About Myths - Monetary vs Finance vs Economy

The image and the data concerning the working papers presented in this post, were presented initially in our Webpage, here "Economics the Power of Numbers".

Concerning the Economic Data and the Monetary Policy, this presentation will concentrate the analyse in the years from 1990 to 2012.

The Myth - Flooding the financial markets with money, will have, eventually, a direct impact or at least a substantial impact in the Real Economy, creating and promoting the conditions for countries to grow.

The Following graphic presents the most important sets of monetary aggregates and their evolution since 1990 to 2012

Another view at the same set of data, for better understanding ...

Notes: Data from China is presented divided by "3" and Japan divided by "100", in order to make visible the complete sets of data from the other aggregates. The objective is to present the trends and the evolution of the aggregates in percentage from 1990 to 2000; 2000 to 2006; and 2006 to 2012.

Resume board, with info concerning the evolution and percentages ...

M2 and M3 Monetary aggregates

link to the working paper on Monetary Aggregates

As you can see, the evolution on the monetary aggregates in the 10 years from 1990 to 2000, is, in most countries comparable with the evolution in the 6 year period's from 2000 to 2006 and 2006 to 2012

 => 10 years evolution = the next 6 years set of data.

with the exception of Brazil, China and Russia, where the evolution was mixed, because of the different states of evolution and transition in the monetary systems of these 3 countries.

Further more: between 2006 and 2012, the last set of data, only the European Union and Japan, slowed the growth rate of their monetary aggregates. The Russian Federation slowed a little but remained in high values. All the other countries maintained the trends initiated in 2000-2006, duplicating or triplicating the growth of their monetary aggregates.
Most important is the lack of information concerning the USA M3 Aggregate, which, if available, would increased even more the speed of the Broad money availability, way beyond 110%. Even without the information concerning the USA Broad Money, from 2006 to 2012, broad money, overall grew more than 100%.

Now, About the Myth

Where did the money go ... for growth !?

... NO!

...Let's take a closer look ...

Link to the working paper on World Growth

As you can see, in this representative set of Nations, their GDP ppp (constant international $) grew less and less from 1990-2000 to 2000-2006 and finally even less in 2006-2011.

In Fact, increasing the broad money availability, resulted in the past, in lower growth rates around the world.

Now, why did this happened? and, Where has the money gone, where did it go !?

The answer is here ... 

S&P 500

here ....

Gold Day Trading

here ...

Crude Oil Price

... and here ...

(more markets and commodities)

Brent Oil

OMX

DJIA - Dow Jones Industrial Average

Nasdaq Stock Market

HSI Hang Seng Index

West Texas Intermediate Crude

Among other markets and commodities.

And also, about Market capitalization ...

Oh!

If you are wondering about Savings ...

The printed money, didn't went to savings, either.

Finally ... The result is embedded in this formula ..

+ broad money "per se" => + finance + financial markets + commodities - Economy

Finance and monetary policy should support the economy and not the other way around.

The Reason ...

The matter isn't about the amount of money. It is about the quality of the use that has been given to it.

The world had more money to work with, since ever before, but the countries that had in fact any growth in their economies, were the ones that invested and managed their money and all their resources in a Sustainable way.

Research Paper: About the reversed sustainability effect
▼

Induced and Reversed Sustainability

Those countries, the ones that took care of their economy and managed their economic variables in a sustainable way, they are in better shape than all the others. They will not require any special help or attention, and even throughout the current financial crises, they keep on growing and improving the quality of life for their citizens.

These countries are: Germany, China, Sweden, Denmark, South Korea, Finland, Netherlands, Switzerland, and Luxemburg, among others around the world... with trade surplus or stable BOP's, balanced or positive budget's along the way, stability into their Savings and economic growth.

Other countries that are already under the work and approach of international financial programs in order to bring sustainability and good management into their economy's have a hard job on their hand's under the present world economic "scenario".

But countries like: United Kingdom and the United States of America are of great concern, because they are tremendously dependent on the financial flows, of their currencies (USA) and of their financial markets (USA and the UK)

The Problems are:

If the flows of US $ are braked, more specifically concerning the buying and selling of Commodities, worldwide, if these operations continues to shift towards other currencies, using out of the market operations (direct contracts);

as well as, the World main trade currency (that had been the US $) continues to shift towards the Euro and the Yuan;

and, the flows of trade from China, if their "current" exports continues to be absorbed by the Chinese internal market (as it is supposed to happen more and more in the near future), and if their effective exports  denominated in Yuan's continues to grow;

These actions will represent a shift on the demand for US $ Worldwide, and will present a very big problem for the USA and the UK.

Why?

Because they continue to print more and more money in order to pay for their debt, year after year, without changing and correcting their unbalanced budgets and their economies. The demand for US $ and for their debt will stop, and these two countries, that are so widely connected, they will face their deepest recession of the past 100 years. They will also take with them a significant part of the world, too.

If the flows of US dollars are disrupted significantly, enforcing their replacement by other currency's, the demand for this currency worldwide will break, the market will freeze, and the product (US dollar) that you are trying to sell will worth nothing, alongside with assets and liabilities denominated in US dollar.

Real growth isn't achieved if they are concentrated on accumulating wealth that belongs to someone else (their creditors). 

The following note was added in June, 8th, 2013

Explaining:

The money will not stay within the country or in the economy, as it was presented here and here, and explained here.

So, here is the Question:

What will you do with an asset that has devalued substantially and continues to do so systematically, making it worth almost nothing, and the asset in question is a specific currency? (remember that currency will be the US dollar, and as such, you will not be buying commodities or debt denominated in US Dollars)

Answer: you will trade it. How: Buying things with it, within the USA, like companies and brands in the US Stock market (companies who conduct their main operational and financial activities in other location, and, with market operations that rely mostly on countries different than the USA. these will be the best options), as well as expensive goods (like jewelry ...) or services within the USA, that you can trade or use else where.

Consequently: these activities will lead to an effective surge of Growth, that will drive and create an artificial optimistic situation, that will damage the country even more (because of the GDP outlook) before the collapse and the default.

Why: This growth induced by an excessive availability of US dollars, will drive inflation. The central bank and the government, will not have or be able to use the tools (interest rates and/or budget) to support the economy and at the same time to prevent inflation. The Result: The situation will lead the currency, the country's economy and the international finance into an out-of-control situation, leading the country to default at all levels.

Truly, I only hope that I am wrong, that this will never be proven right, and that this default and their consequences will never happen! Unfortunately, many steps towards the abyss have already been taken ...