Response to WSJ Comments…”What’s Money?”

Thank you for your interest in my letter highlighting how determinants of inflation can be better understood.  To clarify, two types of money exist ‘state money’ produced by the Fed and ‘bank money’ created by the private sector.  Bank money drives growth. Today, bank money includes the service value of traditional commercial bank products such as deposits as well as shadow banking services such as commercial paper, money market funds, and repurchase agreements. In fact, what constitutes money may change over time as new financial products are introduced.

So, it is essential that the Fed, economists, and market participants measure and monitor both state and bank money.  CFS Divisia accomplishes this feat by identifying assets that serve as money.  Importantly, not all of these monetary assets provide equal amounts of service as money to the economy.

Bill Barnett uses the example of measuring the service value of transportation.  Would a pair of roller skates and a locomotive provide equal value to the economy?  No.  So, CFS Divisia derives weights that vary over time.

For the theory, history and math behind CFS Divisia, please see Bill’s book Getting It Wronghttp://www.centerforfinancialstability.org/getting_wrong.php

For a practical application of CFS Divisia see http://centerforfinancialstability.org/research/why_cfs_divisia_071316.pdf

WSJ: What’s Money?

The Wall Street Journal weekend edition printed my letter highlighting how determinants of inflation can be better understood.

CFS Divisia money growth warned about rising inflation and clearly explained why it was low coincident with QE.

To be clear, CFS Divisia money monitors the output of the financial system and its role in the monetary transmission mechanism.  It is an essential barometer of the economy, whether one is a market practitioner, Keynesian, or monetarist.

The full letter is https://www.wsj.com/articles/it-may-make-the-world-go-round-but-whats-money-1490388811

CFS Monetary Measures for February 2017

Today we release CFS monetary and financial measures for February 2017. CFS Divisia M4, which is the broadest and most important measure of money, grew by 4.1% in February 2017 on a year-over-year basis versus 4.8% in January.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Feb17.pdf

For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

An Interview with William A. Barnett

CFS Director William A. Barnett is interviewed by Apostolos Serletis.  The conversation covers Bill’s life as a rocket scientist, work at the Federal Reserve Board, pioneer of monetary aggregation and complex dynamics, founding journals and societies, work at CFS, and more.

The interview is similar in construct to discussions with eminent economists in Bill’s book co-edited with Nobel Laureate Paul Samuelson – “Inside the Economist’s Mind.”

To view the full interview:
http://centerforfinancialstability.org/research/Barnett_Interview.pdf

I hope that you find the exchange about Bill and his remarkable career informative and enjoyable.

CFS Monetary Measures for January 2017

Today we release CFS monetary and financial measures for January 2017.  CFS Divisia M4, which is the broadest and most important measure of money, grew by 4.9% in January 2017 on a year-over-year basis versus 5.1% in December 2016.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Jan17.pdf

For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

Bank of England conference in honor of William A. Barnett – Call for papers extended

We are delighted to announce a conference in honor of CFS Director William A. Barnett at the Bank of England on May 23 – 24, 2017.

The call for papers has been extended to March 15, 2017.

Liquidity plays a pivotal role in financial markets, the banking sector, and the economy as a whole. Since the 2008-09 financial crisis, it has become increasingly necessary to understand the creation, dissemination, measurement and management of liquidity.

This conference seeks and invites proposals to understand and assess the macroeconomic implications of liquidity, the liquidity creation process, and the impacts of liquidity on financial markets and economic activity. Theoretical, empirical, quantitative, qualitative, institutional, and historical perspectives that address current theory and policy questions are welcome.

For details to attend the conference or submit papers:
www.centerforfinancialstability.org/events/BoE_Barnett_conference_021417.pdf

Similarly, excellent peer reviewed papers will be considered for a special issue of the Journal of Financial Stability.

CFS Monetary Measures for December 2016

Today we release CFS monetary and financial measures for December 2016. CFS Divisia M4, which is the broadest and most important measure of money, grew by 5.4% in December 2016 on a year-over-year basis versus 5.5% in November.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Dec16.pdf

For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

Testimony on Monetary Policy

Mickey D. Levy (Chief Economist of Berenberg Capital Markets for the Americas and Asia) testified before the House Financial Services Committee on monetary policy.

He focused on how non-monetary factors including a growing web of government taxes, regulations and mandated expenses were harming the economy.

His line of thinking is of special note as these themes have been revealed over the years by CFS Divisia monetary aggregates and components.

His Testimony Resetting Monetary Policy is available online – http://financialservices.house.gov/uploadedfiles/hhrg-114-ba19-wstate-mlevy-20161207.pdf

CFS Monetary Measures for November 2016

Today we release CFS monetary and financial measures for November 2016.  CFS Divisia M4, which is the broadest and most important measure of money, grew by 5.4% in November 2016 on a year-over-year basis versus 5.8% in October.

CFS Divisia indices can be found on our website at http://www.centerforfinancialstability.org/amfm_data.php.  Broad aggregates are available in spreadsheet, tabular and chart form.  Narrow aggregates can be found in spreadsheet form.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Nov16.pdf

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

Congress can help the Fed…

President-elect Donald Trump noted that “we have a very false economy,” due to the Fed “keeping the rates down.”  He is right.

Yet, the question remains how to exit from this policy while avoiding catastrophe in the bond market and building a safer monetary policy framework for the future.

The Fed needs to integrate state and bank money into the policy discourse, including its own reports to Congress and the public.

Here, Congress can help.

For full remarks:
http://centerforfinancialstability.org/oped/Fed_120616.pdf