Terminal (Money) Velocity? M2 Money Velocity Crashes To Near All-time Low As Fed Continues To Print Money At 9% YoY Clip (Mortgage Rates Keep Rising)

M2 Money Velocity (GDP/M2 Money) peaked in Q3 1997, but after several bouts of Fed money printing, M2 Money Velocity is near the all-time low at 1.1216 In Q1 2022. And M2 Money stock is still growing at a torrid pace of 9.9% YoY. But the massive overreaction of The Federal Reserve in response to the Covid outbreak has led to near zero money velocity.

Now with The Federal Reserve considering removing the monetary stimulus, what will happen to US GDP left to survive on its own?

An example of how The Fed’s expected tightening of monetary policy can be seen in the meteoric rise in mortgage rates.

So, the US has hit terminal money velocity. I wish The Fed lots of luck going forward.

Is Charlie Sheen the Chairman of The Federal Reserve Board of Governors?? That must be Lael Brainard falling out of the sky with Charlie Sheen (aka, Jerome Powell).

Stablecoin? US Senator Toomey Announces Legislation to Create Responsible Regulatory Framework for Stablecoins (Bad Day For Cryptos)

Stablecoin refers to a new class of cryptocurrencies which offer price stability and/or are backed by reserve asset. In recent times, stablecoins have gained enough traction as they attempt to offer the best of both world’s – the instant processing and security of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.

US Senator Pat Toomey, ranking member of the Banking, Housing and Urban Affairs Committee, announced today legislation to create a responsible regulatory framework for STABLECOINS.

Toomey Announces Legislation to Create Responsible Regulatory Framework for Stablecoins
Releases Discussion Draft of the Stablecoin TRUST Act

Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today released a discussion draft of legislation establishing a new regulatory framework for payment stablecoins.

“While today stablecoins facilitate trading with cryptocurrencies, tomorrow stablecoins could be widely used in the physical economy. They have the potential, among other things, to speed up payments and automate transactions,” said Ranking Member Toomey. “The proposed regulatory framework I’m releasing today will allow this crypto-innovation to continue flourishing while protecting consumers and minimizing potential risks from stablecoins to the financial system. I look forward to receiving feedback on this legislation from my colleagues and stakeholders as Congress continues its work on stablecoin regulation.”

Key Components

·        Authorizes three different options to issue payment stablecoins:

o   Establishes a new federal license designed specifically for stablecoin issuers;

o   Preserves the state-registered money transmitter status for most existing stablecoin issuers; and

o   Clarifies that insured depository institutions are permitted to issue stablecoins.

·        Protects consumers by subjecting all payment stablecoin issuers—regardless of whether they are a state money transmitter or receiving a new federal license—to standardized requirements, including:

o   Disclosures regarding the reserve assets backing the stablecoin;

o   Clear redemption policies; and

o   Subjecting them to routine audits by registered public accounting firms.

·        Provides much-needed clarity that, at a minimum, stablecoins that do not offer interest are not securities.

o   Provides a clear regulatory framework for payment stablecoins and rejects the Securities and Exchange Commission’s approach of regulating through enforcement actions.

·        Applies privacy protections to transactions involving stablecoins and other virtual currencies.


Background

·        In August 2021, Ranking Member Toomey announced he was soliciting legislative proposals to ensure federal law supports the development of digital assets and its underlying technologies while protecting investors.

·        In December 2021, Ranking Member Toomey released a set of principles to lay the framework for forthcoming stablecoin legislation.

Crytpos in general are having a bad day, with Bitcoin down 4.78% today and Ethereum Classic down 12%.

Toomey’s proposal is a great step forward in the regulation of stablecoin.

Mortgage Rates in the U.S. Soar to the Highest Since March 2020 (3.45% Nominal Rate, -3.59% REAL Rate)

Mortgage rates in the U.S. rose for a third straight week, reaching the highest point in almost two years. 

The average for a 30-year loan was 3.45%, up from 3.22% last week and the highest since March 2020, Freddie Mac said in a statement Thursday.

Rates tracked a jump in yields for 10-year Treasuries, which climbed to levels not seen since early 2020, before the pandemic roiled financial markets. Signs point to borrowing costs rising further as the job market improves and the Federal Reserve steps up its efforts to tame inflation.

That would increase the burden on homebuyers who are already stretching to afford a purchase. Rates for 30-year mortgages tumbled to a record low of 2.65% a little more than a year ago.

Cheap loans have helped fuel a housing rally that’s still running hot even as home prices soar out of reach for many Americans.

But wait! The REAL 30-year mortgage rate (nominal 30-year rate – CPI YoY) is -3.59%.

Lael Brainard, Biden’s nominee to be Vice Chairman of The Federal Reserve, has been one of the “inflation is transitory” crowd. US Senator Toomey is questioning Brainard in today’s hearing. From Toomey’s opening statement:

Last year, Governor Brainard repeatedly insisted that inflation was transitory. We have now had nine consecutive months where inflation has been more than two times the Fed’s 2% target. That makes it pretty clear that inflation is not transitory. Yesterday’s CPI release of 7.0%—the highest in 40 years—confirms that.

Inflation is a tax that is eroding Americans’ paychecks every day. Even though wages are growing, inflation is growing faster and causing workers to fall further and further behind.

At least the REAL mortgage rate is negative!

I hope Senator Toomey shows Brainard this chart of “transitory” negative wage growth.

Negative wage growth and negative REAL mortgage rates. What a total mess!

What’s Wrong With This Picture? Fed Reverse Repo Usage Continues To Grow Along With Fed’s Balance Sheet (Reverse Repos At All-time High)

I love listening to Fed talking heads (or Fear The Talking Fed). They mostly seem to acknowledge that inflation is a problem and that the excessive monetary stimulus should be reduced.

But then I see the chart of The Fed’s balance sheet and The Fed’s reverse repo operations.

Then we have Federal Reserve Governor Christopher Waller saying that Th Fed could start raising interest rates as early as its March 15-16 meeting, after deciding to end asset purchases sooner than planned. My question is … why wait until the March meeting?

Is it fear of the Omincron Variant (which sounds like a Frederick Forsyth thriller)? Does The Fed not want to rock the boat prior to the Christmas season? The US is at or near full employment, so what is the real reason for delaying a rate increase until March or June? Or the fear that Congress won’t pass Biden’s Build Back Better Act?

Fed Funds Futures infer that one rate hike will occur at the June Fed Open Market Committee (FOMC) meeting and one at the November meeting.

So will Powell get back in the saddle again and actually do his job?

What’s Wrong With This Picture? M2 Money Growth “SLOWS” To 12.8% YoY As Real Earnings Growth Slows To -1.6% YoY (Will Omarova As Comptroller Make This Better??)

Highlights for Children has a popular segment called “What’s Wrong With This Picture?”

I give you my economics version of “What’s Wrong With This Picture?” It features The Federal Reserve’s M2 Money year–over-year compared with Real Average Weekly Earnings year-over-year.

Yes, M2 Money growth has “slowed” to 12.8% YoY while US Real Average Weekly Earnings YoY is now -1.6%. In other words, while M2 Money is still growing at a rapid pace, real weekly earnings growth is NEGATIVE.

The Fed continues to pump money into a bottle-necked economy while The Federal government pays people NOT to work.

The US Senate has a plan to fix the problem: Biden has nominated Saule Omarova, a dingbat law professor from Cornell (alma matter for The Office’s Andy Bernard), who proposes the following:

(1) Moving all bank deposits from commercial banks to so-called FedAccounts at the Federal Reserve;

(2) Allowing the Fed, in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates,” to confiscate deposits from these FedAccounts in order to tighten monetary policy;

And Ohio Senator Sherrod Brown (D-of course) thinks there is NO MORAL HAZARD PROBLEM with The Fed confiscating bank deposits for its own use?????

If I was attending Omarova’s confirmation hearing, my verdict would be ..

.

JOLT! Job Openings Changed Little (10.4 Million In September) As UMich House Buying Sentiment Declines Even Further (To 62 From 144 Last Year On This Date)

The Federal Reserve continues to JOLT markets with excessive monetary stimulus despite numerous reasons why they should back off.

For example, today’s JOLT report (US job openings) revealed that 10.4 million jobs were open in September. This is the fourth consecutive month of 1 million plus job openings, yet The Fed refuses to raise their target rate.

At the same time, the University of Michigan survey revealed that buying conditions for houses dropped to 66 (baseline of 100). To show how bad this is, buying conditions for houses was at 144 this time last year.

UPDATE: UMich revised their number downward to 62, the lowest since 1981.

In The Fed’s mind, they are still chasing at least 3.5% unemployment, the lowest rate under President Trump prior to COVID. But with perpetual million plus job openings GOING UNFILLED, trying to get to pre-COVID unemployment rate of 3.5% is a fool’s errand.

Of course, with The Fed helping to pump up house prices to largely unaffordable levels, it makes sense that enthusiasm for buying expensive homes has crashed.

Meanwhile, The Fed continues to JOLT the economy with excess stimulus.

Overall inflation fears are leading to lowest consumer confidence since 2011.

PLEASE stop JOLTING US!!

Fed’s Ability to Set Rates Floor Is Weakening on Cash Deluge (“Charming” Powell Had At Least 350 Meetings, Dinners Or Phone Calls With Members Of Congress)

Powell and The Fed’s policies have veered from their mandate requiring Chairman Powell to meet 350 times with Congress to sell The Fed’s policies.

Bloomberg) — The Federal Reserve’s floor for overnight funding markets is proving to be no match for the deluge of cash. 

Money-market securities ranging from Treasury bills to repurchase agreements continue to trade below 0.05% — the offering rate on the overnight reverse repo facility, which is supposed to act like a floor for the front end. The Fed at its June meeting had raised the rate by five basis points to help support the smooth functioning of short-term funding markets.

Still, usage of the tool climbed to a record $1.136 trillion on Monday, eclipsing the previous high of $1.116 trillion on Aug. 18. 

Demand for the so-called RRP facility has surged as a flood of dollars threatens to overwhelm funding markets. That’s in part a result of the central bank’s long-standing asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system. As a result, liquidity has been swelling, especially as the Treasury cuts supply to create more borrowing room under the debt ceiling.

The pressure pushing down overnight rates toward zero is proving a major headache for money-market funds. It hampers their ability to invest profitably, and can lead to further disruptions as they begin to waive fees to avoid passing on negative rates to shareholders. A number of firms including Vanguard Group shut down prime money-market funds last year after struggling to cover operating costs in the low-interest-rate environment.

Yes, overnight rates such as the US SOFR rate, are near zero.

Powell’s Charm Offensive in Congress Positions Him to Keep Job

Perhaps that is why Federal Reserve Chair Jerome Powell is acting as a lobbyist with Congress for The Fed’s nontraditional approach to monetary policy.

(Bloomberg) Since he took the helm of the Fed in February 2018, through June of this year, he’s held at least 350 meetings, dinners or phone calls with members of Congress, according to his monthly calendars. That’s almost nine per month, and many of those included more than one lawmaker. The tally doesn’t count at least 16 appearances as chair before numerous congressional committees.

Well, the stock market has zoomed-up since Bernanke and The Fed adopted zero-interest rate (ZIRP) policies and the now famous quantitative easing (QE) policies in late 2008.

Congress member Alexandria Ocasio-Cortez asked Fed Chair Powell about the Fed helping with US unemployment. We are already at zero rates (on the short-end), and Congress should look at their policies on why labor force participation is slow to recover from the Covid epidemic.

Powell is sounding more and more like Parks and Recreation’s Tom Haverford in terms of schmoozing Congress for support.

Update: The Mises Stationarity Index is flashing “BUBBLE.”

The Mises Stationarity Index is different than the Shiller CAPE index, which is showing equities as being overpriced, but not yet in dot.com bubble zone.

Alarm! Gold And Cryptos Rise As Covid Spreads (Again)

The Covid Delta Variant seems to be picking up steam, we are seeing “flight to safety” assets other than Treasuries rising.

Gold and Silver experienced some serious corrections last week, perhaps because things were looking up. Then we saw Anthony Fauci scaring everyone about Covid … again. So, there is enormous uncertainty about how this will play out. In other words, ALARM!

Bitcoin and Ethereum have been climbing since Gold and Silver corrected last week. But both are up this week, particularly Gold.

The US Dollar is down slightly since the same time last year and M2 Money Stock growth has slowed.

Here is a chart showing another fear factor: the rise of the Covid Delta Variant. Deaths are only 1.7% of confirmed cases (if we believe the actual cause of death).