Surely the federal reserve is lying about currency in circulation data

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Subprime JD's picture
Subprime JD
Status: Platinum Member (Offline)
Joined: Feb 17 2009
Posts: 562
Surely the federal reserve is lying about currency in circulation data

The federal reserve, per Bernanke,  claims that it is not printing money because the amount of "currency in circulation" has stayed the same. I have been thinking about this lately and I've come to the conclusion that they fed is lying about the data. Just another example of the "fuzzy numbers" doctrine being applied by the powers that be. Here is the reasoning behind this conclusion.

The federal government is spending $3.8 trillion in the economy each year. Of the $3.8 trillion, roughly $1.5 trillion is in the form of deficit spendinng. A good $1 trillion of this amount is being created by the fed via its monetization operations. The remainder comes from overseas borrowings and tax revenue. The tax revenue and borrowing money  is organic money that already existed in the economy while the remainder is being introduced via electronic ledger transfers. Now lets focus on this very simple concept: the government is spending every single dime of the $3.8 trillion into the US economy. Social security checks are spent by recipients while medicare is also spent into the medical system. Defense $900 billion, is spent by soldiers recieving pay, contractors making weapons and analysts pushing paper. The remainder goes to all the other areas, such dept of education (student loans) which are spent by students. The dept of transporation spends the money making freeways. Again, the simple concept is that this money is being spent into the economy. Every single dime.

We also know that the US is posting a trade deficit to the tune of $500 billion per year, so $500 billion leaves the US each year. But with the fed  creating up to a trillion a year in new money which is spent there is at LEAST $500 billion of the new money that is created by the fed (assuming all new fed money is going overseas, which it is not). The last exit source of this new money is debt pay off. Are we to assume that the remaining $500 billion (probably more) of the new money that is being created is simply going to debt service? I think not but some data would help with this cursory analysis. Lets also not forget that the fed is creating "base money" or high powered money when it monetizes as this money goes into treasury accounts. With the money multiplier still in the gutter it may be possible that this high powered money is going towards debt service AND living expenditures, such as food, gas, insurance and housing.

Thats all for now. Feedback on this topic would be great as it would open our eyes to the specifics of the inflationary vs deflationary pressures.


Subprime JD's picture
Subprime JD
Status: Platinum Member (Offline)
Joined: Feb 17 2009
Posts: 562
more data

Here is some data:

Currency in circulation:

This chart shows a steady rise as opposed to the federal reserve balance sheet which has ballooned from 800 billion to 2.6 trillion where it stands today. We also know that the fed purchased $300 billion in treasuries in 2009 from QE1, purchased an additional amount of treasuries with QE lite, and close to $600 billion in treasuries with QE2. Obviously, these purchases are not reflected in M0 (currency in circulation) data as M0 has increased from 800 billion in 2008 to a little over $1 trillion in 2011. A $200 billion increase in M0 versus a $1.8 trillion increase in the federal reserve balance sheet. However, we can note that the RATE of change on this graph is growing much quicker than it was before the crisis.So lets take a look at M1 (which includes cash and coin (M0) AND demand deposits (checking accounts).

April 2008 $1.38 trillion

April 2009 $1.60 trillion

April 2010 $1.70 trillion

March 2011 $1.89 trillion

April 2008  signifies the beginning of the feds emergency measures. March 2011 is the latest data release. We see here close to a $500 billion dollar increase in the amount of M1 from April 2008 to March 2011, a 35% increase. M0 has increased from 25% from spring of 2008 until the present.

Finally we see the effects on M2 which is M0, M1 and savings accounts.

April 2008 $7.71 trillion

April 2011 $8.92 trillion

M2 has had a growth rate of 15.6%. Interesting how M2 has not grown as fast as M0 and M1. Perhaps this is reflective of the fact that people are saving less? Overall M2 has grown $1.2 trillion while the federal reserve balance sheet expansion is $1.8 trillion.

Consumer credit:

April 2008 $2.56 trillion

Feb 2011 $2.41 trillion

With consumer credit we see a small drop of 5.8% from April 2008 to the present.

Excess reserves of depository institutions

This is the data that Bernanke refers to when he says that the fed is conducting a "asset swap" with quantitative easing. Observe the following chart:

 We can observe a stall with between the time of QE1 and QE2. Per the fed, they arent exactly printing money because banks are parking reserves at the fed. This chart has always boggled my mind. When I see this chart it shows me that the banks are hoarding reserves because their asset values continue to plummet.

So, this data begs the question, where is the money???




DEUS X MACHINA's picture
Status: Bronze Member (Offline)
Joined: Mar 6 2011
Posts: 28
bernanke lying

if you watch close when bernanke speaks he does a certain thing and it is a dead give away that he is lying...his lips move.

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