Intro page 1-2 of 5
SPQR
The Fed ended the year with its balance sheet a whisker away from its Y2k high, with M3 up a cool trillion dollars in a year (not quite enough to cover all the new and existing home sales conducted in the period, but close).
Since last October's self-confessed freak-out when the WSJ's figures on the minuscule fibre-optic lighting rate brought home to the Charlies on the FOMC that what we'd been hammering away at for a year - namely that this was a monstrous malinvestment Bubble, not a New Era - there has been an addition to the stock of broad money greater than that undertaken in the first two hundred years of the Republic.
Still, there are a few signs that it was not all in vain, but is actually beginning to work in selected areas. Figures just released indicate Housing was just about holding up in November, keeping the Dollar spend running at an elevated 11.3% of GDP. Indeed, the MBA purchase index has since shot to new highs, suggesting we might add yet more to the sums destined for this typical outlet for excess liquidity.
Remember that M3 is now a long way in excess of norms when set against either broad consumption or GDP itself and this therefore represents an overhang which - the minute that subjective valuations of that last marginal dollar in each individual's pocket start to dip below those for the last quanta of non-monetary goods and services - will probably suffice to fuel a consumptive orgy.
This, in turn, while no doubt dragging a few well-deserving businesses along in its wake, will be in grave danger of feeding through into some very nasty looking price rises, or a fearsomely wide trade deficit - possibly both - given that the domestic productive structure is still greatly misaligned with people's wants (hence the ongoing falls in output, employment and capacity utilization).
In Europe matters are less clear cut. M3, while still an embarrassment to the ECB, has risen a paltry EUR 296 billion year-to-date, little more than a quarter of what Mr. G has accomplished from his fiefdom in Isengard.
The real phenomenon in Europe has been a 23%, EUR88 billion, fall in notes in circulation this year - around EUR300 a head - as the rush to unstuff the mattress and launder black to green has run on apace in advance of the changeover from intrinsically worthless tokens of fiat Marks and Francs to equally symbolic minted and printed Euros.
In retrospect this 'dishoarding' may be responsible for a large measure of monetary inflation seen in Europe this year, despite seeming ECB parsimony with reserves, since overnight deposits and money market funds in the fractional bank allow for multiple credit expansion in the way that pesetas in a peasant's sweaty palm can not.
Still, symbols can exert a powerful influence and it will be one of the great unknowns next year to see whether the fact that the traditional bas du laine, the Frenchman's woollen sock, can now be filled with the heretofore abstract Euro, will raise it in the estimation of both locals and foreigners.
There have been tantalizing hints that the Russians, for one, have been trying to extricate themselves from over-dependence on the currency of the Chicago School gangsters lest they are robbed blind once again and that the Euro might be another medium to use, alongside silver Sables and golden Chervonets, to effect this partial liberation.
Whether such stirrings will survive the forcible intrusion of US full-spectrum and full-wallet dominance up the posterior orifice of Eurasia remains also to be seen.
In Asia, we are ending the year with Korea showing glimmerings of life - though who can say whether this is just a sunlit Dell which it will be inXPdient to leave soon - but with the rest of the region starting to fret under the strains of the swirling Yen devaluation (carried out as much to serve the interest of Athens as the poor old Melians themselves).
The one glimmer of hope - if we can call yet more state interference in the market, 'hope' - is that the silent, largely unreported, bank walk (like a bank run, only more controlled) going on among the nation's lesser banks and credit unions may have finally thrust all the cynical placeholders, peculators and servants of special interests, who pass for the Japanese political elite, together to address the banking system's problems once and for all.
It shows the depths to which we have plunged, though, in that it has been openly voiced that part of the rationale for the Yen devaluation is that any subsequently repackaged bad loans, any LTCB-style takeovers, makeovers and mergers will now come at a lower book price to the circling, foreign, Greenback-rich barracuda.
Setting macro policy not to serve one's citizens, or with a care for those of other nations, but just to suit the likes of the very smart, very ruthless and very Praetorian-staffed Ripplewood, Carlyle group or GS? What an outrageous suggestion!
The next thing, you'll be saying the CINCdom of Central Command is just the armed wing of Unocal.
Click button below for full Issue