tag:blogger.com,1999:blog-5713178645208582139.post7792777073851335416..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: FOMC: We Got a Money Demand ProblemDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-5713178645208582139.post-59756998457603209702011-10-14T13:56:45.713-05:002011-10-14T13:56:45.713-05:00Re: Your point on M2 and institutional money marke...Re: Your point on M2 and institutional money market funds.<br /><br />Fair enough, but my understanding of the tally of money-assets in the shadow banking system is that it includes many other categories than just institutional money market funds. Take commercial paper, which was down quite dramatically in July and August.<br /><br />See back page chart:<br /><br />http://www.richmondfed.org/JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-39471934691072422092011-10-14T13:41:55.637-05:002011-10-14T13:41:55.637-05:00You came pretty close to describing my side. I'...You came pretty close to describing my side. I'll repeat your post almost word for word except with a few changes to illustrate where I am coming from:<br /><br /><i>Okay JP, let me explain it this way. The changes you are describing are what is typically called an increase in precautionary asset demand. This type of demand is different than the liquidity demand for assets. When the former JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-68187590638536601382011-10-14T10:53:46.227-05:002011-10-14T10:53:46.227-05:00David,
You never answered my question on fiscal. ...David,<br /><br />You never answered my question on fiscal. Touchy political point for you? <br /><br />Also, you're just cherry picking the most recent M2 spike. MZM and M3 fell substantially throughout the entire recession and only just recently began to rise again. How can you claim this recession has been due to money demand when MZM and M3 were clearly on the decline from 2008-2010?DavidRnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-6611904905647241222011-10-14T10:28:09.967-05:002011-10-14T10:28:09.967-05:00JP,
One last thing. How do you interpret the fac...JP,<br /><br />One last thing. How do you interpret the fact that if you take M2 and institutional money market funds to it (or equivalently add small time deposits to MZM) you get an increase in the aggregate? In other words, the monetary aggregates are increasing on net, even when we account for retail and institutional money market accounts.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-15171041614855727802011-10-14T10:18:31.035-05:002011-10-14T10:18:31.035-05:00Okay JP, let me explain it this way. The changes y...Okay JP, let me explain it this way. The changes you are describing is what is typically called an increase in precautionary money demand. This type of money demand is different than transaction demand for money. When the former happens, investors move to safer, more liquid assets this leads to a move away from riskier assets and reverses the portofolio channel (i.e. hot potato effect in reverseDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-29820605249999071112011-10-14T09:50:23.782-05:002011-10-14T09:50:23.782-05:00"The bigger point, though, is that portfolios..."The bigger point, though, is that portfolios are being rebalanced toward more liquid, less risky assets. Whatever the motive, this is an increase in demand for money--there is no way getting around it. "<br /><br />Sorry David, you don't convince me. <br /><br />What you are missing is the possibility that investors are simply switching from certain types of dollars - those dollarsJP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-81161620618340067012011-10-13T18:41:45.922-05:002011-10-13T18:41:45.922-05:00So, isn't this more of a wealth disparity prob...So, isn't this more of a wealth disparity problem and not a problem of money hoarding? If the poor had more money they'd spend it? Why bother with all the monetary policy gimmicks that MIGHT work when we know we can solve your problem by taxing the rich and giving the poor a tax break? <br /><br />Why not fix the problem with fiscal policy that we know for a fact will fix the problem DavidRnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-29893426577837736222011-10-13T18:24:15.676-05:002011-10-13T18:24:15.676-05:00DavidR,
The households hoarding liquid assets are...DavidR,<br /><br />The households hoarding liquid assets are the creditors, the ones with excess funds but are reluctant to invest or spend them. So, yes, I am speaking mostly about wealthier households. I suspect there are less wealthy households too that are very cautious about their funds and acting similarly.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-43527585098110599922011-10-13T18:18:39.821-05:002011-10-13T18:18:39.821-05:00David,
Thanks for the response. You weren't ...David,<br /><br />Thanks for the response. You weren't very specific in your answer though. Do you think the US consumer has too many money assets in the aggregate? This seems to conflict with most other data points we see on a regular basis. If anything, consumers can't obtain enough money assets to deal with their every day needs. <br /><br />Can you elaborate. Thanks!DavidRnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-49110650794753671902011-10-13T17:24:39.671-05:002011-10-13T17:24:39.671-05:00JP Koning, DavidR:
As the Fed notes in above stat...JP Koning, DavidR:<br /><br />As the Fed notes in above statement, both institutional and retail investors are moving into deposits. Thus, households are a part of the development. Moreover, the flow of funds data is the household sector so it is being reflected there too. (Yes, hedge funds are included in the household sector data which may dirty the data up a bit. But even then, hedgefunds David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-59289285556789371602011-10-13T15:39:50.789-05:002011-10-13T15:39:50.789-05:00I am also interested in the answer to JP's que...I am also interested in the answer to JP's question as it ties into my previous question also. The data shows large declines in foreign commercial paper and institutional money funds that equates to the majority of the climb in M2. This implies that it's mostly just banks shifting assets into safer assets. <br /><br />I don't doubt that the banks are reducing their risk given the DavidRnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-11777916854213534322011-10-13T14:56:51.832-05:002011-10-13T14:56:51.832-05:00"The shift is toward more liquid forms of mon..."The shift is toward more liquid forms of money assets. "<br /><br />It could just as likely be a shift towards less risky forms of money-assets, and would therefore not be an increase in demand for money, but an increase in demand for safe assets.<br /><br />If the July - August jump in M2 that the Fed describes was caused by the public selling treasuries to banks, we'd expect to JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-35724452701568497142011-10-13T14:44:23.974-05:002011-10-13T14:44:23.974-05:00Hi David,
Thanks for your excellent work on this....Hi David,<br /><br />Thanks for your excellent work on this. <br /><br />Can you clarify your point just a bit. Are you saying that households have more than enough "money assets" and merely refuse to spend them?DavidRnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-73974438638832163142011-10-13T14:26:58.001-05:002011-10-13T14:26:58.001-05:00As usual, I am unconvinced. You show lots of evid...As usual, I am unconvinced. You show lots of evidence that deposit money supply is increasing. How do you know that the increase is not sufficient to fully satisfy the precautionary demand?RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-38742862484073543642011-10-13T14:15:01.535-05:002011-10-13T14:15:01.535-05:00David,
I came across this chart by Bianco Researc...David,<br /><br />I came across this chart by Bianco Research on corporate (non-financial) liquidity. I have some doubts about the data (liquidity was 40% in the 50's?), but more recently it shows a non-material increase in corporate liquidity positions.<br /><br />http://www.ritholtz.com/blog/wp-content/uploads/2011/09/nchart2.gifDavid Pearsonnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-56593009556986052172011-10-13T13:54:43.215-05:002011-10-13T13:54:43.215-05:00JP Koning,
The shift is toward more liquid forms ...JP Koning,<br /><br />The shift is toward more liquid forms of money assets. That is an increase in demand for assets that are more money-like or more liquid than others. It doesn't matter if one component of M2 falls and the other increases (M2 is an arbitrary definition). It still a shift toward more liquid assets and a reversal of the hot potato process that spurs nominal spending. ThisDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-42174497158285347962011-10-13T11:01:21.459-05:002011-10-13T11:01:21.459-05:00"In other words, we have rapid growth in M2 c..."In other words, we have rapid growth in M2 coming from a surge in money demand."<br /><br />I think I'd disagree with your translation of the Fed's minutes.<br /><br />It seems to me like we are having a shift in demand from one sort of money to another. For instance, as the Fed minutes point out there was a shift from prime money funds to bank deposits. Rather than holding theJP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-61996213171814377882011-10-12T21:07:29.501-05:002011-10-12T21:07:29.501-05:00Great post. There are tons of people who are look...Great post. There are tons of people who are looking at the recent m2 growth as a sign of an inflationary boom being around the corner, but they don't seem to take money demand into account.Desolation Jonesnoreply@blogger.com