RE: Re[4]: [RT] A note on Forecasting / Mandelbrot

["Jim Ross" <jrosscpa@xxxxxxx>]

As I formerly understood M3 and current bank balance sheet deleveraging, I hadn’t any doubt that M3 has been crashing.  There were great outcries of conspiracy when the Fed announced they’d no longer publish M3 and I suspect they were not unfounded.  I believe Greenspan and Bernanke knew exactly where we were headed well in advance and didn’t want to let the cat out of the bag.

The irony over all the outcries about banks not lending is twofold.  First, when FNMA/FRE stock became effectively worthless, 90% (a rough but close figure) of ALL FDIC banks became capital deficient if not insolvent (insolvent is defined by the US Bankruptcy Code as “that condition which exists when assets at fair value are less than liabilities”).  When a bank is capital deficient or insolvent, it may not, as a matter of FDIC regulations, lend; it’s against the law.  Second, I suspect the bailout was a practical measure as well.  With 4000 deficient or insolvent banks and a finite number of people qualified to be on a takeover/closedown team (I was a grunt on several closedown teams in the ‘80s and ‘90s), the FDIC couldn’t close enough banks fast enough.  So, give money to big, semi solvent banks (BoA et al) or tax incentives (Wells Fargo) to buy and absorb banks that the Feds didn’t have the manpower to close.  So, the bailout simplified things and probably made things more manageable for the time being, but it has hardly bailed out anything as yet.  Er, except some Wall Street bonus expectations.

Wow, GMAC, FMC, Chrysler Acceptance……FDIC insured banks!!!

Thanks, Jim

 

From: realtraders@xxxxxxxxxxxxxxx [mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of Code 2
Sent: Thursday, December 11, 2008 1:05 PM
To: Jim Ross
Subject: Re[4]: [RT] A note on Forecasting / Mandelbrot

 

> If M3 were still computed, it would be through the floor I expect.

 

Here is a reconstruction of M3 from http://nowandfutures.com/key_stats.html.  I know nothing about this group's qualifications or motivations.

 

The chart certainly shows a marked decline in the rate of M3 growth (the blue line and right hand scale), but it is not negative (yet).  Look at the acceleration in the rate of growth between July 2007 and June 2008!  That was the highest rate of growth since at least 1959.  Mr. Bernanke was certainly flooding the money supply in an apparent attempt to head off what we see between July and November.

 

Below this chart is another with a longer term view.

 

 

 

 

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