I figured out why QE is actually deflationary

[OverVolt]

Money velocity drops to the floor because credit is contracting, those in the middle do not want to get caught with higher liabilities and lower wages in a deflationary/recessionary environment. Thus they save more. Look at Japan's saving rate, look at the US' savings rate.

Japan's situation is exacerbated by the fact that their demographics (older people) leads to savings. Their problem is further exacerbated by the fact that almost all of their TSY holdings are internal, this will be a huge problem for them when those older people start to go from accumulation to distribution/spending.

Velocity increases as confidence returns. That won't happen until housing picks up again with gusto and middle class jobs are created.

If they keep doing rounds of QE, velocity stays low.

I also like how most of the drops in money velocity are marked as recessions, so what is that last leg? Haha...

 

[OverVolt]

Anyway

Japan money velocity. QE'ing their way to ever new all-time-lows.

I'm actually on to something, jerks.

 

[LegendKiller]

If they keep doing rounds of QE, velocity stays low.

I also like how most of the drops in money velocity are marked as recessions, so what is that last leg? Haha...

Velocity has dropped whether there is QE or not. It's a by-product of a recession and credit contraction.

http://en.wikipedia.org/wiki/File:M2VelocityEMratioUS052009.png

In every other recession there was no QE yet there were large drops in velocity. Your premise is wrong.

 

[OverVolt]

Except, are you ready for it?

After the last drop, they did QE!

Now we're stuck in money velocity hell. Stop QE, econ explode. Start QE, velocity drop & deflation.

 

[LegendKiller]

Except, are you ready for it?

After the last drop, they did QE!

Now we're stuck in money velocity hell. Stop QE, econ explode. Start QE, velocity drop & deflation.

Wow.

QE doesn't cause a decline in money velocity. A decline in credit causes deflation which QE attempts to fight. You are mixing the symptom, sickness and cure. Get that through your head. Money velocity is caused by credit contraction, uncertainty and a decline in the middle class. That has nothing to do with QE. QE attempts to fight that by lowering borrowing rates, increasing demand for levered goods which in turn spurs the multiplicative effect of middle class spending.

I also think that one by-product of QE is to inflate Chinese wages to eventually cause some home-sourcing due to the peg.

 

[OverVolt]

If you increase the money supply, it directly drops money velocity, this is hilarious.

You are mixing the symptom, sickness and cure.

The sickness is too much debt, and the cure is more debt. So there is plenty of that going around.

 

[IGBT]

at some point prob.sooner then later valuations no longer are believable. Then we will circle the drain at high velocity.

 

[DominionSeraph]

This from the guy who claimed he was some sort of savant who is so in control of his physiology that he was a special training dummy for the military...

Another "stupid Bober" post. There's nothing particularly special about it -- millions of people learn to fall in martial arts training. To not flail about in utter fear of the fall like a retarded redneck just takes a little control.

Keep spraying that vinegar, LOL.

 

[LegendKiller]

Anyway

Japan money velocity. QE'ing their way to ever new all-time-lows.

I'm actually on to something, jerks.

Nobody is impressed by your ability to post a few charts made by other people and say something akin to what the Hong Kong Monetary Authority just said. The only difference is that they were making a theory, you are stating it as fact.

When you actually have a bbg terminal and can make your own graphs let me know.

 

[Jhhnn]

If they keep doing rounds of QE, velocity stays low.

I also like how most of the drops in money velocity are marked as recessions, so what is that last leg? Haha...

Sigh. LK is right, of course. All we need to understand is history. There was no QE in the early 1930's, in what was previously the greatest balance sheet depression ever.

Scarcity of money intensified hoarding, which is the cause of low velocity. Low velocity of money isn't a cause, but rather a symptom. Irving Fisher explains-

http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

 

[OverVolt]

Nobody is impressed by your ability to post a few charts made by other people and say something akin to what the Hong Kong Monetary Authority just said. The only difference is that they were making a theory, you are stating it as fact.

When you actually have a bbg terminal and can make your own graphs let me know.

Like a boss :awe:

Yea then I'll be a big boy ()

I'm actually not sure whats with all the hostility. You guys go ahead and worry about inflation then. I like your input because you are in the field, but off the bat you were a jerk. You calculate money velocity using money supply so its hilarious how badly you want to attack me.

 

[BoberFett]

Another "stupid Bober" post. There's nothing particularly special about it -- millions of people learn to fall in martial arts training. To not flail about in utter fear of the fall like a retarded redneck just takes a little control.

Keep spraying that vinegar, LOL.

Everyone can read your post. No hiding your ridiculous claim, which had nothing to do with learning to fall. You claimed you could instruct your body not to react, which is the exact opposite of learning to fall, where you control your fall because you're expecting it.

You're a silly little troll. Go back to your kiddie pony show, you sad little pedo.

 

[LegendKiller]

Like a boss :awe:

Yea then I'll be a big boy ()

I'm actually not sure whats with all the hostility. You guys go ahead and worry about inflation then. I like your input because you are in the field, but off the bat you were a jerk. You calculate money velocity using money supply so its hilarious how badly you want to attack me.

Dude, I can only bang your head against a brick wall for so long until I get tired of hurting you.

Have you considered what money velocity would be *without* QE? Most people agree it would be far lower, you somehow think you have the secret sauce (you don't). QE is not additive to a decline in velocity.

 

[OverVolt]

http://management.fortune.cnn.com/2012/11/26/wells-fargo-stumpf/

Yup. QE causes money hoarding. Thats what I see when I read this. Just like Japan, America will trend towards a higher savings rate in the face of dropping money velocity due to QE. Its an instinctual reaction to hoard money when it flows slower through the economy.
Corporations are already hoarding money, hence stagnant wages.

http://www.theatlantic.com/business...ard-is-bigger-than-the-gdp-of-germany/260006/

 

[DucatiMonster696]

http://management.fortune.cnn.com/2012/11/26/wells-fargo-stumpf/

Yup. QE causes money hoarding. Thats what I see when I read this. Just like Japan, America will trend towards a higher savings rate in the face of dropping money velocity due to QE. Its an instinctual reaction to hoard money when it flows slower through the economy.
Corporations are already hoarding money, hence stagnant wages.

http://www.theatlantic.com/business...ard-is-bigger-than-the-gdp-of-germany/260006/

Unlike the average Japanese consumer who has a historical trend of saving we Americans are not savers. U.S. Businesses may hold onto more money during a economic downturn but the average American is not a saver and despite the short term trend of decreasing personal debt caused by the contraction of the mortgage housing markets between 2008-2010 the average American consumer has gotten back track with credit card debt which is why personal credit card debt has ballooned to 2.7 trillion dollars. While US consumers are not hoarding cash any cash in this nation but their money is continually earning them less bang for their buck via every round of QE.

 

[Jhhnn]

http://management.fortune.cnn.com/2012/11/26/wells-fargo-stumpf/

Yup. QE causes money hoarding. Thats what I see when I read this. Just like Japan, America will trend towards a higher savings rate in the face of dropping money velocity due to QE. Its an instinctual reaction to hoard money when it flows slower through the economy.
Corporations are already hoarding money, hence stagnant wages.

http://www.theatlantic.com/business...ard-is-bigger-than-the-gdp-of-germany/260006/

You stubbornly refuse to properly connect cause & effect.

In the aftermath of any economic shock, there is a general flight to safety among people who have money to save or invest, and saving is obviously safer, particularly in the form of US treasuries & govt insured accounts.

In the face of low demand, investment is riskier, and we obviously have low real demand. In the face of enormous losses from previous over extension of credit, lenders are much more cautious, and investors even more so. Bank reserves build as a consequence of these things combined.

This is entirely independent of QE.

When the FRB buys treasuries as QE, it can't do so directly from the govt, but rather from intermediaries, member banks or private parties. Sellers make a small profit on the deal, and also obtain cash instead of bonds, cash to do whatever they please. This encourages lending & investment.

When the FRB buys other credit instruments, like MBS, the sellers receive cash, encouraging lending & investment in the same fashion. The FRB is free of the normal constraints of profit & loss. Even if they lose money on bonds, it doesn't matter.

I realize that seems strange, but it's the truth. The FRB can't go broke, by definition. They remove risk from the marketplace with QE, thus encouraging lending & investment.

In circumstances other than a liquidity trap in a depressed economy, QE would be inflationary, strongly increasing the velocity of money. As it is, the FRB is pushing on a rope in many respects, barely able to overcome the strongly deflationary forces in the market.

That's because they can't put money directly into the hands of people who will spend it. Only govt spending that will cause people to be hired can do that in the current business climate, because govt need not respond to normal market forces of demand & profit.

 

[OverVolt]

Shorting the Yen is the widowmaker trade.

Same thing should apply to the USD since we are doing QE as well. :hmm:

Many fall for it but none shall prevail.

 

[LegendKiller]

http://management.fortune.cnn.com/2012/11/26/wells-fargo-stumpf/

Yup. QE causes money hoarding. Thats what I see when I read this. Just like Japan, America will trend towards a higher savings rate in the face of dropping money velocity due to QE. Its an instinctual reaction to hoard money when it flows slower through the economy.
Corporations are already hoarding money, hence stagnant wages.

http://www.theatlantic.com/business...ard-is-bigger-than-the-gdp-of-germany/260006/

So where, exactly, did the CEO of WF say that QE caused money hoarding? Why, NOWHERE did he say that!

As Jhhnn posted above, money hoarding is caused by people having a flight to safety. A big cause of this is the fact that the FDIC raised the limits. Nobody wants to lose their money which is why bond funds are doing so well and stock volumes and funds are down.

Why do you persist in this?

Then you go and double down on the foolishness by saying that companies hoarding cash is because of QE. That's an even more ridiculous assertion because, while they have increased cash positions organically, they have also done so by raising debt. Furthermore, a ton of that cash is actually *OFFSHORE*, which means they can't even bring it back at tax advantageous rates so it stays in dollar denominated assets offshore.

Finally, they are parking the cash rather than investing it because there is a global issue with risk right now. Where, exactly, would they invest it in capital goods? China, which is crashing? Japan which is stuck? Europe? The US? Canada's limited market?

Your logic is lacking yet you persist, why?