Tuesday, August 30, 2011

An Important Observation from Tyler Cowen

The Federal Open Market Committee was scheduled to have only a one day meeting this month. It has been expanded to a two day meeting, September 20-21. There are perhaps two, maybe three, Fed members who don't want to see further Fed action. They are blocking further Fed action, so to speak

Tyler Cowen, apparently insightful into how bureaucratic gamesmanship is played, tweets:
Two-day Fed meeting is a way of setting up the skeptics to take a tumble, a blocking coalition never wants a longer meeting.
I can't disagree. The Fed is likely to announce some new action that will sound like money printing, though I doubt they really need to since they already have money supply increasing at an annualized 9.0% plus rate.


  1. Bob, is that 9% on M2?

  2. Yep, apparently you are talking about M2. I just pulled up the data updated 8/25, and it appears that M2 has increased 9.5% from 8/16/2010 to 8/15/2011. But, what interests me even more, and it is something that you have mentioned quite a few times, is that the M2 money supply seems to have taken off right around mid-June, and then again in late June. Apparently from 6/20/2011 to 8/15/2011 M2 has grown at an annualized rate of 32.4%! Something tells me that we will probably see another jump in the next month or so.

    If the excess reserves are getting out there and/or deposits are being multiplied, I just do not see the banks exercising restraint so early into their exercise. I think that they are going to keep this going for a bit. If the Fed initiates QE3 anytime soon, rest assured that it probably has more to do with the government falling short on Treasury auctions rather than any general monetary considerations on the part of the Fed.

    It's going to be an interesting couple of months.

  3. Correction: that should read "late July" rather than "late June".