macroeconomics
FX
source. It needn’t be a single straight path, either. Te most efficient return on leverage may result from a subnetwork having the proper duration and minimal
regulations Chart 3: Velocity of M2 Money Stock Source: Federal Reserve Bank of St. Louis
In the US, the amount of capital velocity has actuality declined in spite of an economic recovery
Treasuries as well as mortgage-backed securities. As noted above, US growth is currently moderate but respectable; unemployment is at record lows as well as unemployment claims, consumer spending is up. Yet as Chart 5 clearly demonstrates, the amount of capital velocity has actuality declined in spite of an economic recovery!
One simple possibility is that the increased supply of capital has been invested in fixed interest bearing or dividend paying assets and the recovery is heavily credit dependent. Consider that bond markets and stock markets have experienced extraordinary gains over the past 10 years: the S&P 500 had a 186% gain from the 2009 February crises low (of 735) to the 2015 June high (of 2103). Neglecting the crises low, the S&P
500 gained 36% from the September 2007 high to the 2015 June high. It’s as if the global financial market crisis was some passing inconvenience. Lastly, US consumer credit card obligations have accumulated to nearly $1 trillion US Dollars11
. By
courtroom standards this all may be dismissed as ‘circumstantial evidence’: Fed provides liquidity => asset values skyrocket => US Treasury yield decline => money velocity declines => unemployment falls to record low => wages decline => consumer debt increases => economy grows.
Just coincidence?
Te networked economy is a client- server model. If the client demands credit from the server, it’s routed towards the most efficient credit
across several borders. A loan for a major construction project or a loan for fixed capital investment or credit for the retail market may exist as subnetworks having the required duration and minimum cost of capital. It’s important to recall that the utilization of the networked economy is not a conscious act but rather it is the aggregate result of finding the most efficient means to an end, ignoring borders and seeking out the minimum of regulatory resistance. Te networked economy serves client demands.
Technology does play an important part. High speed, algorithm driven, digital infrastructure make account transfers, currency translation, asset leverage and regulatory minimization a moot point. It no longer requires skyscrapers full of traders. All that has been replaced with chilling ‘rooms full of servers’. Te liquidity provided by unconventional central bank efforts has essentially been absorbed by the networked economy. Again, the US Federal Reserve has provided over $4 trillion in liquidity but the actual circulation of that value has been declining within the borders of the US! Central bank provided liquidity has been absorbed, reworked and redistributed wherever, however and whichever way returns can be maximized. Central banks have become clients
FX TRADER MAGAZINE April - June 2016 51
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