Replies to post #3463 on MDA - Market Direction Analysis (MDA)

[LG]

Trade Hard: Since no one responded to your post, I did not want you to think your post went unnoticed. I have been splitting the time I spend engaged in the markets and on this message board with other matters.

Once I have time to prepare a proper response I will, but it may be a few days.

Regards,
LG

PS: I will not be disappointed if someone beats me to it...gg

[LG]

Trade Hard: Well I am not going to express an opinion, but I’ll throw in a link to educational information for those interested coupled with a few links to some statistics of interest.


MODERN MONEY MECHANICS

Introduction
The purpose of this booklet is to describe the basic process of money creation in a "fractional reserve" banking system. The approach taken illustrates the changes in bank balance sheets that occur when deposits in banks change as a result of monetary action by the Federal Reserve System - the central bank of the United States. The relationships shown are based on simplifying assumptions. For the sake of simplicity, the relationships are shown as if they were mechanical, but they are not, as is described later in the booklet. Thus, they should not be interpreted to imply a close and predictable relationship between a specific central bank transaction and the quantity of money.
The introductory pages contain a brief general description of the characteristics of money and how the U.S. money system works. The illustrations in the following two sections describe two processes: first, how bank deposits expand or contract in response to changes in the amount of reserves supplied by the central bank; and second, how those reserves are affected by both Federal Reserve actions and other factors. A final section deals with some of the elements that modify, at least in the short run, the simple mechanical relationship between bank reserves and deposit money.
Money is such a routine part of everyday living that its existence and acceptance ordinarily are taken for granted. A user may sense that money must come into being either automatically as a result of economic activity or as an outgrowth of some government operation. But just how this happens all too often remains a mystery.


What is Money?…..

http://landru.i-link-2.net/monques/mmm2.html



Just a few quick definitions...

The terms M1, M2, M3 refer to the monetary aggregates. For quite some time it was thought that there was a perfect one to one relationship between these numbers and the rates of inflation. Recently this relationship seems to have broken down, and the money supply numbers have lost some of their appeal to market participants. It is still important to watch for strong growth in the money supply which might lead to inflationary pressures as money inflates aggregate demand.

M1: Technically defined this is the sum of: the tender that is held outside banks, travelers checks, checking accounts (but not demand deposits), minus the amount of money in the Federal Reserve float.

M2: The sum of: M1, savings deposits (this would include money market accounts from which no checks can be written), small denomination time deposits (where small is less than $100,000), retirement accounts.

M3: M2 plus the large time deposits (for any of you with more than $100,000 deposits you add to this...). Eurodollar deposits, dollars held at foreign offices of U.S. banks, and institutional money market funds.


A few Tables and Statistics for those interested in using the data for plots...

http://www.federalreserve.gov/releases/h6/Current/

http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

http://www.federalreserve.gov/releases/h6/hist/h6hist10.txt


Regards,
LG