punches were pulled. pipelines were spared. where a pipeline is not defendable against a power with modern technology and almost total local air superiority – what other way is there except a deal ?

the official story line was not even meant to be believed, at least not by the insiders in the ‘great game.’

o k maybe i am wrong and kissinger really does worry about results of swimming relays . . .

Absolutely false:

The transactions concept of money velocity (Vt) has its roots in Irving Fischer’s equation of exchange (PT = MV), where (1) M equals the volume of means-of-payment money; (2) V, the rate of turnover of this money; (3) T, the volume of transactions units. The “econometric” people don’t like the equation because it is impossible to calculate P and T. Presumably therefore the equation lacks validity. Actually the equation is a truism – to sell 100 bushels of wheat (T) at $4 a bushel (P) requires the exchange of $400 (M) once (V), or $200 twice, etc.

The real impact of monetary demand on the prices of goods and serves requires the analysis of “monetary flows”, and the only valid velocity figure in calculating monetary flows is Vt. Income velocity (Vi) is a contrived figure (Vi = Nominal GDP/M). The product of MVi is obviously nominal GDP. So where does that leave us? In an economic sea without a rudder or an anchor. A rise in nominal GDP can be the result of (1) an increased rate of monetary flows (MVt) (which by definition the Keynesians have excluded from their analysis), (2) an increase in real GDP, (3) an increasing number of housewives selling their labor in the marketplace, etc. The income velocity approach obviously provided no tool by which we can dissect and explain the inflation process. ( see: Friedman WSJ 1983, PT=My)

To the Keynesians, aggregate demand is nominal GDP, the demand for serves (human) and final goods. This concept excludes the common sense conclusion that the inflation process begins at the beginning (with raw material prices and processing costs at all stages of production) and continues through to the end.

Admittedly the data for Vt are flowed. So are nearly all economic statistics, but that does not preclude us from using them. An educated estimate is better than no estimate at all. It is the triumph of good theory over inadequate facts.

The Fed first calculated deposit turnover in 1919. It reported weekly until 1941. The figure “other banks’’ was used for all calculations until 1996 (prior to this revision Vt included all banks located in 232 SMSA’s excluding N.Y. City). This was the best that could be done to eliminate the influence on prices of purely financial and speculative transactions. Obviously funds used for short selling do not contribute to a rise in prices. The Fed calculates these velocity figures by dividing the aggregate volume of debits of these banks against their demand deposits. Like M3, the series was also discontinued, in Oct. 1996.

When calculating the flow of funds (MVt) it assumed that the Vt figure reported by the Fed is not only representative all commercial banks in the United States, but that the velocity of currency, etc., is the same as for demand deposits. Is this valid? Nobody knows. But we do know that to ignore the aggregate effect of money flows on prices is to ignore the inflation process. And to dismiss the concept of Vt by saying it is meaningless (that people can only spend their income once) is to ignore the fact that Vt is a function of three factors: (1) the number of transactions; (2) the prices of goods and services; (3) the volume of M. Inflation analysis cannot be limited to the volume of wages and salaries spent. To do so is to overlook the principal “engine” of inflation – which is of course, the volume of credit (new money) created by the Reserve and the commercial banks, plus the expenditure rate (velocity) of these funds. Also overlooked is the effect of the expenditure of the savings of the non-bank public on prices. The (MVt) figure encompasses the total effect of all these money flows.

Some of the Fed’s technical staff agree this did work, but they have no interest or support for, recreating the series.

There is obviously a gap in quality care between the 2.

Note that US corporations are burdened with approximately a 10% expense which in turn decreases their world-wide competitiveness.

I think they are trying to figure out what their views are. From a realpolitik point of view, China would favor the Russians, because China gets a lot of things from Russia (fighter jets and oil) and not much stuff from Georgia. On the other hand, China doesn’t want to set a precedent that a strong power can just come in support a secessionist movement, since anything that Russia does in South Ossetia could set a precedent for the US and Taiwan.

So my guess is that you’ll just get some standard foreign ministry releases about hoping for a peaceful solution while everyone hopes that the problem just goes away.

my guess is that casuality runs the other way: a desire to see Russia hold on to its roughly $300 b of dollars rather than dump them constrains us options, and Russia’s financial strength expands its options since it doesn’t have to worry about a financial crisis.

Rien — I probably shouldn’t have combined what in effect are two posts; one talking about the dollar rally on friday and one talking about the custodial data released on thursday night. I didn’t mean to imply that CBanks bought dollars on Friday, helping the dollar rally then. I suspect that was driven far more by changes in expectations around Europe. I do think that CBank intervention continued through the end of July (and it takes a while to convert $ cash bought in the fx market into dollar securities), with the intervention concentrated in Russia and China. The Saudis/ other oil exporters are also building up dollar balances from oil sales. the buildup in the custodial holdings is consequently evidence of ongoing intervention somewhere, and ongoing CB financing of the US.

incidentally, does anyone know China’s views on South Ossetia?

Was your article about possible traces of intervention? If so I wonder who would have been intervening. Not the ECB and probably not the US Treasury.

To the extent that China policies came back to stopping their currency appreciation to favor exporters, they might find that these policies won’t help quite as much as in the past, because of what is happening in the developed world.