tag:blogger.com,1999:blog-34323687.post3529756412896224755..comments2024-03-28T00:23:22.838+00:00Comments on Macro Man: VelocityMacro Manhttp://www.blogger.com/profile/12324967552369915949noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-34323687.post-9671936900830322982009-10-20T23:42:46.718+01:002009-10-20T23:42:46.718+01:00Anon @11.40 has it right on:
"The real failur...Anon @11.40 has it right on:<br />"The real failure is that the same guys that merged lenders and punters into banks and then levered them up to the moon for “all the turds that came out” sake - are in fact in charge. <br /><br />Again."<br /><br />I agree. The same people are again in charge. <br /><br />What we have seen recently, with the DOW back up to 10,000 is a bear market rally. Not a recovery.<br /><br />http://www.thedeflationtimes.com/2009/10/18/dow-reaches-10000-again/Forex Info USAhttps://www.blogger.com/profile/13130959428589641965noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-33566278990566892852009-10-20T17:59:58.269+01:002009-10-20T17:59:58.269+01:00Hence, the "market failure" and the need...<i>Hence, the "market failure" and the need for a robust regulatory framework</i><br /><br />I believe that forcing the perps to eat their losses would be much more effective!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-76895466703672263522009-10-20T00:18:33.100+01:002009-10-20T00:18:33.100+01:00"Forcing the private sector to run exclusivel..."Forcing the private sector to run exclusively long-term liabilities would, for example, seriously crimp modern inventory management techniques, and lead to the sort of Soviet-style allocation of resources that we have recently enjoyed here in the UK."<br /><br /><b>Permanent</b> financing of inventory is working capital that should be financed with long term liabilities such as long bonds or equity.<b>Cyclical</b> financing of inventory should be financed with debt that has a duration higher or equal than that of the cycle (for instance, one year for a toy maker).<br /><br />You can find this principle already stated in the wealth of nations<a href="http://www.econlib.org/library/Smith/smWN7.html#B.II,%20Ch.2,%20Of%20Money%20Considered%20as%20a%20particular%20Branch%20of%20the%20General%20Stock%20of%20the%20Society" rel="nofollow"> II.2.64</a><br /><br />I don't see how maturity matching has anything to do with modern inventory management techniques (which are essentially automatically linking the inventory management system of companies along the production chain, together with tight logistics integration), nor with soviet economies. Please explain.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-31645761278731743852009-10-19T23:40:10.511+01:002009-10-19T23:40:10.511+01:00The system needed some serious haircuts administer...The system needed some serious haircuts administered. None were. Instead we have a maniac, running Fed, running its BS through and levering the Treasuries` investments up to the moon for the sole purpose of hiding the fraud perpetrated in the recent past - behind the lake of “liquidity”, leaking into excess reserves - turned “assets”, interest rates calm and 401ks pump. Not -mind you- leaking into anything, disturbing the backed by nothing securities` cash flow. <br /><br />So it is not that there is complete stupidity behind this destruction in progress. <br /><br />Then we have lenders being mopped up one by one by the deposit insurance maniacs for the sake of the punters, again, whose bonds they back against own charter into deficits that supposedly hedge ALL deposits - that now flow onto punters exclusive “daily day care” studio. <br /><br />So velocity is not a problem. That velocity was The solution. <br /><br />As for the turd clearing house - courts were the ONLY option and fraud the only theme. Not by virtue or for ethics` sake but for the numbers! Thankfully, the Europeans went all in too, were then bribed a bit too on the counter party status plus have now no political brain cell left - to finally default on the entire pile of turds they find themselves sitting upon and thus end this farce.<br /><br />Then we’ve just had our special drawing obligations revalued onto 1:10.<br /><br />The real failure is that the same guys that merged lenders and punters into banks and then levered them up to the moon for “all the turds that came out” sake - are in fact in charge. <br /><br />Again. <br /><br />And the condition is hence such - we must now all protect the stinky Ass that turds are dropping from. <br /><br />For this obviously is the greatest achievement of mankind.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-16357166331949917882009-10-19T22:57:23.496+01:002009-10-19T22:57:23.496+01:00A better way to think about velocity is in terms o...A better way to think about velocity is in terms of its inverse, or money demand. Money demand is typically viewed as some function of nominal GDP, an interest rate (the opportunity cost of holding money balances) and financial technology. The latter usually goes unmodelled, but conceptually at least, we can distinguish between permanent and temporary changes in financial technology. Permanent changes in financial technology are probably the main driver of long-run trends in velocity. Velocity trends lower in the early stages of economic development, as money facilitates a growing division of labour, before declining again as new forms of financial instrument take over some of the functions previously performed by money, giving rise to a classic U-shape. <br /><br />Short-run changes in money demand are likely to reflect temporary changes in financial technology or financial shocks, as well as cyclical variations in nominal GDP and interest rates. From the foregoing, it should be apparent that short-term movements in velocity are unlikely to tell us anything we don’t already know about current and prospective business cycle conditions.Stephen Kirchnerhttp://www.institutional-economics.comnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-72210774889671589192009-10-19T22:52:37.330+01:002009-10-19T22:52:37.330+01:00Re Posen/Bernanke, one wonders what the point of c...Re Posen/Bernanke, one wonders what the point of central bank independence is when governments can appoint policy board members who operate "as if" they are lackeys.<br /><br />By the way, another thing Posen has in common with Bernanke is they both look like they have their head on upside down.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-76655677930381768382009-10-19T21:56:01.610+01:002009-10-19T21:56:01.610+01:00these financial Luddites who pooh-pooh fractional ...<i>these financial Luddites who pooh-pooh fractional reserve banking as somehow evil or criminal don't seem able to specify which link in the chain is "wrong",</i><br /><br />The Exponential Bit - <br /><br />Things looks Ok at the bottom but, as one moves up the curve and it goes vertical, the system gain approaches infinity and any action at all will slam the output into the rails. <br /><br />This is why enough trillions will move to change the price of the USD based on an article in a magazine referring some hearsay about what the FED will maybe do to interest rates .... the system is so far up the curve it is running on noise. Should the FED actually touch rates - Blammo!!fajensennoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-57115448087396946402009-10-19T20:35:05.307+01:002009-10-19T20:35:05.307+01:00PPM, Eccl. 1:9 "What has been is what will be...PPM, Eccl. 1:9 "What has been is what will be, and what has been done is what will be done; there is nothing new under the sun."<br /><br />Private financial intermediation is being slowly replaced with government intermediation. In Cuba the worker pays the state a fixed 10% of his wages for rent. <br /><br />Not so dissimilar to government rewriting mortgages and giving out 3% down loans. The bureaucrats are trying whatever they can to get the securitization machine back online, this time under their direct control.Crisis Managementnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-60627225143959765392009-10-19T20:00:08.004+01:002009-10-19T20:00:08.004+01:00PPM, I think it's not so much that they lack t...PPM, I think it's not so much that they lack the mechanism (OK, GS lacks the mechanism) as that those banks with any risk appetite find that they can generate much better risk adjusted returns (with more leverage) in securities markets than through orthodox loans.<br /><br /><br />But for sure, securitization a) allowed the system to pump itself up, and b) led to an appalling decline in lending standards to disintermediating lenders and borrowers . Hence, the "market failure" and the need for a robust regulatory frameworkMacro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-26593209447677404342009-10-19T19:15:41.489+01:002009-10-19T19:15:41.489+01:00History is useful at helping shape our future expe...History is useful at helping shape our future expectations, but it isn't prescriptive i.e. history doesn't repeat itself. The biggest difference between now, and way back when is the more advanced state of financial technology, primarily in the form of securitization. It is complicated stuff, and most people who I run into don't (in my opinion) give it sufficient attribution for blowing the credit bubble. Securitization allowed banks to make mortgages, HELOCs, car loans, credit card loans and every other time of consumer lending product to the public, with very, very favourable capital consequences. Instead of 8% capital retention, they had to retain only basis points (not sure of the exact amount). Exploiting the loophole created by securitization allowed multiples of prior levels of private sector credit creation. It was fractional banking on steriods. <br /><br />Securitization was also a highly efficient way to get cash into the hands of consumers, since the types of diversified asset pools backed by consumer products were those easiest to securitize. We have to understand that this mechanism was not present in past credit crises, and try to understand how the outcomes in the present case will differ from historical. In particular, the type of monetary easing embarked upon by the central banks is not an efficient way to get cash into the hands of consumers. It puts cash in the hands of financial intermediaries who lack the willingness and infrastructure, absent securitization, to allocate it down to consumers. Accordingly, increasing money supply to intermediaries when the allocation mechanism (securitization) is broken, leaves them with no other place to put it, other than risk assets. <br /><br />I'm sure that this partially explains the velocity phenomenon discussed in today's post.PPMnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-63760679200364384472009-10-19T19:03:44.319+01:002009-10-19T19:03:44.319+01:00Tulipmania is the classic gotcha argument for CB a...Tulipmania is the classic gotcha argument for CB advocates. Along with the South Sea bubble, it's a perfect example of completely isolated and contained speculation. Nobody starved to death on account of astronomical tulip prices.<br /><br />I view the demonetization of silver as the precursor to 1893 and 1907; a pure gold standard is obviously too rigid. I realize that it's easier to go with the consensus that we need CB's than to challenge it.Crisis Managementnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-66366677128572159542009-10-19T18:28:50.447+01:002009-10-19T18:28:50.447+01:00CM, so what's your excuse for the panic of 189...CM, so what's your excuse for the panic of 1893? In a way, it combined the caused of the '37 panic (a Federal hard currency policy...funny you should blame the 2nd BOTUS when Jackson hamstrung it) and the panic of '73 (rampant railroad speculation.) What about the panic of 1907, which led to the Federal Reserve Act? Tulipmania? While the Federales were certainly culpable in the bubbles of the last decade, to suggest that bubbles are exclusively the product of central banks seems to me to be wide of the mark.Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-19127115257437491892009-10-19T18:00:28.005+01:002009-10-19T18:00:28.005+01:00Yes, I agree re: regulation and intervention. Iron...Yes, I agree re: regulation and intervention. Ironic that you cite 1837, there too the blame lies with the central bank. With 1873, important to remember that 3% of the population died in the civil war, not strictly a monetary phenomenon as the 1930's was.Crisis Managementnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-23488198023398443702009-10-19T17:32:39.673+01:002009-10-19T17:32:39.673+01:00Steve, you are correct about the US money funds bu...Steve, you are correct about the US money funds buying ABS that was illiquid. I would also add that the biggest problem was the money funds bought waaaay too much of it as a % of AUM. They all worried about credit risk but they should be concerned with liquidity risk (as they area a LIQUIDITY fund). And the other problem was they bought $hite for an extra bp for 2004 onwards! They were heavy buyers of the MM tranches of the KKR deals in 2006, MM tranches of ABS CDOs, MM tranches of newer SIVs (trash) and reduced their buying as a % of AUM of the legacy SIVs (a lot less trash) from 2004 onwards.<br /><br />It struck me that most of these money funds are staffed by absolute idiots.<br /><br />The entire MM fund industry in the US makes no sense. Thankfully with ZIRP it is going the way of the dodo.<br /><br />I still laugh about the bull$hit Blackrock brought out in 2005 ("enhanced cash", "short term bond fund") etc....Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-41810029543865082482009-10-19T17:19:51.083+01:002009-10-19T17:19:51.083+01:00CM, if the 19th century had no Great Depression, t...CM, if the 19th century had no Great Depression, twas only because no one called 'em that. The Panics of 37 and 73 would certainly qualify, for example.<br /><br />As for Glass SteagallN its repeal set the stage for what we have just been thru. LTCM was a warning sign re: OTC derivs, but in an eerie foreshadowing was most useful as a subsidy for GS. The Fed's failure to increase margin requirements in the dotcom bubble was just that, a failure.<br /><br />I am no great fan of regulation and interventionism for the sake of it, but there is a place for them in cases of market failure such as what we have observed.<br /><br />- MM (blackberry)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-79408994063490274632009-10-19T17:00:50.499+01:002009-10-19T17:00:50.499+01:00Precisely my point, in the 19th century we had reg...Precisely my point, in the 19th century we had regular booms and busts. Only under the Fed have we had a Great Depression.<br /><br />Basically your prescription was tried last time around, Glass-Steagall, Truth in Securities Act, &c, so why didn't it work?Crisis Managementnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-57590168775009365552009-10-19T16:54:35.443+01:002009-10-19T16:54:35.443+01:00MM I would add to your list of financial ills the ...MM I would add to your list of financial ills the SIVs and ludicrous practice of auctioning illiquid turds to be as some sort of money market instrument. This nonsense could have and should have been verboten.<br /><br />And then doing away with mark to market? Ugh.Stevenoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-31475128980255140752009-10-19T16:34:23.771+01:002009-10-19T16:34:23.771+01:00Sorry, I did the kid a disservice. He's 29.Sorry, I did the kid a disservice. He's 29.Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-61821088493222385822009-10-19T16:33:56.181+01:002009-10-19T16:33:56.181+01:00Anon, I cited Germany since the war as an example...Anon, I cited Germany since the war as an example of a country that has not been dependent on credit growth. The aversion to borrowing that exists among German consumers to this very day is, I believe, a support for this claim.<br /><br />As for post-bubble Japan, I think that it is a useful signal that those who support essentially <i>no</i> credit growth from here might want to be careful what they wish for.<br /><br />CM, I don't believe that central banking is necessarily reponsible for the world's financial ills. After all, bubbles and boom/bust were de rigeur in the 19th century America before the advent of the Federal Reserve in the US.<br /><br />To me, the real failure was that of allowing leverage to grow unchecked, widespread fraud to occur unchecked, and an opaque web of OTC contracts to grow unchecked....all based on the implicit assumption that the CB would act as LOLR. <br /><br />Splitting banks into "lenders" and "punters", enforcing leverage limits, putting the web of OTC credit contracts into a clearinghouse or exchange are all part of the solution.<br /><br />So, too, is common sense (which is, admittedly, almost universally lacking in the regulatory sector), so that when banks exploit loopholes, those loopholes are swiftly closed.<br /><br />Somehow, I don't think that a <a href="http://www.nydailynews.com/money/2009/10/16/2009-10-16_sec_hires_29yearold_exgoldman_employee_as_coo_.html" rel="nofollow">20 year old kid from, you guessed it, Goldman</a> is the right guy for the job. And so, alas, the drumbeat of cronyism and regulatory failure marches on....Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-74552744159247885882009-10-19T16:15:00.320+01:002009-10-19T16:15:00.320+01:00(???) Post-war Germany was Bretton Woods, which of...(???) Post-war Germany was Bretton Woods, which of course "exploded" as Trichet likes to say. As Anon/2:15 alluded to, the problem isn't fractional reserve banking per se, it's the central banking system.<br /><br />A CB is basically a central planning agency, nothing more. Financial bubbles could never grow as big as they have without the CB system.Crisis Managementnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-64771743281523270072009-10-19T16:13:21.912+01:002009-10-19T16:13:21.912+01:00Postwar Germany a product of credit growth? Very d...Postwar Germany a product of credit growth? Very debatable.<br />http://www.cato.org/pubs/journal/cj21n3/cj21n3-5.pdf<br /><br />Postbubble Japan? No growth whatsoever in Japanese economy despite "sensible" credit growth.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-30039916454752329902009-10-19T16:11:30.836+01:002009-10-19T16:11:30.836+01:00You lads might want to take a look see at this:
h...You lads might want to take a look see at this:<br /><br />http://www.showdowninchicago.org/<br /><br />cheersProfessional Gringonoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-57010104772627379332009-10-19T15:15:44.399+01:002009-10-19T15:15:44.399+01:00The air up there is really quite thin, wonder if t...The air up there is really quite thin, wonder if that will choke off velocity?Judynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-75232010288030609192009-10-19T14:44:59.845+01:002009-10-19T14:44:59.845+01:00Hmmm...post-bubble Japan, maybe.Hmmm...post-bubble Japan, maybe.Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-22153715051473285292009-10-19T14:42:16.765+01:002009-10-19T14:42:16.765+01:00*swish*
Postwar Japan too, perhaps?*swish*<br /><br />Postwar Japan too, perhaps?Nemo Incognitohttps://www.blogger.com/profile/07345185457108156269noreply@blogger.com