Neither Friedman’s “high powered money” [sic], nor legal reserves have a predictable “expansion coefficient”. “I. e., there is general agreement that, for almost all banks throughout the world, statutory reserve requirements are not binding, Richard G. Anderson, V. P. & Economist – the Maverick Bank”.

Since the “money multiplier” has been emasculated, what the net expansion of money will be as a consequence of a given injection of additional reserves won’t be known until long after the fact.

Contrary to the Keynesian economists that dominate the Fed’s research staff, the money supply can never be managed by any attempt to control the cost of credit.

So the velocity of money is 0?

Legal reserves are no longer binding/constraining.

Inflation is always and everywhere a monetary phenomenon. Friedman was right in this respect.+

Perhaps I can answer your question. The dollars that the US paid for its imports have been recovered by selling financial assets to foreigners, so that the net result has been (largely) an exchange of debt for goods. The fact that the debt is denominated in dollars means that the US has promised to pay a specified number of dollars to foreigners, who may then use them to make either renewed purchases of US assets or US goods and services. But those dollars have not been printed yet. And if the debtor raises the dollars by selling something, or in the case of the government, taxing something (effectively selling a government service), it will not be necessary for the US to print more dollars in the future. Of course, the temptation for the US will be to print more dollars and cheat the foreign creditors by giving them something worth less than expected.

Two former Bear Sterns hedge fund managers were arrested for fraud. [via Free Exchange]
Brad Setser sees the rise in oil prices and the dropping value of the dollar as due to a relatively sluggish U.S. economy.
Total workers’ compensation (not s…

Monetarism is dead.

In general, it is more likely that any correlations between the USD/EEEO (everything else except oil) and the Oil/EEEO are based on a vast and opaque complex of factors that vary in strength and direction some of which due to policy, some randomly and autonomously. With positive and negative feedback thoughout the system. Some market participants (centrl banks, governments, oil producers and majors) may have a short term information advantage (they know their own next moves and have the right size). In a case like that it is safe not to assume that historic patterns of correlation will hold, or that recent variations introduce a new trend. Pity for journalists and investment banking analysts. When I was young we studied macroeconomics and were made to believe that we could design the economy because we had computer models. We ended to forget that the world is full of humans, politicians and businessmen..