Subjective Invective v.8

The G-7 Finance Ministers and Central Bank Governors issued a statement to calm the troubled markets today.

We reaffirmed our shared interest in a strong and stable international financial system, and our support for market-determined exchange rates.

Market-determined exchange rates like pegging the Swiss Franc to the Euro.

Market-determined exchange rates like multiple interventions by the Bank of Japan.

Bank Of Japan Intervention Leaves Trail Of Blood And Gore.

Bank of Japan Ponders Further Intervention

In recent weeks, many central banks have taken aggressive actions to control the values of their own currencies.

If the Bank of Japan continues to follow its precedent of supporting exporters though, the yen may depreciate from here. Yet, if other central bankers (who themselves may be pursuing weak currencies) have their say, the Bank of Japan may be unable to really weaken the yen.

If anything is market-determined in this day and age, it surely is currency exchange rates. Pursuing weak currencies is the hallmark of market-determined exchange rates, or something. I forgot where I was going with this. Oh, right. Forex trading is so easy that an E*Trade baby can do it! Can you feel the sarcasm?

Why $2K - M1 and M2 vs gold price

(Hat tip JD from Calculated Risk for the Why $2K title hilarious)
It has been a while since I compared M1 and M2 to the gold price.

M1 has started to go vertical. I can only speculate why. Maybe people are cashing in investments to have more ready cash available. The vertical nature of M2 supports that idea. A surge in both measurements could be explained by liquidation of stocks, bonds, and other investments, but I am only guessing what is happening.

The historic low for M1/gold price was 0.45 that occurred at the peak gold price on January 21, 1980.
The current M1 ratio is 1.16.
The historic low (in my spreadsheet) for M2/gold price was 2.40 in July 1980.
The current M2 ratio is 5.24.


I expected the current ratios to be lower due to the rise in gold prices, but I did not expect the dramatic rise in M1 and M2.

Since money supply is not tied to anything tangible and money is created mostly by typing into computer accounts at commercial banks and the Fed, does it even make sense to call it money supply? I've heard suggestions that "Number Supply" is a more accurate term for dollars in existence instead of money supply. Perhaps the Fed will create more numbers in their computers after their September meeting. Are you ready for Why $2K?

Consumer Metrics Moonshot

One interesting site I follow sometimes is the Consumer Metrics Institute data on Internet purchases of durable goods. When I first discovered Consumer Metrics, I thought their near real-time methodology was unique and might off deeper insight into what was happening in the broader economy. Over time, the demographics of Internet users turned out to be skewed in some ways and diverged from other broad indices. Still, whatever is going on now with Internet purchases is showing an incredible upward rate of change and deserves some brain cycles for reflection.

There are a couple of possibilities that come to mind. One, Internet consumers on a large scale decided to spend a lot of money online all at the same time because they all came into some new money (tax refunds, raises at work, inheritances). Maybe they all had appliances break over the summer and are replacing them. Anyway, that is one possible theme. A darker idea might be that they are nearly tapped out and decided to buy a bunch of new stuff on credit before declaring bankruptcy within the next six months. There could also be another explanation like the data feed is invalid for some reason or is reporting different information. Consumer Metrics itself seems to take the more positive view that this is a spending phenomenon that will reflect a stronger recovery in the government reported numbers in about 6 months.