Friday, October 14, 2011

More Surprises for the Keynesians

Retail sales rose 1.1 percent from a month earlier, boosted by strong auto purchases, the Commerce Department reports

Vehicles sales and parts rose 3.6 percent. Higher sales were also recorded in the furniture, gasoline and electronics sector.

Doesn't look like much of a double dip. In fact, Bernanke's money printing induced boom is well on its way.

Keynesian econometric trend followers confused once again.


  1. Robert, how much of a boom do you think this will bring? The reason that I ask is that I am of the belief that the structure of production is still well-distorted, and that any "boom" at this point simply cannot last for long. I can see asset prices rising in certain sectors, but I still think that the allocation of resources to those ends will prove troublesome much quicker than in "normal" booms.

    Just curious as to what your thoughts are on the longer-term (say 6 months or so). I don't see a contraction of the money supply in this period (as I am sure that you don't), but I also don't see any substantial boom. Stagflation? Extremely high inflation? Yes, I can see those. But, not a boom (i.e. a general increase in asset prices and perceived wealth due to monetary policy).

  2. Weren't we just told that credit is down? Consumer Credit announced by the Fed last week was down both in revolving and non-revolving. Are people buying with cash now?

  3. You are posing a bunch of questions where answers can't be known in advance. If Bernanke prints a lot of money, and he is doing now, the boom can be very strong.

    If he stops, it's over. I just "follow the money".

  4. I agree with you that we cannot know the answers until we see future actions. I too watch the money and base a lot of my opinions on central bank actions. I guess where we differ is that I don't think that the structure of production is in-line enough to have a sustained boom. But, that is just my opinion, I can certainly be wrong.

    Time will tell. Thanks for responding.


    Even Keynesians questioning the double dip.

  6. Mr. Wenzel,

    Are you looking at M2 or the Monetary Base numbers as a means to track Bernanke's money printing efforts?


  7. M2. The monetary base is not the money supply.

  8. Robert, some of the monetary base is indeed part of the money supply (notes and coins). But, I do know what you are saying, most of the monetary base is not circulating (i.e. it's parked at the Fed as excess reserves or in bank vaults). M2 definitely gives us a better idea as to the real supply of circulating money, especially when it comes to actual deposits. Of course, M2 also includes the note and coin component, which is pretty much the only real circulating money expressed by MB.

    Like you, I never think of MB as the money supply, rather I think of it as the base upon which new deposits can be created via the fractional-reserve process. However, I must ask, if we were under a commodity money system, what sort of money aggregates would we have? I'd imagine that there would only be a need for two: one that accounts for the total supply of the commodity, and the other that shows account activity (savings and deposit).

    I really cannot think of any other reason for the current money aggregates other than the fact that base money can be multiplied by fractional reserves. Of course, MB is important, but it too can be multiplied by the Fed writing checks on itself to buy assets. It seems to me that the current money aggregates are geared more toward accountancy of a T-account than any sense of reality (i.e. any sense of real things existing). It's all sort of make-believe.

  9. I anticipate markets will open higher on Monday and begin a dead cat fall to below the recent lows (S&P <1074, DJ <10404). Watch out for the next cycle of bad news due out soon.
    The key things I see is that Bernanke is printing all that money because there is a big bottomless hole down which all that money is flushing. The developed nations - Europe, US, (and also China) are up the proverbial creek and prices have to return to the starting point from whence the bubble began (standard Austrian biz cycle theory on bubbles). The real problem is not inflation but deflation. Bernanke knows that and he can see that despite the printers going 24/7 he is only just treading water.
    The markets are edging out along a shelf and very soon the shelf is going to give way.
    God help us all when that happens because that is when the real pain starts. The GFC was just the warm up.

  10. "prices have to return to the starting point from whence the bubble began (standard Austrian biz cycle theory on bubbles)"

    This is an incorrect statement. ABCT does not state anything close to what you are saying with regard to prices, if it did then it would represent a huge inconsistency in the Austrian theory. In fact, your statement (if true) would erase the entirety of Austrian price theory, as well as subjective marginal utility (a core basis upon which Austrian theory is constructed).

    Are you sure that you aren't mistaking the quantity theory of money for an Austrian theory? If prices had a direct correlation with the quantity of money, then that would make an economists job all that much more simpler (esp. Bernanke). Further, by your mention of a starting point, you're inferring that there is some sort of "price level". Every Austrian theory that I am aware of dismisses any idea of a "price level". There is no price level or starting point, there is only a continuous tendency toward equilibrium of all prices (i.e. supply intersecting with demand).

    There is no starting point or end point, there is only a continuum that operates in real time. Even if you could magically reproduce the economy of a past date in time and everybody's accounts reflected those found on a certain date in the past, the economy would take a completely different trajectory than the one that you are trying to recreate.

  11. The economic rise was due to the popped commodities bubble (end of QE2) starting in July that lowered prices of almost everything. This round of money printing (hidden QE3) will cause price inflation and kill off the economy again. The bankster/government terrorist organization needs mass price (and wage) inflation to lower their debt ratios.