We have been tracking M2 and the monetary base MB ratio, also the assets of the FED and we spent a few minutes looking at where the problem is, namely the FED has pumped in money and it is just hung up somewhere. So where. We performed a simple analysis. The math is simple and the results are startling.
Let us start with some math. First for M1 we have:
This is M1 and it is a sum of cash and demand deposits. The cash can be some multiple of the demand deposits as we show and the graph shows some modulation of that over the last 30 months. Now for M2 we have:
This is standards where we list small savings and time deposits and then everything else. Now for the ratio we have been looking at:
We can now apply some of the previous rations to obtain:
And finally we have for the other ratios:
Now when we use the Fed data we obtain:
Which is the chart we have been following. Namely we see that M2 to the money base has collapsed. The money went out but then disappeared. Where did it go? We first looked at the ratios in the analysis and they are shown below:
This did not account for the dramatic difference. Then we looked at the excess reserve ratio, e, and this is shown below:
And this was quite telling. The excess reserve ratio, until last fall, was close to zero as one would have expected. Then as the FED pumped money into the banks the ratio exploded. The money is being hoarded if one does the analysis this way. Yet it may also be that the required reserves may have no value and the money is covering the reserves. This does not appear in the simple monetary analysis. We will be watching this closer. There is one hopeful sign here which is the excess ratio seems to be falling at a fast rate, a possible sign of the loosening up of the banks.
Our concern still is as it has been for the past nine months that explosive inflation is just behind us and running faster than we think
Let us start with some math. First for M1 we have:
This is M1 and it is a sum of cash and demand deposits. The cash can be some multiple of the demand deposits as we show and the graph shows some modulation of that over the last 30 months. Now for M2 we have:
This is standards where we list small savings and time deposits and then everything else. Now for the ratio we have been looking at:
We can now apply some of the previous rations to obtain:
And finally we have for the other ratios:
Now when we use the Fed data we obtain:
Which is the chart we have been following. Namely we see that M2 to the money base has collapsed. The money went out but then disappeared. Where did it go? We first looked at the ratios in the analysis and they are shown below:
This did not account for the dramatic difference. Then we looked at the excess reserve ratio, e, and this is shown below:
And this was quite telling. The excess reserve ratio, until last fall, was close to zero as one would have expected. Then as the FED pumped money into the banks the ratio exploded. The money is being hoarded if one does the analysis this way. Yet it may also be that the required reserves may have no value and the money is covering the reserves. This does not appear in the simple monetary analysis. We will be watching this closer. There is one hopeful sign here which is the excess ratio seems to be falling at a fast rate, a possible sign of the loosening up of the banks.
Our concern still is as it has been for the past nine months that explosive inflation is just behind us and running faster than we think
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