tag:blogger.com,1999:blog-2948538160252327076.post4062747484403856474..comments2023-11-02T15:48:50.381+00:00Comments on UK Bubble UK Economy: Yes, the money supply really is still growing quicklyAlice Cookhttp://www.blogger.com/profile/05753570123987780947noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-2948538160252327076.post-46976603106535238182008-07-26T11:51:00.000+01:002008-07-26T11:51:00.000+01:00The only asset guaranteed to beat inflation is a p...The only asset guaranteed to beat inflation is a precious metal, see:<BR/>http://arabianmoney.net/2008/07/24/gold-silver-will-rebound-again-on-further-financial-troubles/Unknownhttps://www.blogger.com/profile/00194297401208851574noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-56477261017324417502008-07-26T09:05:00.000+01:002008-07-26T09:05:00.000+01:00Good Job! :)Good Job! :)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-52075695178490442332008-07-22T08:57:00.000+01:002008-07-22T08:57:00.000+01:00Allowing nominal prices to surge offsets the impac...Allowing nominal prices to surge offsets the impact of house price deflation, and hides the impact on wealth. This happened back in the mid 70s. But your analysis is excellent and shows that even John Major has got it right on inflation. But house price inflation has been crazy, see this post: http://arabianmoney.net/2008/07/22/why-did-global-real-estate-become-so-expensive/Unknownhttps://www.blogger.com/profile/00194297401208851574noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-45745390399193594572008-07-21T03:28:00.000+01:002008-07-21T03:28:00.000+01:00Woody,I meant to add....With a 10 percent annual i...Woody,<BR/><BR/>I meant to add....<BR/><BR/>With a 10 percent annual increase, the money supply doubles every 8 years.<BR/><BR/>AliceAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-2949350103237584512008-07-21T03:25:00.000+01:002008-07-21T03:25:00.000+01:00Woody,The question comes down to whether one can e...Woody,<BR/><BR/>The question comes down to whether one can estimate a stable demand for money equation. After all, velocity is intimately connected to the demand for money. <BR/><BR/>While there have been short periods of instability, it is also true that there are long periods when a stable demand for money equation can be estimated. <BR/><BR/>There are two sources of velocity instability, financial innovation, and some short run fluctuations due to the business cycle. However, the relationship between inflation and money is a medium term thing, and these fluctuations are quite predictable. BTW, the financial innovations effect means that people tend to economize on their money holdings and is therefore quite a well understood phenomenon.<BR/><BR/>As for more direct evidence, I find granger causality tests are fairly convincing. The fact that money Granger causes inflation suggests to me that velocity is reasonable stable.<BR/><BR/>But let me ask you a question. What do you think happens to inflation when a central bank doubles the money supply? Do you really think that changes in velocity absorbs the inflationary impact?<BR/><BR/>AliceAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-4940955603735556962008-07-20T19:39:00.000+01:002008-07-20T19:39:00.000+01:00Alice, thanks for the lesson ;)Your evidence on ve...Alice, thanks for the lesson ;)<BR/>Your evidence on velocity is?Woody Finchhttps://www.blogger.com/profile/00158968392312442567noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-34491352767494616352008-07-20T13:23:00.000+01:002008-07-20T13:23:00.000+01:00Woody finch,"basic inflation identity":%P = %M + %...Woody finch,<BR/><BR/>"basic inflation identity":<BR/><BR/>%P = %M + %V - %Y <BR/><BR/>Inflation (%P) is equal to the rate of money growth (%M), plus the change in velocity (%V), minus the rate of output growth (%Y).<BR/><BR/>Velocity tends to be quite stable in the long run. <BR/><BR/>BTW, output is slowing, other things being equal, this means more inflation.<BR/><BR/>AliceAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-17466721863903105252008-07-20T12:09:00.000+01:002008-07-20T12:09:00.000+01:00yo.Alice. great post and my wot a ace discussion y...yo.Alice. great post and my wot a ace discussion yougot goin here! I have seen comments on blogs and in msm papers and the level of nous here is way higher(tighter more focussed). looks like i am not the only one out here who wants to know "is they is or is they aint no money?"<BR/>and i'm not even here i'm on beach!peterthepainterhttps://www.blogger.com/profile/05878467321753671134noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-84184372305398208202008-07-20T10:06:00.000+01:002008-07-20T10:06:00.000+01:00Even if you're a dyed in the wool monetarist you n...Even if you're a dyed in the wool monetarist you need to think about what's happening to velocity as much as the supply of money (clue: it's falling sharply).Woody Finchhttps://www.blogger.com/profile/00158968392312442567noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-70570168165256216222008-07-19T22:08:00.000+01:002008-07-19T22:08:00.000+01:00All riveting stuff (as usual) though, I think Tom'...All riveting stuff (as usual) though, I think Tom's point is absolutely crucial.<BR/><BR/>An awful lot is said about M4... and I don't really understand what is in M4 and what is not. Until 2006 a lot was said about M0 - then the data series ended abruptly with the "Reform of Sterling Markets".<BR/><BR/>I've recently become interested in M1, M2 and M3 - which are less discussed metrics... though metrics which seem extremely relevant and little discussed by the media.<BR/><BR/>I think that understanding the nature of these 5 statistics is key to establishing a clear understanding of what is going on.<BR/><BR/>BTW - AFAIK, M1 is contracting... M1, as I understand it, is (basically) money in current accounts.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-87428108834603574352008-07-19T20:49:00.000+01:002008-07-19T20:49:00.000+01:00Anon. wrote:I expect many who are not actually hav...<B>Anon. wrote:</B><BR/><BR/><I>I expect many who are not actually having problems paying their mortgages are none the less raising <B>the amount of "rainy day" money they keep in deposit accounts</B> - spread around several banks and building societies - in anticipation of rising energy costs and possible employment problems in the near to medium term.</I><BR/>=====================<BR/><BR/>... and even in cash. <BR/><BR/>A colleague of mine has drawn out £10,000 in fifties and buried it in a local forest until it's clear that we are not going to have an Agentina situation in which all the banks close their doors.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-15271639494194140802008-07-19T20:40:00.000+01:002008-07-19T20:40:00.000+01:00[b]Anon. wrote:[/b][i]I expect many who are not ac...[b]Anon. wrote:[/b]<BR/><BR/>[i]I expect many who are not actually having problems paying their mortgages are none the less raising [color=darkred]the amount of "rainy day" money they keep in deposit accounts[/color] - spread around several banks and building societies - in anticipation of rising energy costs and possible employment problems in the near to medium term.[/i]<BR/>=====================<BR/><BR/>... and even in cash. <BR/><BR/>A colleague of mine has drawn out £10,000 in fifties and buried it in a local forest until it's clear that we are not going to have an Agentina situation in which all the banks close their doors.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-31578584999352388292008-07-19T20:17:00.000+01:002008-07-19T20:17:00.000+01:00Umm.... Surely the M4 data, which counts bank depo...Umm.... Surely the M4 data, which counts bank deposits, implicitly assumes that the banks do indeed have that money available.<BR/>As we know from Northern Rock and various banks in the US, this money is not available and many financial institutions are insolvent.<BR/>The amount of money the banks have to honour deposits is shrinking rapidly. In so far that M4 is based in denial of bank insolvency the figure is meaningless.<BR/>The money supply is not there, because the money supply has shrunk, people don't want or can't get credit, and debtors cannot repay their debts (and by doing so honour the M4 figures).<BR/>False accounting standards for banks can't change that.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-62323301424647572162008-07-19T18:18:00.000+01:002008-07-19T18:18:00.000+01:00You can't really separate the various categories o...You can't really separate the various categories out and use them as percentage increases of themselves, and expect to wring much meaning out of them.<BR/><BR/>In fact the whole concept of M4 aka "wide money" is in trouble because it is basically credit, and we have *no* idea how much credit is in the system.<BR/><BR/>So chose which bits of credit matter, which don't matter, and hope the bits that matter you have figures for.<BR/><BR/>The deflationary argument is that all credit matters, it's in danger of collapsing, and even the credit you do have figures for (i.e. derivatives) are too big to keep inflated in a collapse.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-67184522122834710362008-07-19T17:40:00.000+01:002008-07-19T17:40:00.000+01:00Interesting stuff. I think the overall money supp...Interesting stuff. <BR/><BR/>I think the overall money supply figures are confusing - some up, some down, some unchanged. During a financial crisis these things can look very weird (cf Japan in the 1990s when any connection between money supply and inflation completely broke down).<BR/><BR/>But neither can I see how on this basis one explains previous 'low' rates of inflation during the massive monetary growth over the past 10 years. Where did all that money go? Is the 'credit crunch' just imaginary? <BR/><BR/>For a contrarian view see my latest post at http://awkward-thoughts.blogspot.com/Woody Finchhttps://www.blogger.com/profile/00158968392312442567noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-24683092774955918252008-07-19T16:42:00.000+01:002008-07-19T16:42:00.000+01:00Thanks for the data, these are show exactly what I...Thanks for the data, these are show exactly what I had suspected was happening. <BR/><BR/>I guess figures in coming months will show a huge rise in credit card debt.Unknownhttps://www.blogger.com/profile/03285301600587803212noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-70824620279785141322008-07-19T15:42:00.000+01:002008-07-19T15:42:00.000+01:00You really have a wonderful' blog. Even though I a...You really have a wonderful' blog. Even though I am a yankee living in America, your blog's wisdom keep you on my daily RSS feeds. <BR/><BR/>Yet as one of your daily readers for many months now, I am still not convinced by these numbers and tend to agree more with Tom. Remember, % change is not the same as absolute size. The overall effect from big positive changes in a small number can still be diluted out by negative changes in a much larger number it is being added to.<BR/><BR/>What is the absolute size of the off balance sheet numbers now coming back onto the books? What is the absolute size of household M4?<BR/><BR/>Remember, the SIV's, etc.. of the Shadow Banking System is money that is already out there (i.e. WAS created in the past) and is simply unaccounted for in the current money supply numbers. We deflationisstas simply feel the size of that shadow money is much larger in size and shrinking faster than any cash the central banks can otherwise pump into the system or that households might be 'freeing up'.<BR/><BR/>In this regard, <A HREF="http://globaleconomicanalysis.blogspot.com/2008/07/tms-truer-money-supply.html" REL="nofollow">Mish</A> has been a little more convincing than have you.<BR/><BR/><BR/>However, should you or Mish or someone else give me more absolute data vs. % change data, I could be convinced either way.Thaihttps://www.blogger.com/profile/00700253024420397221noreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-51990030579738120382008-07-19T14:49:00.000+01:002008-07-19T14:49:00.000+01:00My two pence worth:Could the sentiment of those wh...My two pence worth:<BR/><BR/>Could the sentiment of those who are presently saving carefully, even fearfullly, for a rainy day be a key here?<BR/><BR/>I expect many who are not actually having problems paying their mortgages are none the less raising the amount of "rainy day" money they keep in deposit accounts - spread around several banks and building societies - in anticipation of rising energy costs and possible employment problems in the near to medium term.<BR/><BR/>Such behaviour may account for the rise in the M4 Household component over the last six months; such money may not be quickly committed to purchases unless expectations turn positive again.<BR/><BR/>Especially with "equity" in housing dropping rapidly many will be feeling less rich and spending cautiously; with the fall-off in final salary pensions and declining stock market, many will be thinking easily accessible nest-eggs in several deposit accounts will be important for retirement and both anticipated and unanticipated nearer term financial needs.<BR/><BR/>If unemployment soon spreads out of the building and financial sectors, these people will remain cautious about spending, perhaps even long term. Many will be in their forties and fifties and keenly concerned that losing their jobs may mean in effect early retirement on their accumulated savings.<BR/><BR/>The Household M4 component may be seeing a last upward flip because of this kind of behaviour.<BR/><BR/>If unemployment starts to rise, consumer demand may fall rapidly despite the careful money management of the moderately well off. <BR/><BR/>In a few years these may become spenders again,<BR/>especially those nurturing the hope of a last move up in the housing market if they can maintain their own financial position while the housing market drops.<BR/><BR/>But if by that time there has been a big rise in unemployment, the upward pressure of the top third ("haves") on prices may be balanced or negated by the desperation of the middle third, struggling with the combined weight of housing and energy costs, and the poverty of the poorest third – the "have-nots".<BR/><BR/>B. in C.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-70481551342400448402008-07-19T14:35:00.000+01:002008-07-19T14:35:00.000+01:00Good post Alice, but there's something you need to...Good post Alice, but there's something you need to know about M4 - it doesn't measure the shadow banking system! The murky world of SIVs, CDOs, Hedge Funds etc were never included in the M4 figures as there is no data for them. Now this, of course, meant that M4 was understated for many years. But it also means that M4 is now likely very much overstated. Billions are being destroyed on an almost daily basis in the shadow banking system. Merrill Lynch's writedowns last week will likely have actually added to M4, because as these banks are forced to bring these mysterious entities, SIVs and such, back onto their balance sheet, they suddenly become in-scope for M4 calculation, despite the fact that the action has in fact destroyed huge amounts of money overall. So the current turmoil is very much distorting the M4 numbers. This is a fairly widely accepted view now, and one of the main planks of the deflation thesis.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-16687934700830675442008-07-19T13:32:00.000+01:002008-07-19T13:32:00.000+01:00Interesting postInteresting postAnonymousnoreply@blogger.com