Can Someone Explain This?

[Annie]

Following Third Largest Weekly Surge In M2, Expect Artificial Spike In Leading Economic Indicators | zero hedge

Following Third Largest Weekly Surge In M2, Expect Artificial Spike In Leading Economic Indicators
By Tyler Durden
Created 07/20/2011 - 12:47

In the past two weeks, one of the curious development in monetary aggregates, in addition to a spike in the Adjusted Monetary Base (discussed previously here [1]), was the $88.7 billion surge in the M2 [2]for the week ended July 4, the third largest jump in the broadest tracked monetary aggregate in history. Some have speculated that this number may be indicative that the money multiplier has once again started working as bank reserves after 2 long years, finally start making their way into the broader market. Unfortunately as Stone McCarthy explains this is not the case at all (sorry Fed: QE is still a failure) but merely has to do with the repeal of Regulation Q (explained here [3]) which has resulted in a surge in small tie deposits inclusive of money market deposit accounts, which have jumped by $110 billion in the past two weeks, coupled with an accelerating shift of dollar deposits back to banks domiciled in the US. In other words: regulation explains the entire move. There is, however, a kicker, and it goes to another indicator of "economic growth" - the leading economic index, which is actually driven by M2. This means that the fake surge in the M2, will result in an all too real jump in the LEI, which in turn will push the market higher as vacuum tubes interpret the data as positive for the economy as opposed to merely driven by a regulatory forced shift of money from Pile A to Pile B. Expect stocks to surge once the next LEI reading is announced as a result...

Lots of charts, but what does it mean?

 

[Baruch Menachem]

M2 is high power money, and money supply is a indicator of economic growth. The economy in keynsian terms is explained as money in circulation times the velocity of money is equal to all the prices in the economy times all the quantities of goods and services sold in the economy.

What he is saying is that the money supply has suddenly increased, which means that the computers on wall street wil assume economic production has also increased.

Alternatively, it could just mean that prices are getting ready to skyrocket. the next set of statistics will show either we are ready for a new boom in inflation or real economic growth. But he is arguing that what is actually happening is that money is just being shuffled without any real increase in the money supply or economic activity. Which means he is predicting more stagflation.

 

[MeBelle]

Excellent response!

 

[Annie]

M2 is high power money, and money supply is a indicator of economic growth. The economy in keynsian terms is explained as money in circulation times the velocity of money is equal to all the prices in the economy times all the quantities of goods and services sold in the economy.

What he is saying is that the money supply has suddenly increased, which means that the computers on wall street wil assume economic production has also increased.

Alternatively, it could just mean that prices are getting ready to skyrocket. the next set of statistics will show either we are ready for a new boom in inflation or real economic growth. But he is arguing that what is actually happening is that money is just being shuffled without any real increase in the money supply or economic activity. Which means he is predicting more stagflation.

So manipulation of reporting is going on? Why? To what ends and by whom?

 

[Trajan]

M2 is high power money, and money supply is a indicator of economic growth. The economy in keynsian terms is explained as money in circulation times the velocity of money is equal to all the prices in the economy times all the quantities of goods and services sold in the economy.

What he is saying is that the money supply has suddenly increased, which means that the computers on wall street wil assume economic production has also increased.

Alternatively, it could just mean that prices are getting ready to skyrocket. the next set of statistics will show either we are ready for a new boom in inflation or real economic growth. But he is arguing that what is actually happening is that money is just being shuffled without any real increase in the money supply or economic activity. Which means he is predicting more stagflation.

So manipulation of reporting is going on? Why? To what ends and by whom?

Annie, seriously?

Bernbank (bernanake) for one and anyone who has stake in making it appear that there is a 'recovery' or anyone who wants to attmept to goose so they don't have to enact QE 3 (which will put inflation thru the roof in an election year)

 

[Annie]

M2 is high power money, and money supply is a indicator of economic growth. The economy in keynsian terms is explained as money in circulation times the velocity of money is equal to all the prices in the economy times all the quantities of goods and services sold in the economy.

What he is saying is that the money supply has suddenly increased, which means that the computers on wall street wil assume economic production has also increased.

Alternatively, it could just mean that prices are getting ready to skyrocket. the next set of statistics will show either we are ready for a new boom in inflation or real economic growth. But he is arguing that what is actually happening is that money is just being shuffled without any real increase in the money supply or economic activity. Which means he is predicting more stagflation.

So manipulation of reporting is going on? Why? To what ends and by whom?

Annie, seriously?

Bernbank (bernanake) for one and anyone who has stake in making it appear that there is a 'recovery' or anyone who wants to attmept to goose so they don't have to enact QE 3 (which will put inflation thru the roof in an election year)

I figured it might be something like that, still would like to hear the analysis from someone in the field.

 

[Trajan]

So manipulation of reporting is going on? Why? To what ends and by whom?

Annie, seriously?

Bernbank (bernanake) for one and anyone who has stake in making it appear that there is a 'recovery' or anyone who wants to attmept to goose so they don't have to enact QE 3 (which will put inflation thru the roof in an election year)

I figured it might be something like that, still would like to hear the analysis from someone in the field.

no problem cupcake

[ame=http://www.youtube.com/watch?v=dOOTKA0aGI0]‪Dennis The Constitutional Peasant‬‏ - YouTube[/ame]

 

[Spoonman]

Following Third Largest Weekly Surge In M2, Expect Artificial Spike In Leading Economic Indicators | zero hedge

Following Third Largest Weekly Surge In M2, Expect Artificial Spike In Leading Economic Indicators
By Tyler Durden
Created 07/20/2011 - 12:47

In the past two weeks, one of the curious development in monetary aggregates, in addition to a spike in the Adjusted Monetary Base (discussed previously here [1]), was the $88.7 billion surge in the M2 [2]for the week ended July 4, the third largest jump in the broadest tracked monetary aggregate in history. Some have speculated that this number may be indicative that the money multiplier has once again started working as bank reserves after 2 long years, finally start making their way into the broader market. Unfortunately as Stone McCarthy explains this is not the case at all (sorry Fed: QE is still a failure) but merely has to do with the repeal of Regulation Q (explained here [3]) which has resulted in a surge in small tie deposits inclusive of money market deposit accounts, which have jumped by $110 billion in the past two weeks, coupled with an accelerating shift of dollar deposits back to banks domiciled in the US. In other words: regulation explains the entire move. There is, however, a kicker, and it goes to another indicator of "economic growth" - the leading economic index, which is actually driven by M2. This means that the fake surge in the M2, will result in an all too real jump in the LEI, which in turn will push the market higher as vacuum tubes interpret the data as positive for the economy as opposed to merely driven by a regulatory forced shift of money from Pile A to Pile B. Expect stocks to surge once the next LEI reading is announced as a result...

Lots of charts, but what does it mean?

it means someone is expecting the economy to take a noticable downturn and is looking to artificially prop it up. it's like a botox injection for the economy.

 

[Annie]

Following Third Largest Weekly Surge In M2, Expect Artificial Spike In Leading Economic Indicators | zero hedge

Following Third Largest Weekly Surge In M2, Expect Artificial Spike In Leading Economic Indicators
By Tyler Durden
Created 07/20/2011 - 12:47

In the past two weeks, one of the curious development in monetary aggregates, in addition to a spike in the Adjusted Monetary Base (discussed previously here [1]), was the $88.7 billion surge in the M2 [2]for the week ended July 4, the third largest jump in the broadest tracked monetary aggregate in history. Some have speculated that this number may be indicative that the money multiplier has once again started working as bank reserves after 2 long years, finally start making their way into the broader market. Unfortunately as Stone McCarthy explains this is not the case at all (sorry Fed: QE is still a failure) but merely has to do with the repeal of Regulation Q (explained here [3]) which has resulted in a surge in small tie deposits inclusive of money market deposit accounts, which have jumped by $110 billion in the past two weeks, coupled with an accelerating shift of dollar deposits back to banks domiciled in the US. In other words: regulation explains the entire move. There is, however, a kicker, and it goes to another indicator of "economic growth" - the leading economic index, which is actually driven by M2. This means that the fake surge in the M2, will result in an all too real jump in the LEI, which in turn will push the market higher as vacuum tubes interpret the data as positive for the economy as opposed to merely driven by a regulatory forced shift of money from Pile A to Pile B. Expect stocks to surge once the next LEI reading is announced as a result...

Lots of charts, but what does it mean?

it means someone is expecting the economy to take a noticable downturn and is looking to artificially prop it up. it's like a botox injection for the economy.

Yeah. Trajan, yourself, and I see it the same way. I wonder though if Toro or other investors/economic major types could find any other explanation or reasons the writer got it wrong?

 

[Baruch Menachem]

I think Toro has been beating this drum for a long time.

 

[Wiseacre]

I'll take my shot at it: ordinarily M2 measure the flow of money in the economy, if it picks up that is usually a sign of increased economic activity cuz banks are lending more money to people and businesses and other banks. Hence the LEI, Leading Economic Indicator.

This time however, the jump in M2 may not be indicative of a coming economic boost. Instead it may be driven by a regulatory change. The writer is basically saying don'r get your hopes up when some Wall Street economist comes on TV and tells you it's time to invest your life savings in his investment funds.

 

[Annie]

I think Toro has been beating this drum for a long time.

Meaning he thinks it's a good idea? Is manipulation? If the later, by whom and what purpose?

 

[Baruch Menachem]

I was looking for Toro to jump into this thread, and I wonder where he isl

 

[william the wie]

I disagree with Baruch to this extent. If, as seems likely, the US is downgraded then it is more profitable for banks to buy treasuries and use those as interest paying reserves. An additional point or two of interest is huge. What that will do to the economy since we are at the Keynesian endpoint I don't think anyone knows.