Bernanke flooding economy with money v.M3 returns

[6SpeedTA95]

Originally Posted by ballz2wallz

I have no idea what M1, M2 or M3 is.

See my posts.

[Publius]

So, obviously Mr. Bernanke isn't actually worrying about inflation, even though he wants to appear that they are tough on inflation...

I'm curious what he is hoping to "solve" by doing this though. The only thing I can think of is an effort to make foreign investment in U.S. dollars more attractive relative to their home currency, but a) I don't see desire for dollars being anemic enough to make it worthwhile and b) doing it "behind closed doors" doesn't really make sense if that is the goal.

Looks like they're just ramping up the printing press so that the government can spend more, to me.

[6SpeedTA95]

Originally Posted by Publius

So, obviously Mr. Bernanke isn't actually worrying about inflation, even though he wants to appear that they are tough on inflation...

I'm curious what he is hoping to "solve" by doing this though. The only thing I can think of is an effort to make foreign investment in U.S. dollars more attractive relative to their home currency, but a) I don't see desire for dollars being anemic enough to make it worthwhile and b) doing it "behind closed doors" doesn't really make sense if that is the goal.

Looks like they're just ramping up the printing press so that the government can spend more, to me.

How is he not worrying about inflatioN/

[Publius]

Originally Posted by 6SpeedTA95

How is he not worrying about inflatioN/

Increasing the money supply so drastically can lead to inflation. Considering the growth of M3 is running above 10%, he obviously doesn't think inflation is an issue worth worrying about.

Look back through history at the cases of hyperinflation or even just severe inflation: they were all happening at the same time central banks/treasuries were pumping out large increases in the money circulating through the economy.

[6SpeedTA95]

Originally Posted by Publius

Increasing the money supply so drastically can lead to inflation. Considering the growth of M3 is running above 10%, he obviously doesn't think inflation is an issue worth worrying about.

Look back through history at the cases of hyperinflation or even just severe inflation: they were all happening at the same time central banks/treasuries were pumping out large increases in the money circulating through the economy.

See my posts on the first page, not saying you or ardent are wrong but the guy hasn't been in there long enough to make judgements like that. I think what he's doing for the short term is a smart thing. As said yesterday if he keeps it up, it'll be a bad thing.

[Publius]

Originally Posted by 6SpeedTA95

See my posts on the first page, not saying you or ardent are wrong but the guy hasn't been in there long enough to make judgements like that. I think what he's doing for the short term is a smart thing. As said yesterday if he keeps it up, it'll be a bad thing.

I don't see any massive increase in the money supply as being a good thing in any length term if it is being done in secret.

[Ardentfrost]

Originally Posted by 6SpeedTA95

See my posts on the first page, not saying you or ardent are wrong but the guy hasn't been in there long enough to make judgements like that. I think what he's doing for the short term is a smart thing. As said yesterday if he keeps it up, it'll be a bad thing.

What do you mean he hasn't been there long enough to make judgements like that? He makes the decisions, he's got nearly 100 years of history to base his decisions on... I mean, at FIRST he said he was just going to be sticking to Greenspan's plan for a while (which is the quartly increase of interest rates due to it being kept falsely low for so long), but now he's doing something on his own.

[6SpeedTA95]

Originally Posted by Ardentfrost

What do you mean he hasn't been there long enough to make judgements like that? He makes the decisions, he's got nearly 100 years of history to base his decisions on... I mean, at FIRST he said he was just going to be sticking to Greenspan's plan for a while (which is the quartly increase of interest rates due to it being kept falsely low for so long), but now he's doing something on his own.

NO NO NO, to say Bernanke is doing it for the wrong reasons, judging his character, he's been in the position what 7 mos?

[Ardentfrost]

Originally Posted by 6SpeedTA95

NO NO NO, to say Bernanke is doing it for the wrong reasons, judging his character, he's been in the position what 7 mos?

Oh, pfft, you can judge someone on their position on stuff. I mean, the man is older, he's got a lifetime of opinions out there you can read.

Why do you think I said 7 months ago to expect him to start increasing the money supply? To my recollection, he never said "you know what I'll do? in about half a year I'll increase money supply because I want to!" It was his written opinions about economic theory that I read that brought me to that conclusion. That's also why I call him a Keynesian. I've never seen him call himself one, but his critisisms of monetarist theories and views on modern economics are the same and other Keynesians.

We can most certainly judge him on his beliefs, even though this is the first time he's been in a position to actually USE them in a real situation. He hasn't done anything I didn't expect yet.

[6SpeedTA95]

Originally Posted by Ardentfrost

Oh, pfft, you can judge someone on their position on stuff. I mean, the man is older, he's got a lifetime of opinions out there you can read.

Why do you think I said 7 months ago to expect him to start increasing the money supply? To my recollection, he never said "you know what I'll do? in about half a year I'll increase money supply because I want to!" It was his written opinions about economic theory that I read that brought me to that conclusion. That's also why I call him a Keynesian. I've never seen him call himself one, but his critisisms of monetarist theories and views on modern economics are the same and other Keynesians.

We can most certainly judge him on his beliefs, even though this is the first time he's been in a position to actually USE them in a real situation. He hasn't done anything I didn't expect yet.

I dont think this will be a long term ordeal, again, maybe I'm wrong, I hope I'm not because that would cause some problems for us.

[Ardentfrost]

We'll see. He's being given the opportunity to show his true colors, and if he is really Keynesian like I think he is, then he'll keep increasing money supply as long as he feels we're in or on the verge of a depression.

[motivez]

I though this was an interesting related article. Maybe some of the econ crew can put it into perspective with the initial one

FT.com / MARKETS / Currencies - Markets rocked by sharp slide in dollar

A sharpening slide in the US dollar unnerved global markets on Friday as investors sought to protect themselves from the possibility of sustained dollar weakness.

As US markets were closing on Friday , the euro stood at a 19-month high of $1.309, up 1.2 per cent, while sterling gained 0.9 per cent to a 1½-year peak of $1.9333. The yen climbed 0.5 per cent to ¥115.66.

European and Asian stock markets suffered the fallout from the dollar’s decline with exporters to the US the worst performing stocks in all regions. But on commodity markets, dollar-denominated prices tracked higher as gold, copper and oil became cheaper in other currencies.

The euro’s strength could put the European Central Bank under fresh political pressure not to raise interest rates again after the expected quarter percentage point rise to 3.5 per cent on December 7.

The dollar has now fallen this year by more than 10 per cent against the euro and 12 per cent against sterling. Some economists suggest the greenback has further to slide given a weak economic outlook in the US, and the prospect of interest rate cuts there next year.

Steve Saywell, currencies analyst at Citigroup, said: “While the economic data remain soft, the dollar will continue to fall.”

The gaping US trade deficit, the near certainty of a December rise in eurozone interest rates, rising expectations of a cut in US rates in the spring and wariness about borrowing in yen to finance investments in the US all continued to weigh on the dollar, analysts said.

These concerns were heightened by comments from Wu Xiaoling, deputy governor of the People’s Bank of China, indicating her unease at the rapid build-up of $1,000bn of reserves in China. She said Asian foreign exchange reserves were at risk from the dollar’s fall, although she stopped short of indicating that China was about to stop adding to its pile of reserves.

“The dollar is coming under real pressure and this looks like the beginning of a sustained move,” said Ian Stannard, strategist at BNP Paribas.

Equities markets in Europe and Asia fell sharply. Tokyo’s Nikkei 225 fell 1.1 per cent to 15,734.6, while the FTSE Eurofirst 300 shed 0.8 per cent to 1,451.05.

Commodities tracked higher, with gold climbing 1.2 per cent to $638.50 a troy ounce, while copper added 2.5 per cent to $7,155 a tonne. Nymex crude gained 1.1 per cent to $59.90.

So is this a direct result of what Bernanke is doing?

[6SpeedTA95]

that could definately be related to what bernanke is doing I'll have to do some homework on this for us


FYI, the theory is as money supply increases the dollar value drops
As interest rates increase so does the dollar value

Again thats theory and there's about a billion variables.

[motivez]

US setbacks see dollar plunge to near 15-year low


By Ambrose Evans-Pritchard
Last Updated: 2:37am GMT 29/11/2006


The dollar tumbled to a near a 15-year low against sterling yesterday on fresh signs of economic trouble in the United States.An 8.3pc crash in US industrial orders and an admission by the Federal Reserve chairman that Washington does not know how bad housing really is set off another day of wild gyrations on the currency markets.

The Federal Reserve chairman Ben Bernanke said Washington did not know how bad a state the American housing market was in

US house prices fell 3.5pc to an average $221,000, the third month of declines. Stocks of unsold homes rose to 7.4 months' supply, the highest since 1993. The US consumer confidence index fell sharply to 102.9.
The "truckers index" of tonnage shipped by US haulage companies was down 1.8pc in October, a leading indicator of contraction. Merrill Lynch called the fall "borderline recessionary".
The dollar continued its slide against the euro, dropping to $1.3194 after the Federal Reserve chairman, Ben Bernanke, said the housing slump "would be a drag on economic growth into next year". Mr Bernanke said official figures did not pick up the "sharp increase" in cancellations on house deals and might understate the inventory glut.
"Any significant effect on consumer spending arising from further weakness in housing would have important implications for the economy," he said.
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The pound briefly touched $1.95 and surged to eight-year highs against the yen.
The Japanese currency has been in freefall for months on repeated weak data. It suffered a fresh blow yesterday after retail sales fell for a second month, increasing fears that Japan's export-dependent economy may slow in lock step with America.
The OECD club of rich nations gave warning yesterday in its bi-annual economic outlook that the world's second-biggest economy was still too fragile after years of debt deflation to risk a rapid rise in rates from 0.25pc.
"The return to price stability is proving longer and less assured than expected. Further monetary tightening should wait until a fully-fledged exit from deflation finally materialises," it said.
The OECD downgraded its global growth forecast for the 30 leading economies from 2.9pc to 2.5pc in 2007, and said the US might need to start cutting interest rates next year.
Chief economist Jean-Philippe Cotis said there was no cause for alarm, arguing that the US would achieve the "soft-landing" it eluded after the dotcom bubble in 2000. "What the world may be facing is a rebalancing of growth," he said. "In the euro area, recent hard data suggest that a solid upswing may be under way. Growth should remain buoyant in China, India, Russia and other emerging economies."
In a rare piece of good news that helped calm Wall Street after the equity rout on Monday, Mr Bernanke said inflation had been "somewhat better behaved of late".
David Lereah, chief economist for the US National Association of Realtors, said there might be light at the end of tunnel for the housing market, citing a slight rise in transactions.

[6SpeedTA95]

I read that article earlier today keep in mind there's a host of other articles out there that are good articles pertaining to the economy...well by good I dont mean great I just mean good. We're pegged right around 2.9 to 3.2% growth next year. Slower than the fed would like, not bad though and slightly below the long term sustainable growth rate of 3.6 to 3.9%.