End of QE2 or Where did it go?
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End of QE2 or Where did it go?
So, The Fed bought up a lot of assets from banks and US Treasury thus adding cash and liquidity to the economy. Money Velocity is still very low, http://m.research.stlouisfed.org/fred/s ... &units=lin
Where do you think the Money went?
Where do you think the Money went?
Last edited by LongerPrimer on Wed Oct 29, 2014 11:22 pm, edited 1 time in total.
Re: End of QE2 or Where did it go?
Not enough consumption, the money is being saved. If you are Keynesian, which by the way I am not, this calls for higher fiscal spending, i.e., big public work, etc.
Erwin
Re: End of QE2 or Where did it go?
Edited to delete the graph that was here. There is a link to a better graph in my post below.
Ron
Ron
Last edited by Oicuryy on Thu Oct 30, 2014 1:09 am, edited 1 time in total.
Money is fungible |
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- market timer
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Re: End of QE2 or Where did it go?
Mostly in excess reserves. I believe the consensus thinking now is that interest paid to these excess reserves will become the key policy rate once rate hikes commence next year.
Re: End of QE2 or Where did it go?
Here is a stacked area graph of the components of M2. The biggest increase was in savings deposits.
http://research.stlouisfed.org/fred2/graph/?g=PgA
Ron
http://research.stlouisfed.org/fred2/graph/?g=PgA
True, but the OP asked about M2 velocity. Reserve balances are not part of M2.market timer wrote:Mostly in excess reserves.
Ron
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Re: End of QE2 or Where did it go?
So are you predicting a Quantitative Tightening going forward rather than a prolonged Japan negative real yield type scenario?market timer wrote:Mostly in excess reserves. I believe the consensus thinking now is that interest paid to these excess reserves will become the key policy rate once rate hikes commence next year.
Central Banks printed new money to buy treasury bonds from banks/pension funds, so fewer treasury bonds available, demand the same or rose, treasury bond prices rise, yields decline. New (more) treasury's issued at lower yields/longer term. Overall large debt spread further out over time at a average lower interest rate cost (debt restructured).
Much of the cash banks received from selling treasury's to the Central Bank have been deposited into savings as per that chart that Oicuryy linked to. Either from a economic angle the state would need to maintain negative real yields for a prolonged period to deflate the value of those savings (rates below inflation), or raise interest rates to reduce the price of treasury's and use the Central Bank reserves to buy back treasury bonds it had sold at relatively high prices/low yields at a discount.
Recently with 5 year average Japan Nikkei 225 dividend yield = 1.7%, recent S&P500 dividend yield = 1.94%. Japan 10 year treasury yield 0.5%, US and UK 10 year treasury yields 2.3%. Japan inflation 3.3% (having risen up from 1% levels last year and broadly 0% over the last decade+), US 1.7%, UK 1.2% - the indications are not to be pushing for prolonged negative real yields - so your prediction may very well prove to be correct IMO.
A increase to 5% on 30 year Treasury yields could knock stocks and bonds down by 30% and reduce the debt mountain by 30%, leaving stocks and bonds relatively fairly priced, banks ok and the economy reasonably well positioned (back to 'normal'). Shorter term/rolling bonds/CD's would do OK under such circumstances (mature at par, roll into higher yields).
2.5% T-Bill by year end 2015 perhaps?
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Re: End of QE2 or Where did it go?
Never imagined that "savings deposits" were so high. That's a lot of idle money.
Currently holding a high cash level (FDIC insured) in IRA-ROTH trading accounts. This cash is almost as much as the total value of these accounts in Feb 2009.
Currently holding a high cash level (FDIC insured) in IRA-ROTH trading accounts. This cash is almost as much as the total value of these accounts in Feb 2009.
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Re: End of QE2 or Where did it go?
If not a Keynesian, then what are you?mpt follower wrote:Not enough consumption, the money is being saved. If you are Keynesian, which by the way I am not, this calls for higher fiscal spending, i.e., big public work, etc.
I forgot if there was/is another type of econ theory being taught?
Re: End of QE2 or Where did it go?
I wonder if "savings deposits" is strictly individual bank accounts. At a current level of about 7.5 trillion, that would be an average of a bit over $60k per US household, which does seem high.LongerPrimer wrote:Never imagined that "savings deposits" were so high. That's a lot of idle money.
I recently came across a federal reserve document released last month called the 2013 SCF Chartbook (Survey of Consumer Finances) which has all sorts of interesting breakdowns of consumer accounts and assets/liabilities. Google is not being cooperative at the moment so I don't have a link.
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Re: End of QE2 or Where did it go?
AS others have said monetary base went soaring, but we did not get the great inflation (and collapsing dollar) that many predicted. That is because while monetary based soared, the money supply did not. The reason was velocity of money fell. Both the money multiplier (banks did not lend the reserves they built up) and the velocity of money fell (people weren't spending). Now the reverse may happen as well (hopefully), as the Fed unwinds (shrinking the MB) you'll see velocity pick up along with the money multiplier. If the Fed unwinds too quickly the economy will suffer, but if they unwind too slowly inflation will become problem. This is art unfortunately and no clear red or green light lets the Fed know what speed to go at and when to stop and start.
Larry
Larry
Re: End of QE2 or Where did it go?
Freshwater economics:LongerPrimer wrote:If not a Keynesian, then what are you?mpt follower wrote:Not enough consumption, the money is being saved. If you are Keynesian, which by the way I am not, this calls for higher fiscal spending, i.e., big public work, etc.
I forgot if there was/is another type of econ theory being taught?
http://en.m.wikipedia.org/wiki/Saltwate ... _economics
Re: End of QE2 or Where did it go?
Besides the above-mentioned Freshwater economics, there's also the Austrian School of thought.LongerPrimer wrote:If not a Keynesian, then what are you?mpt follower wrote:Not enough consumption, the money is being saved. If you are Keynesian, which by the way I am not, this calls for higher fiscal spending, i.e., big public work, etc.
I forgot if there was/is another type of econ theory being taught?
- market timer
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Re: End of QE2 or Where did it go?
Here's a recent blog post on the state of New Keynesian economics, relative to RBC (or freshwater economics), in academic research: http://noahpinionblog.blogspot.com/2014 ... eping.htmlAviN wrote:Freshwater economics:LongerPrimer wrote:If not a Keynesian, then what are you?mpt follower wrote:Not enough consumption, the money is being saved. If you are Keynesian, which by the way I am not, this calls for higher fiscal spending, i.e., big public work, etc.
I forgot if there was/is another type of econ theory being taught?
http://en.m.wikipedia.org/wiki/Saltwate ... _economics
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Re: End of QE2 or Where did it go?
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