I’ve been playing around with google docs today and put in all the Fed’s data to calculate the AMS numbers when I remembered the Fed’s estimate of sweeps into MMDAs. I found an article (pdf) on mises.org describing the inflationary effects of sweeps (bad, very, very bad) and how they used the data to (somewhat) calculate the true monetary inflation rate but they didn’t go into detail.
So my question is how one would go about adding the Fed’s estimate into the rest of the AMS data?
What’s confusing me is they give ‘monthly averages of initial amounts’ and ‘cumulative total’ and basically I have no idea what to do with the first set of numbers.
It is also interesting that nobody has really picked this up and ran with it since if the effects are what is predicted in the article the inflationary bubble was twice as big as anyone suspected with half of that being hidden by the banks.
Interesting. It looks like these sweeps basically allow banks to avoid borrowing a certain amount of money from the Fed on weekends and public holidays - perhaps because the loans they’re making are getting ahead of their deposits/reserves. So they could get just a little bit ahead of the game, loaning out slightly more money than they would otherwise be able to and reining in on loaning slightly less than they’d have to in times of contraction.
I didn’t alway understand the relationship of the chart data in that article to what he was saying, but at one point he claims the banks in the US currently have -5% reserves!!! If this is true then sweeps are the very least of our worries, but I’m not sure how such a statement could be verified. Any ideas?
Ok, I decided to just add in all the Fed data since it shouldn’t make that big of a difference in the grand scheme of things and made a couple charts.
The second one shows the yearly rate of change in the money supply (or whatever the techinical name is) from Jan '93 to Jan '08
Huge difference in the second half of the 90’s when the AMS (or as near as can be approximated from Fed data – by me at least) shows the money supply contracting while it was actually expanding.
Hopefully I didn’t make any glaring mistakes.
Too bad google docs doesn’t let you set the interval of the labels on the charts so they could be all pretty…