Smart person is needed to explain something simple

I am an economist, but admittidly not a good one.
I simply can't understand how we can start a parabolic type expansion in the M2 money supply in the middle of a credit crunch.
If credit is not available and money is not being loaned, then the money supply should be shrinking. The changes in M2 are in innocent areas like retail money funds and small time deposits but that doesn't change the hard matamatical laws that determine the money stock.
What am I missing? Is there a way to expand the money supply without borrowing and lending activities increasing?
If there is, I would like to become familiar with the process.

Maybe Ben said to the banks to put funds into equities instead and he would guarantee the market would go up so they can recoup losses. I take that back as a joke, anything is possible with the fed these days. There is no fundamental reason for the markets to go up Funny, I was at the hotel bar in Hong Kong Friday and they were talking about Bernake on TV. The guy next to me thought they were talking about bare-naked-ladies

I am an economist, but admittidly not a good one.

There are good ones?



Strange times indeed. Maybe we are headed for Eutopia.

This one is out there but you have to leave the box. You are living a central command authority communist/cronie/oligarch ( they let you have your silly elections with 5 media owners regulating your hegelian moron debate topics ) Once you grasp this reality in recongition that there are no laws, just men, you can understand what they do. Off topic, policital, you bet, leave the box and embrace technical analysis to play in their sandbox is your only chance for success in their markets. You already know your not going to succeed in their central planning dole, that's probably why you are here already.

I am an economist, but admittidly not a good one.

There are good ones?

Strange times indeed. Maybe we are headed for Eutopia.

The problem I have now is that I forget faster than I can learn.
If I have anything left to contribute I'm going to have to do it quick.
I remember a thought process that I had in college. I kept wondering when I was going to feel like I knew something.
I guess that has never changed.

Even if there are no good economists, there is no reason why they can't ask the right questions.

James

Maybe this answers the question in part, or maybe it begs the further question: exactly what are these institutions doing with these borrowed funds - where are they going - and why do they need them?

http://money.cnn.com...is.ap/index.htm

I would guess that its the way the money supply is calculated....

money supply = (Federal Reserve's M2 fudge factor ) x real GDP x GDP Deflater / velocity

Wikipedia Link on Money Supply

If money turnover (velocity) stalls by reduced retail spending, the M2 is increased. I don't see how credit defaults would have any affect?

My guess is they take "dead" assets from the banks and brokers and swap them for "live"... (cash). The live assets are now inflated into the bubble cycle, but now leveraged at a smaller multiple(let's use 10X). A 10X multiple return allows the banks and brokers to exchange a portion of their 10X for the 1X dead asset, the dead asset is written off, and the bubble keeps inflating... I"m just trying to think like a criminal statist banker here, feel free to poke holes.

the pig bankers,hedge funds ,,are holding on the $s to steal some thing.cash is good now.looking for more blow ups..

Hey James. I'm certainly not a smart economist, just a dumb-a$$ bond trader for the most part, but I'll take a stab at your question. The FED is pouring cash into the system. Holdings of U.S. Treasury securities at the FED have plummeted in the last 60 days. This has freed up money that's gone into the new 28day credit facility etc. I think this helps to explain the meteoric rise of M2 as of late. So, there's plenty of money in the system. The "credit crunch" has essentially nothing to do with a "lack" of money. It deals with a "lack" of lender confidence. This monstrous money supply growth is failing to be ulitized because money center banks (and regionals) are sitting on the money and have tightened up their lending standards to the point that credit is being denied to groups that 2 years ago had no problem sipping at the credit trough. We have a logjam that is yet to be broken. Cash is readily available.....no-one wants to lend it...yet. U.F.O.

Edited by U.F.O., 05 April 2008 - 11:52 AM.