THURSDAY, JANUARY 13, 2011
The Fed and QE (Runedge - UltraTrading)
The problem with group think is that thinking is not allowed. It should really be called group acceptance. The larger the group the harder the tendency for someone to disagree. Right now the group is massive. The group think I am referring to is with the Fed, the Bernanke put and how the Fed will "just print more money and bail out the banks."
I have yet to read the Art Of War (have owned it for about 15 years now) but somewhere in there I am sure it talks about giving your enemy more credit and not simply labeling them as stupid or inferior. The Fed is a smart group of people, albeit lacking in practical real world business sense. The banks are benefitting for sure from playing the role of broker as the Fed expands its balance sheet. How else can the Fed buy treasuries though? We know they are monetizing the debt but at least by working through the primary dealers they can say they are not monetizing the debt.
There are three ways to grow nominal GDP
M (money supply) x V (velocity) = Q (output) x P (price inflation)
1 - Increase the money supply
2 - Increase the velocity of money
3 - Increase inflation
Let's use an example of a place called Fantasy Land (fitting for our current situation).
I have yet to read the Art Of War (have owned it for about 15 years now) but somewhere in there I am sure it talks about giving your enemy more credit and not simply labeling them as stupid or inferior. The Fed is a smart group of people, albeit lacking in practical real world business sense. The banks are benefitting for sure from playing the role of broker as the Fed expands its balance sheet. How else can the Fed buy treasuries though? We know they are monetizing the debt but at least by working through the primary dealers they can say they are not monetizing the debt.
There are three ways to grow nominal GDP
M (money supply) x V (velocity) = Q (output) x P (price inflation)
1 - Increase the money supply
2 - Increase the velocity of money
3 - Increase inflation
Let's use an example of a place called Fantasy Land (fitting for our current situation).
A farmer sells $50 in corn to a neighbor. The farmer then spends $30 to get their tractor fixed from another neighbor and spends $20 on a bottle of moonshine at the local "packy."
The GDP of this fine community is $100 assuming their is no inflation (hence the name Fantasy Land). Using the above formula we have:
Money Supply ($50) X Velocity (2, how many times the money was turned) = Inflation (0%) X Output ($100)
READ FULL POST HERE
No comments:
Post a Comment