View Full Version : They do ring a bell
A chart of the balance of the Fed's System Open Market Account, which shows the results of Permanent Open Market Operation (POMOs), as in the buying & selling of Treasuries & Agencies.
Since March 9th, SOMA has grown from about $515 billion to $937 billion, and last week alone added about $140 billion.
http://www.nowandfutures.com/images/fed_soma.png
The long term picture:
http://www.nowandfutures.com/images/fed_soma_long_term.png
And another chart showing an increasing probability that deflation will be history soon.
This is my broadest and most inclusive chart covering "total money supply", with adjustments for debt deflation. It appears to have bottomed in early Feb. 2009.
http://www.nowandfutures.com/images/m3_plus_credit_and_debt_bkx.png
Lukester
04-17-09, 05:02 PM
Hot diggety !!! The Bart bloodhound sniffs out the prey once again! :D
Wow bart! Thanks a lot...
I'm afraid I don't understand very well the significance of the charts. Would you care to elaborate and point the event that triggered the drop in SOMA in January 2008 ( or November 2007)? Was it the collapse of Lehman or Bear Stearns or the deleveraging in commodities paper after the oil reached $147/bbl?.....
And another chart showing an increasing probability that deflation will be history soon.
This is my broadest and most inclusive chart covering "total money supply", with adjustments for debt deflation. It appears to have bottomed in early Feb. 2009.
Thanks a lot. Interesting confirmation.
Wow bart! Thanks a lot...
I'm afraid I don't understand very well the significance of the charts. Would you care to elaborate and point the event that triggered the drop in SOMA in January 2008 ( or November 2007)? Was it the collapse of Lehman or Bear Stearns or the deleveraging in commodities paper after the oil reached $147/bbl?.....
The SOMA balance peaked in June/July 2007 at about $786 billion (right around when oil peaked), and bottomed in September 2008 at about $473 billion... but was only about $500 billion in Feb 2009, and reflected only minimal monetization although I did post in December about real monetization having started.
(edit/add - the Fed actually responded in June/July 2007 by *subtracting* liquidity from the system via shrinking SOMA - some might say their reaction actually helped to cause the disinflation and deflation)
The growth really started around the 2nd week in March... "coincidentally" around the time that FASB 157 (mark to market) was slimed.
I also note that velocity hasn't been dropping for a while, but has also not reversed much... and in plain English - when it does move significantly, Katie bar the door.
The SOMA balance peaked in June/July 2007 at about $786 billion (right around when oil peaked), and bottomed in September 2008 at about $473 billion... but was only about $500 billion in Feb 2009, and reflected only minimal monetization although I did post in December about real monetization having started.
(edit/add - the Fed actually responded in June/July 2007 by *subtracting* liquidity from the system via shrinking SOMA - some might say their reaction actually helped to cause the disinflation and deflation)
The growth really started around the 2nd week in March... "coincidentally" around the time that FASB 157 (mark to market) was slimed.
I also note that velocity hasn't been dropping for a while, but has also not reversed much... and in plain English - when it does move significantly, Katie bar the door.
I thought Oil peaked in June/July 2008 .... so what event occured in June/July 2007?
But you make a good point with the fed "subtracting" liquidity by shrinking SOMA ...;)
It took some 70 years for the Fed to accept responsibility for 1929 ... I wonder how long it will take them to accept responsibility for 2008 ? :)
I thought Oil peaked in June/July 2008 .... so what event occured in June/July 2007?:)
One of these days, I'll reliably put brain into gear and confirm data before posting. :(
June/July 2007 was when the housing derivatives stuff barely started to hit the fan and a few folk were getting an idea that houses really had peaked, and we also had the first of the S&P double top formation which finally peaked in Oct. 2007 (or the left shoulder of the H&S if you prefer - the right shoulder in December 2007 is when EJ made his shorting call).
But you make a good point with the fed "subtracting" liquidity by shrinking SOMA ...;)
It took some 70 years for the Fed to accept responsibility for 1929 ... I wonder how long it will take them to accept responsibility for 2008 ? :)
My real answer on when they'll admit it has some issues with political correctness... :eek: ;)
WildspitzE
04-17-09, 08:18 PM
I also note that velocity hasn't been dropping for a while, but has also not reversed much... and in plain English - when it does move significantly, Katie bar the door.
That's the first thing that popped into my head.
Ok, second:
http://i7.photobucket.com/albums/y262/desirable_layouts/10095341.jpg
Joking aside, watching the dance between the BASE, MULT, and M1 has also been entertaining -- and will continue to be as we see how the Fed attempts to pull on the reserve reigns (and its own balance sheet) w/out causing another "fiasco" for FIRE or the Treasury.
The economy seems still too debt laden and fragile to have another Volcker-like wringing w/out starting off this loop again.
Or, perhaps he will be the dark horse that nobody is watching now.
That's the first thing that popped into my head.
Ok, second:
http://i7.photobucket.com/albums/y262/desirable_layouts/10095341.jpg
Joking aside, watching the dance between the BASE, MULT, and M1 has also been entertaining -- and will continue to be as we see how the Fed attempts to pull on the reserve reigns (and its own balance sheet) w/out causing another "fiasco" for FIRE or the Treasury.
The economy seems still too debt laden and fragile to have another Volcker-like wringing w/out starting off this loop again.
Or, perhaps he will be the dark horse that nobody is watching now.
Econ wonks & data sluts need COOKIES too!!! :D
And check out the chart in post #2, since it's my best effort to date on a full picture and only excludes lags and velocity. Velocity does not *have* to move in order for inflation to return.
One of the chart's other purposes is to avoid excess focus on Base, M1, etc. and thereby miss the forest for the trees. I had a less complete but unpublished version last August or so when deflation really hit... and completely missed it for a few weeks until Finster's FDI filtered through my sometimes thick skull.
It's possible on Volcker but I don't see Summers letting him into the inner sanctum in the foreseeable future. Volcker was only on the team and being listened to before the election & inauguration, sad to say.
WildspitzE
04-17-09, 08:57 PM
Econ wonks & data sluts need COOKIES too!!! :D
I'll be impressed with your pshop skills when you manage to superimpose your first graph right on the cookie. LOL
And check out the chart in post #2, since it's my best effort to date on a full picture and only excludes lags and velocity. Velocity does not *have* to move in order for inflation to return.
I did, I dig the charts man. Absolutely, re: last sentence on velocity (I'm not a huge fan of the notion anyway, but I do keep an eye out for it).
It's possible on Volcker but I don't see Summers letting him into the inner sanctum in the foreseeable future. Volcker was only on the team and being listened to before the election & inauguration, sad to say.
For sure, he was window dressing during the election. Appease the corporatists, not that they shouldn't feel comfortable given that the mantra during the cabinet selection process was "status quo".
My point was more along the lines of... Summers&Co may have him on a leash now, but given the government's and the Fed's penchant for mismanagement re: all things money, they may have no choice after the rest of the world starts pointing his way...
Thanks for the charts Bart. You're the BEST.
rogermexico
04-17-09, 10:53 PM
Outstanding work. Dovetails nicely with EJ's latest.
Thank You.
One of these days, I'll reliably put brain into gear and confirm data before posting. :(
Shhht. I will tell you a secret. You should never put your brain into gear before posting. I almost never do it and I have great success :)
Now jokes aside, that was an obvious minor mistake, and my question was refferring to something else. If the fall started in June/July 2007 what was first? The chicken or the egg? Did the SOMA begin to dive because the mortgage derivatives stated to deleverage, or the shit start hitting the fan (which was bound to happen anyway sooner or later) when the Fed swept the liquidity ?
My real answer on when they'll admit it has some issues with political correctness... :eek: ;)
Ha ha ha! You can actually call it that.
By the way. I agree. Inflation can happen without a significant change in velocity. Sometimes I have the impression that people look too much in velocity for meanings that are not there... (Maybe we should continue the thread "Dissecting the Fed" looking into the difference between the money multiplier and the multiplier constant ;))
Just recalled this site, not being an expert on these things, I have no idea to what extent this may complement Bart's work.
In any case, he is ringing a different bell in his latest alert (below).
A chronicle of repurchase agreements (RP) and other paradoxical property ownership contracts
http://www.omo.co.nz/
"Alert: 18/04/09 - T
The inevitable consequences of zero to negative real return interest rates and blowout budget deficits: -
The sizable increase in demand for US Federal Reserve notes last year ($61.1bn) and continuing at a slightly higher annualised rate this year has caught the attention of the authorities.
inevitable consequences of zero to negative real return interest rates and blowout budget deficits: -
The Federal Reserve has just released a frightener video (http://www.bos.frb.org/consumer/lessons-from-a-storm/) extolling the virtues of maintaining a bank account, no doubt aware that a burgeoning black market economy means fewer deposits and ultimately less recognisable taxable income.
The recent growth in note demand is graphically presented and commented upon by the Federal Reserve on toolbar pages 34 & 35 in their 2008 Open Market Operations (http://www.newyorkfed.org/markets/omo/omo2008.pdf) annual report. Further weekly statistical evidence can be found here (http://www.federalreserve.gov/releases/H6/hist/h6hist10.txt) in column one. "
But you make a good point with the fed "subtracting" liquidity by shrinking SOMA ...;)
It took some 70 years for the Fed to accept responsibility for 1929 ... I wonder how long it will take them to accept responsibility for 2008 ? :)
If they did this on purpose, who's to say they won't withdraw SOMA liquidity again if it suits them, right when all the gold bugs get into a lather? Seems like it could be another good way to shear some more sheep.
Chomsky
04-19-09, 06:26 AM
If the fall started in June/July 2007 what was first? The chicken or the egg? Did the SOMA begin to dive because the mortgage derivatives stated to deleverage, or the shit start hitting the fan (which was bound to happen anyway sooner or later) when the Fed swept the liquidity?
I'd love to know. It's EJ's contention that this depression, unlike all other post-WWII recessions, was not caused by the Fed.
I'd love to know. It's EJ's contention that this depression, unlike all other post-WWII recessions, was not caused by the Fed.
Yes, I believe he has stated this multiple times. Other recessions were brought about by the Fed raising rates to withdraw liquidity.
I'll be impressed with your pshop skills when you manage to superimpose your first graph right on the cookie. LOL
Maybe in the great tradition of banksters, I could put it in the Photoshop alpha layer and make people wonder about whether its there or not? :eek: ;)
My point was more along the lines of... Summers&Co may have him on a leash now, but given the government's and the Fed's penchant for mismanagement re: all things money, they may have no choice after the rest of the world starts pointing his way...
One can surely hope...
Shhht. I will tell you a secret. You should never put your brain into gear before posting. I almost never do it and I have great success :)
My daughter also frequently accuses me of having that ability... :D ;)
Now jokes aside, that was an obvious minor mistake, and my question was refferring to something else. If the fall started in June/July 2007 what was first? The chicken or the egg? Did the SOMA begin to dive because the mortgage derivatives stated to deleverage, or the shit start hitting the fan (which was bound to happen anyway sooner or later) when the Fed swept the liquidity ?
As usual in areas like that, my answer is "both". The earlier Bear failure was a trigger for it, and the SOMA drop helped a bunch in creating disinflation/deflation, after a time lag.
The US stock markets peaked about 3-4 months after the SOMA drop, for what its worth.
By the way. I agree. Inflation can happen without a significant change in velocity. Sometimes I have the impression that people look too much in velocity for meanings that are not there... (Maybe we should continue the thread "Dissecting the Fed" looking into the difference between the money multiplier and the multiplier constant ;))
You've very much hit the roughest area I have - both lags and velocity are wild variables since both have a very large human component. It's trivial in comparison to working through and understanding stuff like the Fed's H.4.1
If they did this on purpose, who's to say they won't withdraw SOMA liquidity again if it suits them, right when all the gold bugs get into a lather? Seems like it could be another good way to shear some more sheep.
Some SOMA historical data 1916-1940 and 1966-1982:
http://www.nowandfutures.com/d2/fed_soma1916-1940.png
http://www.nowandfutures.com/d2/fed_soma1966-1982.png
ooops - edit/add for 1982-2007:
http://www.nowandfutures.com/d2/fed_soma1982-2007.png
I'd love to know. It's EJ's contention that this depression, unlike all other post-WWII recessions, was not caused by the Fed.
I suspect that this will be one of the areas that economic historians will disagree about for decades to come. Personally, I believe that what the Fed did not do (as in omissions) is a very large factor.
Chomsky
04-20-09, 06:39 PM
I suspect that this will be one of the areas that economic historians will disagree about for decades to come. Personally, I believe that what the Fed did not do (as in omissions) is a very large factor.
And not doing is doing, if it is deliberate. If you catch my drift.
The Outback Oracle
04-20-09, 06:42 PM
And not doing is doing, if it is deliberate. If you catch my drift.
Somewhere in Shakespeare he refers to 'there are the sins of commission and the sins of omission"
And not doing is doing, if it is deliberate. If you catch my drift.
My point exactly.
Chomsky
04-20-09, 07:12 PM
My point exactly.
Whew, glad that's clear.
So, what are some of the not-doings of the Fed that you'd identify as contributions to the depression?
Whew, glad that's clear.
Progress is our most important product... ;)
So, what are some of the not-doings of the Fed that you'd identify as contributions to the depression?
The #1 item by far is the whole mess surrounding the lies involved in the CPI and to a lesser extent, the GDP. Hedonics, substitution bias, geometric weighting, weighting bias, owner's equivalent rent and the rest of the items in the witches brew of "creative" modelers and economists and statisticians.
So Bart? In your professional opinion Are we Fucked? (or is the appropriate question How fucked ARE WE)?
http://www.britta.com/HW/HW99/brew.jpg
But what's it taste like? :D:eek:
So Bart? In your professional opinion Are we Fucked? (or is the appropriate question How fucked ARE WE)?
Well, let's put it this way... whenever I bend over, I always look behind me... ;) ... and more seriously, I'm as hunkered down now as I've ever been and hardly trading at all, especially in comparison to how much I was trading and using leverage in 2007.
I see very little in the way of truly effective actions being taken, but am somewhat heartened by the increasing numbers of folk who are seeing the darkness of GS, the Fed and most Congress critters as well as folk like Summers and Geithner, etc..
I even give a small tip of my hat to Ken Lewis for showing a tiny bit of integrity and coming clean about the pressure to not back out of the Merrill purchase, even though it was a CYA action too.
And I'd volunteer to be on call for any hugs or pizza delivery or similar that Elizabeth Warren wanted - she's out there and telling lots of truth.
I see very little in the way of truly effective actions being taken,
This is exactly my feeling. I haven't seen any real effective actions amounting to effective fighting deflation or to unfreezing the economy.
Actually this crisis in US is the only way to produce a global deleveraging by reducing the US trade deficit while not tanking the dollar (and wiping out the wealth accumulated by the smart money).
A dollar backdraft triggered by global deleveraging I believe is the only solution to export/sell the bad debt produced by Wall Street since 1995-1998.
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