…If Bernanke follows Keynes, the Fed will withdraw liquidity in the quantities that it sees in excess of demand (=excess supply). As long as it sees demand for a certain quantity of liquidity, that quantity will not be reduced and of course, further liquidity will not be provided. Let’s call this Thesis No. 3 (…) This view significantly differs from the mainstream opinion, which holds that the Fed, once it starts unfolding its exit strategy, will seek to return the level of bank reserves, which are expected to rise to $1.35 trillion to the historical average of $10 billion (i.e. normal levels prior to the crisis; this strategy consists therefore in eliminating excess reserves).
Please, click here to read this article in pdf format: november-24-20091
The widespread impression that the US deficit will continue set all non-money assets on a rally yesterday. Gold reached $1,174/oz. As we said many, many times over, it is as simple as that. Interestingly enough, with the 10am announcement on the 10.1% increase in the existing home sales (month-over-month), the market took profits in equity and gold.
Yesterday, I quoted comments from our April 28th letter (www.sibileau.com/martin/2009/04/28 “A Keynesian Perspective”) on Keynes approach to monetizing financial crisis like the one we are in. I thought it was interesting to see Keynes’ point here, because in my opinion, Keynes is Bernanke’s intellectual father.
Keynes thought that a readjustment of prices to a new level in the quantity of money was possible, without further unintended consequences (from Chapter 13, “General Theory of Employment, Interest and Money”, 1936). In his words:
“…Circumstances can develop in which even a large increase in the quantity of money may exert a comparatively small influence on the rate of interest…” (Have we not seen this happen in front of us over all of 2009?)
“…Whilst an increase in the volume of investment may be expected … to increase employment, this may not happen if the propensity to consume is falling off…” (Is this not what all economists keep telling us on the weakness of this recovery?)
“…If employment increases, prices will rise in a degree partly governed by the shapes of the physical supply functions, and partly by the liability of the wage-unit to rise in terms of money..(…)…when output has increased and prices have risen, the effect of this on liquidity-preference will be to increase the quantity of money necessary to maintain a given rate of interest…”
From this last paragraph, we learn that the exact price level at which prices would adjust would depend on productivity and unemployment rates. Please, remember that rates are a metric, which depend on time. Thus, timing was indirectly also accounted for. Of course, Keynes neglected the non-neutrality of money (i.e. fluctuations in the quantity of money do not affect all prices at the same time). Note that ignoring the non-neutrality of money is expensive, because if you do so, you miss on the rally we’ve been enjoying since March. But in the long term, it is true, there is an adjustment of prices to a new quantity of money, as long as your currency is not debased enough to push investors to massively dump it. In the case of a global crisis, Keynes correctly appreciated the value of monetary policy coordination to avoid a run against fiat money and proposed the creation of what later came to be the International Monetary Fund.
Where do I go with all this? Do I believe that there will not be an exit strategy after all? Not at all.
My view is that if Bernanke follows Keynes, the Fed will withdraw liquidity in the quantities that it sees in excess of demand (=excess supply). As long as it sees demand for a certain quantity of liquidity, that quantity will not be reduced and of course, further liquidity will not be provided. Let’s call this Thesis No. 3, which I will test going forward and will elaborate more on (i.e. how do we measure “excess supply”?)
This view significantly differs from the mainstream opinion, which holds that the Fed, once it starts unfolding its exit strategy, will seek to return the level of bank reserves, which are expected to rise to $1.35 trillion to the historical average of $10 billion (i.e. normal levels prior to the crisis; this strategy consists therefore in eliminating excess reserves). This would represent a significant reduction in liquidity.
The difference here between the Fed and a typical inflationist third-world country would be in that third-world countries not only do not withdraw liquidity but also keep providing it indefinitely.
What do we make of it? In the foreign exchange market, such scenario should continue the depreciation of the USD against gold and those currencies that do not import USD inflation. Which are the countries that do not import USD inflation? Those countries where their central banks do not accumulate either USD or securities from their financial institutions in the asset side of their balance sheets.
February 10th, 2012 at 2:22 PM
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……
February 10th, 2012 at 3:21 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 10th, 2012 at 3:46 PM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 10th, 2012 at 4:05 PM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 10th, 2012 at 4:35 PM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 10th, 2012 at 6:42 PM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 10th, 2012 at 6:48 PM
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
February 10th, 2012 at 7:08 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 10th, 2012 at 7:14 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 10th, 2012 at 7:14 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 10th, 2012 at 7:43 PM
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……
February 10th, 2012 at 9:16 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 11th, 2012 at 11:10 AM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 11th, 2012 at 11:23 AM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 11th, 2012 at 11:54 AM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 11th, 2012 at 12:33 PM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 11th, 2012 at 12:53 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 11th, 2012 at 2:07 PM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 11th, 2012 at 3:01 PM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 11th, 2012 at 4:29 PM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]……
February 11th, 2012 at 5:28 PM
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……
February 11th, 2012 at 5:56 PM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 11th, 2012 at 6:04 PM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]……
February 11th, 2012 at 7:19 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 11th, 2012 at 8:08 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 11th, 2012 at 8:38 PM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 11th, 2012 at 10:44 PM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 11th, 2012 at 11:13 PM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]……
February 12th, 2012 at 6:46 AM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 12th, 2012 at 10:07 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 12th, 2012 at 10:50 AM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 12th, 2012 at 3:30 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 12th, 2012 at 3:49 PM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 12th, 2012 at 4:19 PM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 12th, 2012 at 6:05 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 12th, 2012 at 6:46 PM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 12th, 2012 at 7:55 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 12th, 2012 at 8:57 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 13th, 2012 at 3:12 AM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 13th, 2012 at 4:48 AM
Links…
[...]Sites of interest we have a link to[...]……
February 13th, 2012 at 5:05 AM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 13th, 2012 at 5:59 AM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 13th, 2012 at 6:57 AM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 13th, 2012 at 10:23 AM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 13th, 2012 at 5:26 PM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 13th, 2012 at 5:45 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 13th, 2012 at 6:16 PM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 13th, 2012 at 7:17 PM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 14th, 2012 at 6:58 AM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]……
February 14th, 2012 at 7:29 AM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 14th, 2012 at 9:18 AM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 14th, 2012 at 10:02 AM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 14th, 2012 at 11:17 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 15th, 2012 at 3:25 AM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 15th, 2012 at 8:28 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 15th, 2012 at 8:55 AM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 15th, 2012 at 10:24 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 15th, 2012 at 5:11 PM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 15th, 2012 at 5:39 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 15th, 2012 at 5:51 PM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 15th, 2012 at 6:45 PM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 15th, 2012 at 8:03 PM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 15th, 2012 at 8:13 PM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 15th, 2012 at 11:22 PM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 16th, 2012 at 1:28 AM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]…
February 16th, 2012 at 1:42 AM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 16th, 2012 at 3:41 AM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 16th, 2012 at 4:07 AM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 16th, 2012 at 5:03 AM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 16th, 2012 at 8:26 AM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 16th, 2012 at 9:31 AM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 16th, 2012 at 9:54 AM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 16th, 2012 at 11:09 AM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 16th, 2012 at 11:17 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 16th, 2012 at 5:31 PM
Awesome website…
[...]the time to read or visit the content or sites we have linked to below the[...]……
February 16th, 2012 at 5:33 PM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 16th, 2012 at 5:35 PM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 16th, 2012 at 6:12 PM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 16th, 2012 at 6:50 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 16th, 2012 at 7:19 PM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 16th, 2012 at 8:22 PM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 16th, 2012 at 8:33 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 17th, 2012 at 3:19 AM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 17th, 2012 at 3:50 AM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 17th, 2012 at 3:59 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 17th, 2012 at 8:29 AM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 17th, 2012 at 9:23 AM
Simply Amazing!…
Your place is valueble for me. Thanks!……
February 17th, 2012 at 10:22 AM
Awesome website…
[...]the time to read or visit the content or sites we have linked to below the[...]……
February 17th, 2012 at 10:51 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 17th, 2012 at 11:15 AM
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
February 17th, 2012 at 12:54 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 17th, 2012 at 2:13 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 17th, 2012 at 2:34 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……