From July to October 2016, the Fed reported no change to bond holdings. In billions, current Treasury securities owned by the Fed total 2,464. A +1 billion was added in July. Fed Total Assets in billions equates to 4,454 and Liabilities 4,414. Money in Circulation in Billions total 1,431. Currency in circulation is far less than Liabilities.
Maenwhile, the Velocity of money deteriorates. Consider M1 for Q3 2015 at 5.96 to current 5.67. Velocity asks the question how many times is $1 sepnt to buy goods and services based on time. A decreasing Velocity inform less transactions. M2 for the same period Q3 2015 to current quarter reveals Velocity dropped from 1.50 to 1.43. Raise the money supply and Fed Balance sheets based on Keynes and Fed Philosophy then it creates Inflation. Consider Wages minus Inflation then less transactions and purchase fewer goods is explained.
Money in Circulation divide by US population offers a per Capita basis at $4,700, now times by a family of 4 = $19,000.
Keynes feared Money supplies by populations because he feared “the people” would hoard money in certain periods and this would dismantle an economy therefore the wizards of the central banks had to control money supplies, “the people and economies. What is out of control in the Kynesian model is the Quantity Theory of Money where M X V = PQ. Or better stated M X V = Price, Expenditures, Quantity. Quantity is GDP.
Supply siders and 1000 years of history believed hold Quantity and Velocity as constants then the only aspect of the equation with significance is Price to Money Supply. Add or subtract to money on a weekly or daily basis regulates the price. If an economy’;s money runs to hot, raise the interest rate to control the price in relation to the money. The Federal Reserve was created and practiced 100 years of add and subtract money. It was the only function of the Fed to ” never again experience Boom or Bust cycles”. Then the wrecking ball of Keynes and the next worst entity ever to rule was the Democrat Party to change supply side theories.
An oversupply of M deteriorates P. If P deteriorates then wealth fails to generate and instead creates more poor.
Divide GDP by M1 equates to 5.33 and further equates to Expenditures to equal PQ as Total expenditures. M X V as total income = $19,062. Expenditures to Income runs 3.68. The object overall is to at least double M so to double P and allow both to run in tandem. Factor the central Bank 2% Inflation under Keynes misguided MV and PQ then economies fall again to further deterioration.
For growth in GDP then M and Q should rise and Velocities hold steady. P of Prices then follows while in theory Inflation is never a consideration to M and P in sync. The M and P assumption is we know the exact levels of P and M. If Inflation is measured as P then from 2008 to current, Prices rose from 210 to current 242. If M and P were in sync and the Fed employed old ways to add or subtract money then CPI would be far lower and an economic benefit to wealth creation.. Now ask what are benefits to higher rates of interest in the overall equations.
Brian Twomey, Inside the Currency Market, btwomey.com