Sorry, cut off too soon.
    The underlying issues of "policy" thus concern the determination of objectives and THEN of the means for their attainment.

    • George Selgin

      I don't disagree, Counsellor. In explaining how things work under present arrangements, I don't mean to be understood to endorse those arrangements. All reform involves going from what is to what ought to be.

      • Counsellor

        As one who respects your scholarship, analysis and articulations, I don't mean to over-engage you; so you can let this "slide."

        You do encapsulate the issue when you write:
        ". . . what ought to be."

        By experience, and some other tests, we may perceive ". . . what ought **not** to be." The other may be a bit beyond our grasp.

  • Warren Gibson

    The graph to which you link showing effective FF rates is a little fuzzy. If I look on FRED it appears that effective rates follow target rates rather well and that when the target rate changes the effective rate gets in line pretty quickly. It does not appear that the Fed says "jump" after seeing the market move. I would suggest a little more numerical support for your argument.

  • M. Camp

    How does one determine the quantity of money demanded?

  • universe

    I don't envy the Federal Reserve. The Soviet Union tried to determine economic quantities (price, supply, demand, etc.). Even with some of the smartest people on the planet and massive investment in information collection, they weren't able to do it. And they had the prices in other economies to work off of! The Fed's got to drive blind, it seems.

  • Spencer Hall

    "To make matters worse, financial innovation is constantly altering the degree to which various financial assets qualify as money, generally by allowing more and more types of assets to do so."

    ————————————

    Complete tripe. From the standpoint of monetary authorities, charged with the responsibility of
    regulating the money supply, none of the current definitions of money make sense. The definitions include numerous items over which the Fed has little or no control (e.g., M2), including many the Fed need not and should not control (currency). The definitions also assume there are numerous degrees of “moneyness”, thus confusing liquidity with money (money is the “yardstick” by which the liquidity of all other assets is measured). The definitions also ignore the fact that some liquid assets (time deposits) have a direct one-to-one, relationship to the volume of demand deposits (DDs), while others affect only the velocity of DD (an increase in TDs depletes DDs by an offsetting and identical amount). The former requires direct regulation; the latter simply is important data for the Fed to use in regulating the money supply.

    If the “store of purchasing power” attribute of money, when applied to a given asset, is to have significant meaning, it ought to be defined in terms which are applicable to the whole economy. That
    is, no asset really has a “monetary store of purchasing power” quality unless there can be a net conversion of that asset into money, ceteris paribus. In other words it must be possible to effect
    this conversion without necessitating that any present money holder reduce/liquidate his holdings/assets (e.g., without “breaking the buck”, viz., when the net asset value (NAV) of a money market fund falls below $1). Any other interpretation becomes mired in a futile discussion of relative degrees of confidence and liquidity. But much more than monetary liquidity for the individual holder is necessary if an asset can be said to have the “store of purchasing power” quality; it must be simultaneously monetarily liquid for society as a whole. – Leland James Prichard, Ph.D., economics, Chicago, 1933

    Contrary to Bankrupt u Bernanke ("Unfortunately, beyond a quarter or two, the course of the economy is extremely hard to forecast"), economic prognostications within a year’s period are infallible.

    Money flows:

    parse; dt; real-output; inflation;

    01/1/2016 ,,,,, 0.07 ,,,,, 0.20

    02/1/2016 ,,,,, 0.02 ,,,,, 0.16

    03/1/2016 ,,,,, 0.04 ,,,,, 0.13

    04/1/2016 ,,,,, 0.04 ,,,,, 0.15

    05/1/2016 ,,,,, 0.05 ,,,,, 0.19

    06/1/2016 ,,,,, 0.07 ,,,,, 0.15

    07/1/2016 ,,,,, 0.11 ,,,,, 0.15

    08/1/2016 ,,,,, 0.11 ,,,,, 0.20

    09/1/2016 ,,,,, 0.11 ,,,,, 0.20

    10/1/2016 ,,,,, 0.05 ,,,,, 0.19

    11/1/2016 ,,,,, 0.10 ,,,,, 0.19 inflation peaks

    12/1/2016 ,,,,, 0.11 ,,,,, 0.11 stocks peak

    01/1/2017 ,,,,, 0.08 ,,,,, 0.14 inflation accelerates

    02/1/2017 ,,,,, 0.05 ,,,,, 0.13

    03/1/2017 ,,,,, 0.05 ,,,,, 0.12

    04/1/2107 ,,,,, 0.03 ,,,,, 0.13

    05/1/2017 ,,,,, 0.03 ,,,,, 0.16

    Inflation will accelerate and the bond bubble will burst beginning in 2017. 2017 will mark an acceleration in stagflation too.

    This is the HOLY GRAIL. It is inviolate and sacrosanct. It is worth trillions of economic $s. It should be classified as top secret by the CIA. It is the greatest discovery since man’s invention of the wheel.

    Michel de Nostredame

  • Spencer Hall

    Money should be defined exclusively in terms of its means-of-payment attributes. The present array of interest-bearing checking accounts has confused the distinction between means-of-payment accounts (the primary money supply driven by payments) and saving-investment accounts, and created a dilemma as to what portion, if any, of these interest-bearing accounts should be considered as savings.

    This dilemma is resolved when the transactions velocity of demand deposits was taken into account (i.e., the G.6 debit and demand deposit turnover release discontinued by Ed Fry in September 1996); i.e., deposit classifications are analyzed in terms of monetary flows (MVt). Obviously, no money supply figure standing alone is adequate as a “guide post” to monetary policy.

    But we knew this already: In 1931 a commission was established on Member Bank Reserve
    Requirements. The commission completed their recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled "Member Bank Reserve Requirements — Analysis of Committee Proposal"

    It's 2nd proposal: "Requirements against debits to deposits"

    http://bit.ly/1A9bYH1

    After a 45 year hiatus, this research paper was "declassified" on March 23, 1983. By the time this paper was "declassified", RRs had become a "tax" [sic].

    – Michel de Nostradame