Eagles and Vultures

Just a brief post today concerning a couple of anecdotal demand indicators.

Let's start with Gold and Silver Eagle sales from the U.S. Mint. First, chew on these little factoids that Uncle Ted shared a couple of weeks ago: (http://www.butleresearch.com)

  • In 1986, the U.S. Mint was directed by law to begin minting gold and silver coins. Over those 27 years, The Mint has sold approximately 325,000,000 Silver Eagles.
  • Almost exactly half of those sales have occurred in the past five years alone (2008-2012 = 157,000,000).
  • Annual sales above 35,000,000 exceed the entire annual U.S. production for 2012. (Courtesy of our friend SRSrocco: http://www.financialsense.com/contributors/steve-angelo/2012/01/04/silver-sales-surpass-domestic-production)
  • Annual sales at 35,000,000 represent about 5% of total global mine production for any single year.

So, anyway, Silver Eagle sales, though not the be-all-end-all, are clearly a significant force in global silver demand. And where are we with this demand? Let's take a look.

Year             Jan sales             Feb sales             March sales           Total year end         YoY %chg

2008              2,170,000                200,000                 1,855,000                   19,583,500                       +98%

2009              1,900,000               2,125,000               3,132,000                   28,766,500                      +47%

2010               3,592,500               2,050,000               3,381,000                  34,662,500                      +20%

2011                6,422,000              3,240,000              2,767,000                   39,868,500                      +15%

2012               6,107,000               1,490,000               2,542,000                  33,742,000                       -15%

2013               7,498,000               3,368,500              1,601,500 (1-12)     proj: 60,000,000              +78%

For 2008, Q1 sales were 21.3% of total. Q1 2009 was 24.9% and Q1 2010 was 26.0%. Q1 2011 was 23.6% of all 2011 sales and Q1 2012 was 30.0%. So, on average, Q1 accounts for about 1/4 of all annual sales. Also, for the first 12 days of March, total sales are 1,601,500. This projects March 2013 total sales of 4,137,500. Projecting Q1 2013 sales forward gives us a total 2013 sales figure of just above 60,000,000.

As Ruprecht would say: "That's a lot." That's a 50% increase over the record from 2011 and an 80% increase over 2012.

Now let's turn our attention to gold.

Year             Jan sales             Feb sales             March sales           Total year end         YoY %chg

2008                 26,000                    27,500                       50,000                        860,500                   +334%

2009                 92,000                   113,500                      136,500                      1,435,000                   +67%

2010                  85,000                   84,000                      102,000                      1,220,500                   -15%

2011                  133,500                  92,500                       73,500                        1,000,000                   -18%

2012                 127,000                  21,000                       62,500                          753,000                     -25%

2013                 150,000                  80,500                     26,000 (1-12)         proj: 1,190,000              +58%

Using the same math as we did with silver, the projected March sales for this year are 67,000 and this provides a Q1 total of 297,500. Gold Eagles, like silver, average about 25% of their annual sales in the first quarter each year. This projects total 2013 sales of 1,190,000 and a nearly 60% increase over 2012.

And what do you make of the continued drawdown in the GLD? As of last evening, the total amount of gold allegedly held by the fund is 1,236.31 metric tonnes or about 39,748,500 troy ounces. Now, going back to the beginning of 2013...On 1/2/13, the fund held 1,349.92 metric tonnes or 43,401,000 ounces. That is a truly staggering drop of 8.42% or 113.61 metric tonnes. This could also be stated as 3,652,646 troy ounces or 9,131 London Good Deliver bars or, at $1600/ounce...about $5.8B in gold.

So, Gold Eagle sales are soaring, projected to rise by nearly 60% in 2013 vs 2012. At the same time, gold is being drained from the largest, easily-available stock on the planet, the GLD. Of course, metal leaving the GLD is due to liquidations but how much of that liquidated gold is being returned to AP vaults and how much is being delivered out? I wish I knew. And then consider this:

There were 13,910 contracts that stood for delivery of Feb13 gold. That's 1,391,000 ounces. Looking back, there were only 4,623 that stood for delivery in Dec12, 5,178 in Oct12 and 5,807 in Aug12. Adding together those three, previous delivery months you get 15,608. Again, last month alone in February, 13,910 stood for delivery. Hmmmm. I wonder how many will stand in April?? The good news is: We won't have to wait long to find out. First Notice Day is March 28.

So, anyway, I'm not sure what this proves, if anything. However, as you can plainly see, a trend is afoot for physical delivery of metal, both gold and silver. Will this trend continue? Probably. Does that imply higher prices in the future? Probably.

Econ 101 teaches us that higher demand with stable supply leads to higher price. Consider, too, that in the metals, lower price makes mining less profitable, especially in the face of high energy prices. Less profitable mining leads to less production. Again, what does Econ 101 teach us? Higher demand with less supply equals even higher prices.

Therefore, please hang in there. It may not look like it but we are winning. Keep the faith and keep stacking.

TF

222 Comments

GS_PHYS's picture

Yeah Its ME

Yeah    Its ME, Furst !!!!

Bollocks's picture

Furst!

Agh No.

Another complete disaster! sad.

opticsguy's picture

Thurd

that was luck.

The miner's, not so much.  Op-ex week beat-down in progress.

The Vet's picture

Are short sellers investors?

Short selling GLD is better than short selling on COMEX, or any other paper market,(for the short seller) in that the short seller gets cash in hand from the sale and the increase in the traded float creates supply which can be directly converted to metal. The conversion and the added float depress the price of both the metal and the stock price in an ever increasing positive feed back spiral.
Clearly and logically, short selling of ETFs which are backed only by a physical commodity is an economic travesty, but apparently the regulators were provided with sufficient "incentives" to allow it.
Ultimately it will lead to the collapse of these metal backed ETFs when the redemption of short sold shares drains the metal backing and makes the holdings of the remaining long shareholders (suckers) worthless.
Of course, the shorts will be able to cover these almost worthless shares (with zero metal backing) at pennies in the dollar regardless of the POG, so there will be no default on their part and the market regulators will be satisfied.

treefrog's picture

fufth

5th!

Turd Ferguson's picture

For the CoT week

MODERATOR

Gold up $17 and OI up 9000

Silver up 57¢ and OI up 1200

Joe Dokes's picture

Surxth...That Doesn't Sound Right

How bout sixth?

indosil's picture

Eighth

almost 11:55pm out here in India....gudnite folks

Mudsharkbytes's picture

Sebenth

Or ateth... sumpin like that..

Just sayin…

Edit: Or maybe neinth or tinth...

Edit again:  

From dictionary.com

-oid
a suffix meaning “resembling,” “like,” used in the formation of adjectives and nouns (and often implying an incomplete or imperfect resemblance to what is indicated by the preceding element): alkaloid; anthropoid; cardioid; cuboid; lithoid; ovoid; planetoid.
 

I might add hemorrhoid literally means 'resembling a hemorrhage'.  

Therefore 'factoid' really means 'resembling a fact', not necessarily a real fact.

just sayin again…

¤'s picture

Sino-Turd Relations

Looks like the Chinese have you under attack maybe   ;-)

Will the Dept. of Turdland Security take retaliatory action? Let's see if we get any hints what counter-attack measures TF might respond with.

القراع عصفور's picture

new Pope has been chosen

i got 50 bucks riding on Turkson.

tyberious's picture

This is the most important article in the last few years

 
 
 

On the heels of gold and silver surging, today King World News wanted to check in with the firm that is calling for $10,000 gold.  Paul Brodsky, who co-founded QB Asset Management Company, had this piece regarding the Fed’s so-called exit, destructive hyperinflation and the gold market:  The markets have begun to wonder whether the Fed (and other central banks) will ever be able to exit from its Quantitative Easing policy. We believe there is only one reasonable exit the Fed can take. Rather than sell its portfolio of bonds or allow them to mature naturally, we believe the Fed’s only practical exit will be to increase the size of all other balance sheets in relation to its own.

“This ‘exit’ will be part of a larger three-part strategy for resetting the over-leveraged global economy, already underway. The first stage is policy-administered monetary inflation – QE in which the Fed is de- leveraging bank balance sheets by adding bank reserves. The second phase will be policy-induced price inflation – hyper-inflating the general price level enough to diminish the burden of debt repayment and gain public support for monetary system change. (Imagine today the Fed proclaims all one dollar bills are ten dollar bills. Goods and service prices would increase 10x, more or less, as would wages, asset prices, revenues, costs, etc. The only item on the balance sheet that would not increase 10x would be the notional amount of systemic debt owed.) We believe the third phase of the strategy will be a monetary reset that recaptures popular confidence following the hyper-inflation.

Below, we list a progression of facts and reason supporting these conclusions:

  1. As the Fed monetizes Treasury debt (or, as it claims, temporarily adds Treasuries and MBS to its balance sheet prior to selling them or letting them mature sometime in the future, thereby draining reserves), the obligations of the US Treasury (i.e., obligations of US taxpayers) to the US banking system are increasing dollar for dollar. 

  1. The US banking system is: 1) the largest American creditor to the Treasury; 2) the largest warehouse of US taxpayer wealth (via deposits); 3) the largest (infinitely capitalized) intermediary for public US capital markets, and; 4) the monopoly issuer of US dollars and USD- denominated credit. In short, the US banking system is the issuer of the world’s reserve currency and supports conditions to maintain USD hegemony. 

  2. Thus, it seems reasonable to assume that the interests of maintaining a healthy US banking system rise above or are at least equal to the economic interests of Americans, and to a large extent their government. 

  1. Significantly higher US interest rates would implicitly harm the Fed’s balance sheet (which is not marked to market) and explicitly harm the loan books (assets) of private bank balance sheets (marked to market), potentially placing bank capital ratios in jeopardy and undermining confidence. (While significantly higher interest rates would ostensibly increase the value of adjustable rate bank loans not near their cap levels, they would also decrease the creditworthiness of borrowers’ loan collateral values, lowering lending activity.) 

  1. The Fed’s balance sheet is infinite and the Fed creates the currency with which its balance sheet may grow. The Fed will always have more money at its disposal with which to buy bonds and set benchmark interest rates than the quantity of bonds for sale, sine qua non. 

  1. Thus, it seems reasonable to assume that there will not be a sudden rise in US market interest rates unless the Fed wants such a rise. Nominal economic growth or even price inflation will not necessarily act as a trigger for higher Treasury yields (but it may be reasonable to fear higher yields within tertiary bond markets in which the Fed/banks do not have significant exposure).

  1. The relevant issue for Treasury investors is not the risk of capital loss from bond price depreciation, but rather the risk of capital loss in real terms – negative real returns as coupon interest and principal repayment do not keep pace with price inflation (i.e., the loss of future purchasing power of Treasury P&I vis-à-vis consumer goods, services and equity assets). 

  1. The mix of economic growth (leading to higher tax receipts) and/or government austerity needed to reverse ongoing debt growth over time is mathematically impossible to achieve within the context of a stable social environment. The US public sector and US households are in a compounding debt trap in which there is no exit. Thus, debt is growing and being shifted presently, not being extinguished, and this portends the likeliest future path. 

  1. Real output growth from current debt/leverage levels cannot be generated from a coincident increase in more systemic credit/debt. So, the policy solution cannot be issuing new credit and transferring debt with the goal of generating increasing demand and nominal output growth. (And we further argue that wealth concentration that results directly from asset price inflation is a very relevant and direct constraint on real economic growth.) 

  1. The US economy (and all indebted advanced economies) is shrinking in real terms presently and fiscal measures are incapable of providing a sustainable remedy. This is precisely the catalyst forcing today’s aggressive monetary policy action. 

  1. The only solution is true systemic de-leveraging (banks, households and governments). Banks are already in the process of being de-levered through QE in the form of bank reserve creation. 

  1. There are only two ways to de-lever balance sheets: 1) letting debt deteriorate naturally, which would cause a 1930s style deflationary depression, and/or; 2) creating new base money in the form of bank reserves (first) and circulated currency (second). Both reduce leverage ratios (unreserved credit-to-money available with which to repay systemic debts). 

  1. The only two ways for the US government to de-lever without creating a deflationary depression would be: 1) Treasury sells assets (e.g. land, resources, shipping lanes etc.) and uses the proceeds for debt repayment, and/or 2) Treasury has the Fed devalue (inflate) the US dollar against a monetary asset on its balance sheet. The former would threaten US sovereignty and the latter would threaten the purchasing power of US dollars (i.e., the perceived current savings of US dollar holders). 

  1. To gain US public and geopolitical support for policy-administered deleveraging through devaluation and a fundamental shift in the world’s monetary system, confidence in the current regime would have to be lost. The most effective tool for achieving this broadly would be price inflation. 

  1. Over the last forty years, the rate of price inflation has been about 2% per year (about a 125% compounded growth rate), which has diminished the purchasing power of the USD by about 55%. In other words, one dollar in 1972 is worth about forty-six cents today. Policy-administered US dollar devaluation would apply the same principle, but the inflation would occur suddenly and, discretely. Following a hyper-inflationary episode, the public would be conditioned for another resetting of the global monetary system (its fifth in one hundred years). 

  1. Central banks, led by the Fed, would have to re-price and monetize an equity asset rather than debt assets. The only monetize-able equity asset on official balance sheets is gold (which may explain why central banks of emerging economies are voracious buyers presently). 

  1. Re-monetizing gold would be popular within indebted advanced economies and therefore politically expedient. While net savers of US dollars would be harmed from the devaluation, net debtors would be helped. (The burden of repaying existing debts would be greatly diminished vis-à-vis inflated wages and asset prices.) Thus, those holding cash and bonds would suffer and those with mortgage, school, auto, and consumer debt would benefit. On balance, a policy- administered USD devaluation would be greatly welcomed within advanced economies. It would position politicians and central banks as economic saviors. 

  1. For the first time in memory all global currencies are baseless, including the lone reserve currency, and there is no other scarce currency that provides an alternative for global savers seeking a better store of future purchasing power. This implies that the Fed, with or without the encouragement of the BIS Global Economic Committee of thirty global central bankers, may unilaterally and effectively expedite a global currency devaluation. A policy-administered USD devaluation would force all other fiat currencies to respond in kind or to adopt the US dollar as its currency (maintaining USD hegemony). 

  1. The global system would revert to the gold/dollar exchange standard used between 1945 and 1971 (i.e., Bretton Woods). Currency devaluation against precious metals has long precedent (including the USD in 1933). 

  1. As we have discussed in the past, the mechanics for currency devaluation are straightforward and would be simple to exercise.1

  1. Global banks, having already been de-levered and finding the quality of their loan books to be pristine following the devaluation, would be eager to lend again. (The fractional reserve banking system would not be altered.) The devaluation would be economically stimulative. 

In our view, public arguments by Fed members and observers of future balance sheet reduction using normal asset sales or amortization seem specious. The most visible, politically expedient and most likely path seems to be the path usually taken: inflation. In the case of the Fed and other central banks, we assert the magnitude of the systemic leverage problem will be met with equal inflationary force.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/12_Gold%2C_Destructive_Hyperinflation_%26_The_Final_End_Game.html

Mickey's picture

shorts:

seems more and more the shorts are playing a daily game at least in my opinion

when metals ramp they get sold near end of day--when they selloff they get bought near end of day ( Yes-I know short term day traders close the day flat or near flat). Lets see what happens today. This change might be the hedgies playing too,  and might be part of the pattern change Jim S was discussing.

pforth's picture

How to know when the new bull begins...

For the last 3-4 months when the price goes up it is usually a spike that is quickly capped as soon as the momentum slows a bit.  Then over the next 24 hours it is slowly bled down until an opportunity arises for the cartel to manufacture a waterfall to bring the price back to where it was before the initial spike.  This is exactly what happened yesterday and today.

You will know something has changed and that the bull might be starting up again if after a spike up, the price continues to move up at a slow but steady rate for the rest of the day.  I have not seen a spike, followed by this kind of slow climb since September.

SilverSurfers's picture

The bull began

2/20 .... ;)

ok, this aint rocket science, but we have 29+top  and 1580+top available for china, london and NY, to play with. looking good for a huge tomorrow, without them pesky gaps. power pops, closing gaps, retesting support, which seems to be slowly inching upward now 28.85Ag and 1585Au, pattern change from usual smack down, dollar on a terror. 1600/30 still the call for friday close. but wat doz i noz

¤'s picture

Turdistan Counter-Attack

This seems like an appropriate response...

opticsguy's picture

All well and good, but a 1972 dollar would be worth about $9

today.  The real economy is no bigger now that it was in the early '90s, and is about 30% smaller than it was in 2007 (if you consider building McMansions part of the "real economy")

RaulP's picture

Jesse Livermore

Free copy of Jesse Livermore 'Reminiscences of a Stock Operator' in pdf . Can't get enough it :)

http://www.trading-naked.com/library/jesse_livermore.pdf

Cheers!

Moderator Jane's picture

Server crashes - here comes my tin foil hat!

MODERATOR

I'm probably a bit more paranoid on this subject than admin is, and most likely, any excess strain on the server is coming from mindless spambots that don't really care who they are targeting. But I am reminded of the guy last year...and I frankly don't remember his username off the top of my head...I think he was a very overzealous 911 truther if I'm not mistaken. And when we tried to moderate him, he threatened us and claimed he would break into the site and post his screeds no matter what, and we could not stop him! 

There are a couple of loonies like that out there. On the very small chance one or more of them is screwing with Turd, if you happen to be out there on the great Interwebz and see someone crowing about the site crashing, or even more obviously bragging about it, do let us know. 

On a related note, it's fascinating to me how many famous politicians are now being targeted by Anonymous and having their personal data leaked. Lately it has been Michelle Obama and Colin Powell, if I'm not mistaken. 

PS I am not on moderator duty at this time so please don't ask me to wade through the posts and help out...if anything I need to be helping with the server. Thank you!

¤'s picture

RaulP

Awesome! Thanks!

tyberious's picture

and remember this!

Bernanke's 5 Monetary Policy Tools to prevent deflation given by the chairperson at his famous 2002 speech Deflation: Making Sure "It" Doesn't Happen Here as well as present the entire speech for your review. 

The Bernank gave 5 monetary policy tools that could be used to make sure deflation doesn't happen here:
1. Drop interest rates to zero.  Check.
2. Inject money into the economy by giving major banks zero-interest rate loans.  Check.
3. Stimulate spending by lowering rates further out on the treasury structure (translation, lower mortgage costs to inflate housing prices)   Check (Operation Twist).
4. The Fed could make unlimited purchases of treasury securities to control the rates (this is quantitative easing)  Check (already attempted twice officially).

5. "It's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.
GOLD REVALUATION is BEN BERNANKE's FINAL MONETARY POLICY TOOL to prevent the Greatest Depression after QE is proven ineffective.

KISSIG

Mickey's picture

Debasing of dollar

I started working out of school in Jan 1970. CPA firm. Starting salary standard was 10,200 plus OT. It was 7800 just 2 years earlier (everybody was watching). IRS would hire at 7200 a year vs CPA firm at 10,200 a year. 

I have not followed but a couple of years ago the starting salaries were in 55-65 range. (ex NYC)

Thats one of my standard metrics for inflation/debasing dollar.

I also bought a car when I started. Imports were only the hi priced MB, BMW and a beatle ($1,954). Nobody knew what a toyota was.

I bought a Buick Le Sabre for 3900-nice car. Is Buick still around?  Anyway, I have no clue what a buick is going for now, full size (smaller than what I bought) has to be near 30k or more??

So whats inflation or debasing. Gas was 30 cents a gallon tax included (that changed in 1973). Now the tax is 50-70 cents a gallon. (are taxes in cpi--bet not).

everybody still measures the dollar debasement vs the rest of G7. G7 is a bunch of losers.

The real measure of course is dollar vs gold, or silver.

The Watchman's picture

Visionary

louis_mcfadden_1929_stock_market_crash_i

Mickey's picture

tyberious

your post is an excellent tie in to the QBAMCO 4 pager last night-and easier to read.

tyberious's picture

I try!

Thanks smiley

Gold Dog's picture

Habemus sub-ubi

We have underwear!

dropout's picture

Fundamentally Speaking

The National Federation of Independent Business (NFIB) Small Business Survey;

The small business optimism index remains at levels not seen since the 1980-81 lows, with the moving average taking an ominous dip.

The percentage of small firms (3mo. Avg.) expecting the economy to improve has severely tanked. This sector is responsible for 80% of job creation. Big corporations grab the headlines, but its the small business sector that is the main driver of jobs.

Seventy-six percent of NFIB owners think that business conditions will be the same or worse in six months. Yet the MSM is attempting to spin these dismal results as positive!

http://www.nfib.com/research-foundation/surveys/small-business-economic-trends

hammerman's picture

so turd is the washout off the table?

i wanna go in DEEP but is your washoff or washout or clean out off the table?   great work...weeeeee

theBuckWheat's picture

While I do not disagree with

While I do not disagree with the above speculation, the massive money-printing by all the major world central banks is in fact mitigated by the great contraction of bank money creation.  After all, the market does not distinguish between money that was created out of thin air by the central bank and money created out of thin air from a fractional reserve bank.  What counts is the TOTAL amount of the money supply in use (as opposed to that which is sequestered under a mattress), that is used to bid for wages and things.

So, please consider the following interview by Russ Roberts on his Econtalk.  It of Steve Hanke, and he discusses an alternative, market-driven, money supply statistic, "Divisia M4"  see below the article for links to this statistic:

Hanke on Hyperinflation, Monetary Policy, and Debt

Steve Hanke of Johns Hopkins and the Cato Institute talks with EconTalk host Russ Roberts about hyperinflation and the U.S. fiscal situation. Hanke argues that despite the seemingly aggressive policies of the Federal Reserve over the last four years, there is currently little or no risk of serious inflation in the United States. His argument is that broad measures of the money supply lag well below their trend level. While high-powered reserves have indeed expanded dramatically, they have not increased sufficiently to offset reductions in bank money, in part because of requirements imposed by Basel III. So, the overall money supply, broadly defined, has fallen. Hanke does argue that the current fiscal path of the United States poses a serious threat to economic stability. The conversation closes with a discussion of hyperinflation in Iran--its causes and what might eventually happen as a result.



>From the transcript::

..
Russ: So, we're going to talk about Iran in a few minutes, but before we do that, let's talk about the United States. Which--we are not having
hyperinflation; but we do have a fiscal problem. We do have--we are spending a relatively large amount, relative to what we take in. We are spending a trillion more than we take in, a little over a trillion. We've done it for four years in a row. We did it before that in a significant amount as well. And people keep buying our bonds. And so it seems okay. But one of the institutions that's buying those bonds is the Federal Reserve. I've read that a very large portion of U.S. Treasuries are being purchased by the Federal Reserve. Can you explain that?


Guest: Since they started the so-called Quantitative Easing. I think roughly since the Lehman collapse in September of 2008; I think it's about 75% of the total is being purchased by the Fed.

Russ: So, can you explain to me what that means and what it portends for the future.

Guest: Well, let's just start with Lehman's collapse in September 2008.
That's a convenient date. Since that point in time, the Federal Reserve's
balance sheet has increased roughly by three and a half times. So that means they are buying a lot of these bonds. And that's where they go, on the asset side of the balance sheet. Now that means that high-powered money, or what I call state money--the amount of money produced by the state--has more or less tripled. It's exploded. And this has many people concerned; and they get excited and say we are going to have hyperinflation tomorrow. That's a hyperinflation nexus. The Fed's buying all these bonds; their balance sheet is exploding; high powered money is increased very rapidly. And people conclude that it's going to be like Yugoslavia, or the Weimar Republic, or something like that. Now, it has meant that state money has increased from about 6.5% of the total money supply, when you measure the money supply properly with a broad measure, like M3--so we went from state money being at about 6.5% at the time Lehman collapsed, until now it's about 15%. So, you've more than doubled the size of state money. But the problem is: I said 15%; now state money is 15% of the total amount of the money supply--meaning that state money is peanuts. What really is important is bank money--and bank money is created by the commercial banking system and shadow banking system, and that's what really counts. So, in a way we have had the following scenario develop after Lehman: We've had ultra-loose monetary policy with regard to state money and the Federal Reserve. But with the financial regulation, that it was legislated with Dodd-Frank, and also with what is called the Basel capital requirements, and specifically Basel III, which is being imposed on banks--to increase the capital-asset ratios of the banks. These two things--financial regulation and Basel--have in effect imposed ultra-tight monetary policy on the banking system and bank money. So, as a result of the two, we've had the total amount of the money supply actually being very anemic, not growing very much at all. And in fact, if you look at a trend line since 2009 and look at the endpoint today of the trend line as you are going left to right, that point is about 7.5% higher than the actual level of the money supply that we have. So, you could argue that relative to trend we've got a deficiency of about 7.5% in broad money. And the reason why is that the dominating feature has been the reregulation of banks and the tight monetary policy imposed on bank money. Which accounts for 85% of the total amount of money in the economy. Russ: So, that's consistent with Scott Sumner's view, who argues that monetary policy has been very tight, rather than loose. Everyone looks at the so-called aggressive policy of the Fed. But my question then is: You are saying that banks have been highly regulated and you can also argue that the economic system is not very optimistic right now; it's kind of uncertain. But banks have huge excess reserves. So, you are saying they are constrained. But it appears they are very unconstrained. ...

...So, here's what we've had since Lehman. Loans to commercial enterprises have gone down in the United States. Mortgages have gone down in the United States. Interbank lending has essentially disappeared--which is almost the lifeblood of the banking system, the interbank....


...
Russ: So, with the benefit of hindsight, what should he have done? Given
that he's let M3 or M4, these broad measures of liquidity in the economy
shrink? That's had a real impact on the economy; it's slowed the recovery; it's made it anemic. What could he or should he have done? A lot of people have faulted him for being way too aggressive. You are saying he wasn't aggressive enough. How could he have implemented a policy to make up for the shrinkage in bank money?

Guest: Well, he could have come out against the Dodd-Frank financial
legislation. That would have been maybe a politically dangerous thing to do, going head to head with Congress. But the other thing he could have done--

Russ: And you mention--

Guest: He could have put a freeze on Basel. Basel has a direct input into
the capital requirements of the banks. But you see that, the reason the
Americans love Basel III is that the European banks that the American banks are competing with in the international market, they are relatively
undercapitalized compared to the American banks. So, basically, by imposing Basel III, you are mandating--you have a government banks that says that the European banks have to shrink faster than the American ones.

.....

Link to interview, MP3 podcast and transcript:
http://www.econtalk.org/archives/2012/10/hanke_on_hyperi.html

Podcast download:
http://files.libertyfund.org/econtalk/y2012/Hankehyperinflation.mp3



Also mentioned: Prof. William A. Barnett's Divisa M4:
http://www.centerforfinancialstability.org/WBarnett.php



Advances in Monetary and Financial Measurement

Divisia Monetary Data for the United States:
rigorously founded in economic aggregation and index-number theory.
http://www.centerforfinancialstability.org/amfm_data.php


Mentioned in this article:

Malfeasant Central Bankers, Again
By Steve H. Hanke
http://www.cato.org/publications/commentary/malfeasant-central-bankers-again

The Watchman's picture

What A Farce

U.S. CFTC looking at London gold, silver fix - WSJ

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NEW YORK, March 13 (Reuters) - The top U.S. derivatives regulator has started internal discussions on whether the daily setting of gold and silver prices in London is open to manipulation, the Wall Street Journal reported, citing people familiar with the situation.

The Commodity Futures Trading Commission (CFTC (Taiwan OTC: 1586.TWO - news) ) has not launched a formal investigation into the matter, but it is examining various aspects of price fixings, including whether they are sufficiently transparent, the paper said in its online edition. (Reporting by Josephine Mason; Editing by Chizu Nomiyama)

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