Nobody else agrees with Me either!

I find Cactus at Angry Bear to be one of the most interesting aspects of the blogosphere, basically because of his lines of exploration; though I possess some degree of hope for his more formal organization (talk about the Pot calling the Kettle black!!). His current effort expresses the same consistency which has made him endearing to his followers; the pertinent information is there, though one may have to dig for it. He finds that Recession has been Our fate 16% of the time since 1959, and that M1 has a definite relationship to the sequence of those Recessions, even if the exact relationship is left undefined. Cactus focuses on the 3.5% drop of the M1 somewhere in the 12 months prior to the occasion of a Recession (which, by the way, is a real Connective to later economic performance), but assumes the Fed has great impact upon the performance of M1; a subject on which there is serious debate. The Fed cannot actually flood the economy with M1, as most people (even Economists) assume; dumping Cash into the Economy by buying Treasuries or other Means advantages Investment Capital, which is quickly removed from M1 without resort to Consumption–it is simply quickly re-invested.

The real Problem is M1, and the reason is simple: All functional economic transitions must channel through M0 or M1. Consumption is universally conducted within the above spheres. M2 and M3 rely on M1 for Cash flow, though they express the actual lowest Time Period of existence within M1; though Bank Reserve requirements basically depend on M1 deposits to extend loans through the fractional Banking system. Long-term M2 and M3 agreements often tie up loose Cash so that M1 dependent Cash reserves do not grow, and passage of M2 and M3 through M1 is markedly short in duration. Nothing feeds M1 deposits with a consistency which guarantees necessary growth of M1 to generate sufficient fractional Banking requirements and Investment funds. Economists stipulate that some M2 and M3 can be utilized for fractional Banking reserves, but more than half of this residue cannot be used because of Issuance types unconnected to the fractional Banking systems involved.

Another hazard is the other forms of payment which Cactus mentions in his Post, which have supplanted the basic M1 format. These other forms of payment are almost always forms of Credit advancement, forms that have replaced easy formation of M1 deposits through Bank advancement of short-term Consumer loans, and rapidly speeded Household Income flow through M1 accounts. Commercial Banking becomes crimped to maintain fractional Banking reserves, and the Fed policy may actually injure this process, by lowering fed funds rates; removing Investor confidence in adequate return from purchase of Bank paper. Raising the fed funds rate from 3% to around 6% could actually far more than double Savings accounts and C.D. registered. First let me stipulate I have never advocated a fed funds rate over 4.2%, and never will; of course, I will never advocate a fed funds rate less than 4.2%. What I am trying to say remains that current Fed policy may be exactly the wrong policy to either fight Inflation, or promote the Bank deposits necessary for economic performance. lgl