Fed Prints Another $205B This Week, M2 Growing at Fastest Pace on Record

https://thesoundingline.com/fed-prints-another-205-billion-this-week-m2-growing-at-fastest-pace-on-record/

by baronmunchausen • 6 years ago

96 125 6 years ago

thesoundingline.com

strict9• 6 years ago

30.2% of US GDP

How much further can they go?

26 million or so recent unemployment applications and the stock market is not off much from recent all time highs.

This is more concerning than the initial falling knife mid-March.

selectodude• 6 years ago

The Bank of Japan’s balance sheet is at 110 percent of GDP.

throwanem2• 6 years ago

I was about to make a joke that it looked like they could go about another 69.8%. Now I'm glad I waited.

What does that even signify, a federal bank owning >100% of its attached country's GDP? Debt in excess of produced value, i.e., the country being underwater?

logicslave• 6 years ago

One interesting fact I learned the other day:

IBM did 140 billion in stock buy backs in the last decade.

They have a 100 Billion dollar market cap.

I think that is a bit of what we have going on right now. A system propped up by injected cash, which works for now because everyone plays along. Most of this injected money goes into the pockets of the rich, who are the ones holding the assets that the FED is bailing out. Modern extreme economic inequality is a function of monetary policy, not political policy.

mywittyname3• 6 years ago

A stock buyback is theoretically the same as a dividend, in that it should reduce market cap by roughly the amount of the buyback.

I do agree with your sentiment though. I feel like the wealthy in this country have developed the perfect scheme for leeching the wealth from this country. We will only know how bad it was after the postmortem, at which point, we will be (figuratively) dead.

LordFast• 6 years ago

Is it too jaded to say that it most likely has always been, for all time? And that we are simply more aware of it these days?

quickthrowman• 6 years ago

Only it isn’t the same. Dividends are taxable, capital gains are only taxable upon closing a position.

mrlala2• 6 years ago

A stock buyback is theoretically the same as a dividend

I don't think that is true at all.

A dividend is literally "We are paying out some amount of cash. If our stock price is $40 and we give $5 to each shareholder the shares should immediately go down to $35". Although since the stock price should be a NPV of the company's cash flow, they technically have even less working capital to create returns over the years, so I think the price should go down by even more than $5.. but that's a different discussion...

In a stock buyback.. let's say the price is $40 and they buy the equivalent of $5 back from the market. Well.. yes they gave away $5 but they also gained $5 of value because they are now holding the shares. It's a net zero transaction if their stock price doesn't change from it. Which.. it shouldn't unless you think it's a signal of something. Yes there's a bit more details, but value is not "given away" in the same sense.

In the dividend example, the company gave away money.

In a stock repurchase, they gave away money in return for shares of (almost) equal value.

jonfw2• 6 years ago

You're not giving the whole picture if you don't mention that IBM's market cap has seen very significant decline over that time period.

IBM has been producing insane cash-flow over this period and their strategy was to pay out dividends/buybacks rather than to invest in new markets

Is IBM even getting bailout money? What does IBM have to do with the bailouts?

onlyrealcuzzo3• 6 years ago

Part of what allows a company to have insane cashflow is issuing corporate bonds at artificially low prices because the Treasury is manipulated by the Fed.

est31• 6 years ago

And dividends/buybacks are a reasonable choice. It moves the choice of whether to invest into new markets to the investors instead of dictating it from above. Companies like Google are blown out of proportion in comparison to the part that actually makes the money, all in order to find the next toothbrush product that may never come. The core Google products barely changed in the last 5 years, yet the employee count almost doubled. Great for the engineers who get the cushy 200k comp jobs, but not great for investors.

godtoldmetodoit2• 6 years ago

IBM may or may not be a good example, but I think the overall critique holds here.

Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market.

Home Depot could have given their employees massive raises with the amount they've spent on buybacks (15 billion in buybacks in February 2019 alone). With ~400,000 employees, that could be a $37,500 bonus to every employee for the year...

The scale of that is breathtaking - and instead of spreading the love around, it goes to the shareholders and C level alone.

chrisco2552• 6 years ago

Hard to disentangle monetary policy from political policy. They are strongly interlinked.

_curious_2• 6 years ago

Sure but what does it matter if it's "monetary policy" or "political policy"? They work hand in glove and as @mywittyname aptly states above:

"...I feel like the wealthy in this country have developed the perfect scheme for leeching the wealth from this country."

The perfect scheme involves a bailout mechanisms without question. And too many Americans are falling for the scheme with hands out for a piece of welfare from the wealthy. They are selling out the future of their country in exchange for a pittance in the process.

The scheme doesn't stop, it only exacerbates as long as the bailouts continue...bailouts for wall street, bailouts for mains street, bailouts for every day individuals = all part the scheme by design.

I'm in constant awe of how many otherwise intelligent people can't grasp the role that these "bailouts" play in perpetuating the inequality gap. That, or they happen to be on a certain side of things and don't want to know what it's like to be on the other when the gravy-train stops flowing...

zaroth• 6 years ago

I’m not sure what your last paragraph has to do with the first three.

A main purpose of buying a stock is to receive dividend payments. Buybacks are just a tax efficient dividend.

The latest craze to make paying dividends sound evil is just strange.

colechristensen• 6 years ago

Paying dividends is fine if you aren't firing workers or taking bailouts.

brianwawok• 6 years ago

One strategy is dividends.

Another is to buy a stock at X, sell later at Y and hope Y > X

Both are valid. Oddly they are taxed differently.

cryptica• 6 years ago

I watched an interview on YouTube with Stephen A. Schwarzman from 'The Blackstone Group' which was really eye opening. There is a part where he explains how to multiply ROI on any investment using bank loans https://www.youtube.com/watch?v=7kThTbLUQdU

When you take into account that the credit is printed by banks out of thin air (and more so given the latest 0% reserve requirement), it's not difficult to see why the ROI surplus derived from this 'magic trick' (as Schwarzmam refers to it) is basically free money.

Corporations and financial firms with a lot of capital have access to huge loans on favorable terms; this puts them on a different playing field than small companies which don't have much capital and can't use this 'magic trick' to multiply their earnings in the same way. Earning 30% ROI is simply not possible for most individuals and small businesses.

I suspect this is the same trick which Renaissance Technologies uses for their 'Medallion fund' to hit 66% ROI per year on average... Maybe they're able to take loans against collateral owned by their other mainstream funds.

If I have $1K in cash and I can find a bank to loan me an additional $5K... If I invest that in an asset which returns just 10% per year, given the 0% interest rate environment, I can make $600 per year in pure profit on my investment... Which is 60% ROI! Anyone can be a legendary investor... You just need to find a bank which can give you 5x leverage.

These leveraged loans which yield free surplus ROI are impossible for small businesses to access. This is why they're fundamentally unfair. The efficiency advantages of economies of scale are greatly exaggerated. The real advantage is mostly financial.

And remember, that 'leverage' credit was printed out of thin air by the bank... So any extra profit which can be derived from it by an individual or company is by definition also 'printed out of thin air'... Especially when you know you're going to get bailed out every 10 years when things go wrong - There is no risk.

basch3• 6 years ago

If you want to take the risk of losing a multiple of sectors losses, its incredibly easy to invest in leveraged etfs. They take out loans at 2x their value, and buy 2 more shares of everything inside. So they sit on 3x stock and 2x debt.

http://www.direxion.com/leveraged-inverse-etfs

https://www.proshares.com/3xetfs/

https://www.investopedia.com/articles/investing/020816/top-1...

Look at something like TQQQ, which is 50% FAAAMIN stocks 3x. Was a 488% return in the last 5 years till the crash, now its at 330%. Regular QQQ is only up 192%.

throw0101a4• 6 years ago

IBM did 140 billion in stock buy backs in the last decade.

And? What is the alternative, and is it any better?

IBM has effectively been dead money for the last decade. They’re up 20%, including dividends, versus 315% for the tech index (XLK). IBM currently has a market cap of ~$100 billion, so when people hear they spent $45 billion on buybacks while their share price went down 38%, people get angry. I get it, it’s an easy argument to make.
But a better argument, which Jake made recently is that poorly managed companies like IBM are doing the right thing by returning cash to shareholders. That’s $45 billion into the hands of investors who can then take that money and actually invest it in companies that are, you know, not terrible. Would the anti-buyback crowd be happier if IBM invested that $45 billion and had a negative ROI? And what about the $76 billion they “wasted” on dividends? Why does this return of capital to shareholders escape criticism? More on this in a minute.

* https://theirrelevantinvestor.com/2020/04/22/returning-cash-...

gbasin• 6 years ago

Bingo. Would you rather have a poorly managed company hold on to their cash and spend it internally, or return it to shareholders?

codeisawesome2• 6 years ago

If IBM invested the money into actual research and product development - that would mean the money still enters the economy via the workers doing the research and development. I feel like this point isn't emphasised well enough in the quote above - and I wonder if the "anti buyback crowd" would have anything to say against that.

new_time2• 6 years ago

However this saves us from inflation, since the money circulates among the wealthy and corporations rather than among the common person.

magicsmoke2• 6 years ago

It also puts assets with positive rates of return out of the hands of the common person. Kind of like how an overheated housing market makes it so you'll never own a home and are stuck paying rent forever. If you ever wanted to own a piece of America's economy and get dividends in the future, now it's priced out of reach. This inflation in investment assets further cements the division between those that have to work 9-5 for a living, and those that have enough investments to live off their returns and not worry about becoming destitute. Jumping that gap between renter and owner is harder than ever.

abfan11272• 6 years ago

it doesn't save us from inflation, it just changes the path it takes. Rich people buy stuff too, which employee us peasants. But by the time us peasants see the money, its already inflated so we don't get the benefits.

smolder• 6 years ago

I don't think this is a sound argument for further enriching the rich and leaving the common person to struggle. An oligarchy is not a desirable model any more than a monarchy is.

xadhominemx• 6 years ago

Yes.... they have a small market cap because they are returning cash to shareholders. That is literally the idea of a buyback - to shrink the market cap.

david-gpu• 6 years ago

Wouldn't a stock buyback reduce the number of outstanding shares, but keep market capitalization roughly constant? The company has less cash, but it has bought an asset of equal value with it (the shares).

pjdemers• 6 years ago

21st century IBM is effectively a labor arbitrage firm. They buy labor in low cost countries and sell it in high cost countries. They are not the platform tech company they were in the 60s to the 80s. Labor arbitrage can be a good business, but there is much more competition than in platform technology. The competition constrains both profits and growth.

Eliezer3• 6 years ago

And it's still not even remotely enough. 5-year inflation expectations running at 0.67%, CPI falling. The shock to aggregate demand is being allowed to exceed the supply shock. https://fred.stlouisfed.org/series/T5YIE

RobertoG5• 6 years ago

Fiscal policy is the obvious solution to aggregate demand problems, not monetary policy.

Eliezer3• 6 years ago

Fiscal policy creates debt that needs to be repaid. Ordinary monetary policy involves swapping new currency for very stable assets like Treasury bonds that can be sold back later to destroy the currency. As much aggregate demand as possible should therefore be created by ordinary monetary policy, since it's cheaper (and faster and easier).

monetaryvirus2• 6 years ago

How is that supposed to work? I can understand if this were a normal cyclical pullback, but this isn't a normal times; there is actual economic destruction wrought by a real (non-monetary) shock to supply. In order to believe this helps, you have to imagine it happening by this mechanism:

"Can you lend to our business that's not allowed to operate and probably won't pay you back?"

'lol no. ... wait, I just got off the phone with our credit line. We can borrow at 3% instead of 3.25%. What's your business model again?'

Eliezer3• 6 years ago

Usually, destroying some of the supply, but holding the flow of money fixed, means that the remaining items will be bid up. If instead prices are falling, it means that the secondary financial effects of the real shock are exceeding the impact of the real shock itself. If the flow of money is slowing down, one should create more money to avoid worsening the real shock through financial reverberations.

bawana2• 6 years ago

And there will be NO inflation because this money is largely going to corporations who will figure out ways to maximize ROI -> invest it in the financial market. So although there might inflation of equity prices (as seen by the recovery of the S&P and other equities), the world is still out of work and starving and without the dollars to drive demand and price increases of goods and services.

We need to separate financial money flows (Gross Financial Product?) from the GDP to really know what is going on.

shse• 6 years ago

Real state prices will explode. That’s what happened after 2009 due to QE.

k3oni• 6 years ago

I have a hard time believing that real estate prices will explode. From what i can see the prices are expected to go down, mostly due to the fact that there's less ppl able to buy due to many being out of work(some for a good while probably as i doubt some jobs/positions will be immediately re-filled). This same thing will cause many to go into foreclosure, this adding new supply to the real estate market. Also banks already tightening credit/loans requirements and availability. All this means larger supply than demand, no reason for real estate to go up. This is all just starting, curious to see what the end of 2020 will bring and start of 2021.

Also the market doesn't represent the economy and right now most of the money goes into the market creating a false-positive idea that everything's fine. Just my 2 cents.

ackbar032• 6 years ago

What's the saying these days? Money printer goes brrrrrrr?

alistairSH2• 6 years ago

https://brrr.money

vzidex• 6 years ago

Is the song that plays on this website commonly known? The only other time I've heard it is in the video that the New Zealand mass shooter recorded, and it makes me uncomfortable that it's the same song if it is indeed not common.

DSingularity• 6 years ago

This is one of two last-resorts mechanisms by which the U.S. will maintain its hegemony. It may suck, but it is way better than the alternative.

Consultant32452• 6 years ago

What's the other last resort? WWIII? It seems that's brewing too.

duxup• 6 years ago

by which the U.S. will maintain its hegemony

By printing money?

throwanem2• 6 years ago

Attempt to maintain.

aeternum5• 6 years ago

Why is printing money a bad thing at this point in time?

I see two strong reasons that printing money is the right move:

1) Wealth inequality is high relative to recent history. Printing money is a very effective way to even some of that out. Possibly the only form of 'wealth tax' that can actually be executed successfully.

2) The US debt / GDP fraction is still relatively low compared to many other countries.

criddell2• 6 years ago

The US debt / GDP fraction is still relatively low compared to many other countries.

Is the relative ratio a good way to evaluate it? Does it mean anything to talk about the debt:GDP ratio in isolation?

cheald• 6 years ago

Printing money is a very effective way to even some of that out. Possibly the only form of 'wealth tax' that can actually be executed successfully.

This only holds if the wealthy are holding their wealth as USD, not assets. This is not the case. The wealthy do not typically have Scrooge McDuck-style vaults of cash laying around waiting to be inflated away.

blawson• 6 years ago

Inflation hurts the poorer the most - they don't have assets that are being priced up due to inflation, while the cost of everyday life goes up.

fallingfrog2• 6 years ago

Here’s how I see this going (obviously just a guess): the entire corporate financial system is now unprofitable without being bailed out with zero interest loans every 10 years. This time around, the recovery will be slow, 10 years, then another, bigger bubble will form, that will pop and get bailed out again, but the next time around it will cause fast rising inflation. The fed will have to choose between either allowing hyperinflation to happen, which will crash the dollar, or saving the dollar by jacking up interest rates but allowing a second Great Depression to occur. I think they’ll choose the latter. At that point, the right wing, funded by the desperate corporate state which needs to stem the rising tide of labor activism, will blame coastal elite liberals and immigrants for their problems and there will be some kind of fascist coup, followed potentially by war, (but probably not). This will be right at the same time as lots of mass movement of people due to climate change is happening. If a war does happen it will be because of tensions caused by people flooding across various borders. I cannot see any further ahead than that.

core-questions2• 6 years ago

At that point, the right wing, funded by the desperate corporate state which needs to stem the rising tide of labor activism, will blame coastal elite liberals and immigrants for their problems and there will be some kind of fascist coup, followed potentially by war, (but probably not).

You had me until "funded by the desperate corporate state", who want absolutely nothing to do with the right wing. If anything, we'll see a continued rise in Totalitarian Liberalism rather than any kind of right-wing renaissance.

there will be some kind of fascist coup

You need a Great Man for that, and there are none on the horizon.

fallingfrog2• 6 years ago

The corporate state in Weimar Germany was faced with a popular communist movement, and to defeat it they threw money at the fascists, who they saw as the only credible opposition. But, history never repeats, it may go down differently next time. Just look at how the supposedly left wing media responded to Bernie Sanders. When money is on the line, they will align with the right wing. Plus, left wing is by definition a movement that opposes the current power hierarchies in society. Look it up on Wikipedia.

https://en.m.wikipedia.org/wiki/Left-wing_politics

By that standard, none of the people you would call totalitarian liberals are left wing at all, they’re just corporatists with socially liberal virtue signaling. Trust me when I say that those people are the very first to suppress labor strikes or call the cops on protesters. They would absolutely support a fascist coup if it was their only way to keep their money, power and influence.

systemshutdown2• 6 years ago

Why are the feds able to inject so much money into the system these days without much push back? While during the 2008 Crisis Hank Paulson had such difficulty with getting 700 billion injected?

chimeracoder• 6 years ago

Why are the feds able to inject so much money into the system these days without much push back? While during the 2008 Crisis Hank Paulson had such difficulty with getting 700 billion injected?

Hank Paulson was the Secretary of the Treasury. Both the Fed and the Treasury have the power to create money, but in different ways (and the side-effects of each method are different).

magicsmoke2• 6 years ago

It didn't crash the first time. Let's do it again /s

sjtindell• 6 years ago

That 700 billion was Treasury money. The Fed at the time also engaged in trillions of dollars of quantitative easing, similar to what they’re doing now. I would guess the reason the Fed is going all in this time is because there was consensus among the decision makers that last time we were too slow - we did QE but it took years. I assume they think that if we hit it hard now, we can shorten the recession period. Also this time there is more unified and obvious support from “the people”. Rather than bailing out bankers and all the hazards that come with that, everyone is getting a check, so everyone is more on board.

systemshutdown2• 6 years ago

Interesting. What is the difference between Treasury Money and money coming from the Federal reserve? Was the 700 billion of Treasury money at that time a loan that had to be paid back while today, they're simply increasing the money supply?

Fed Prints Another $205B This Week, M2 Growing at Fastest Pace on Record

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