The law of conservation of the money supply is not a law. - page 2
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The real money supply is a negligible part of the sums circulating on the markets, including the currency market. It is mainly liabilities of some participants to others, in fact virtual unsecured loans to each other. Therefore a reduction in the volume of liabilities is sufficient for this effect, most likely forced as there is no longer any trust.
Apparently, 13 minutes was not enough time to read this article after all. And since "the essence is the same everywhere", there is no need to bother.
Moreover, there is no need to stoop to the level of primitive thinking. "Machine", "who gave him a ...", "explainer" and so on - leave it to schoolboys.
Of course, you always want a more complicated explanation. Preferably scientific, in terms that no one understands anything. More pages of "water"...
It's not as complicated as they're trying to make it sound: "rise above the vanities."
No one would appreciate this author if he briefly explained the process as I did. He gets paid for his lines and pages.
That's what was at hand - 33 pairs in total. Of course, it would be good to do an analysis on the whole volume of instruments. But you have to agree that 33 instruments is already a poor, albeit small, sample. And something tells me that the obtained result most likely would not change much for the limiting case... Someone or something is withdrawing money from forex! Or moving it into metals... That's just me - on an intuitive level.
Have you tried to calculate the weights of the currencies?
Naturally, they must be very different.
The real money supply is a tiny fraction of the sums circulating in the markets, including the currency market. It is mainly liabilities of some participants to others, in fact virtual unsecured loans to each other. Therefore a reduction in the volume of liabilities is sufficient for this effect, most likely forced as there is no trust anymore.
I support this.
In this regard we can try to calculate the weighting coefficients before the crisis and during the crisis.
They can show which country is doing so badly and which is going nowhere at all. Intuitively, there would not be much of a difference.
--
Separately. The combined weight of several major currencies will be 98%. Therefore we should probably not try to account for all 169. In particular, the Ukrainian budget is comparable to that of New York:)
Hi Sergei !
As you of course know yourself, the currency market is not a closed system and even such an assumption is impossible. Not because it is too crude, but because in a closed system any movement would quickly stop.
But your result about the money supply shrinking is super! It really is. But even among economists few understand this. But, fortunately, smart people are still around, and some of them are politically unbiased. And it is a prerequisite if one wants to hear an unbiased analysis.
Not so long ago I read an analytical article "At the edge of the financial abyss" by Kalita Finance analyst D. Golubovsky. I enjoyed the level of his competence and even learned something new. So he explains the mechanics of the processes that are now taking place in the world economy and finance, as well as the phenomenon of money supply reduction. If you're interested, check out his page, it has links to all 4 parts of the article: http://kf-news.ru/category/kolonka
Hello Yura. Good to see you on our forum! It's been a while since you visited.
Thanks for the link, I will certainly check it out.
Here's what I was thinking. Let's look at the picture to the left (it's a copy of the first post of this thread), maybe the "cause" of the inflation of money observed in the averaging of the relative rates of the major currencies is the abnormally high volatility during the crisis. This has caused the stationary "wandering" of the average exchange rate near the equilibrium line (unit) in some small corridor to increase dramatically. In other words, this is not some directed (conscious) action on the part of the market, but just random fluctuation (as usual), but multiplied by the sharply (almost three times) increased instrument volatility. I wish we could construct relative exchange rates, normalizing them not only by the absolute value of the price for a certain period of time, but also doing the same with the volatility... normalize it by some average of, say, the last 100 bars. Or better yet, let's refuse from absolute values of increments of quotes and change to the system of unit increments - candle colours (it corresponds to +/- 1).
This is what we get (Fig. on the right):
Note, there is no trace of the Crisis! No abnormal behaviour of currencies at the end of the chart. But is it so? Let's average relative rates for all instruments (red line) and compare the obtained result with the similar one taking volatility into account (blue line. The graph is similar to the figure from the previous page):
We can see that in this case too we have almost 10% inflation, which indicates its possibly fundamental nature. Some interesting points can be noted. For example, before the crisis, on the equal increments chart (blue line), one can observe not a weak rising trend, which indicates the bullish sentiment of the bulk of the market. But it is worth paying attention to the actual movement of the average price, as on the same time interval one can notice a strong bearish run (red). The impression is that someone has methodically, even before the main tragedy has played out, tried to bring the market down.
In this regard, one could try to calculate the weighting coefficients before the crisis and during the crisis.
They can show which country is doing so badly and which is going nowhere at all. Intuitively, there would be little difference.
Unfortunately, I don't know how to find these coefficients correctly. Perhaps the picture would change.
The combined weight of several major currencies would be 98%. Therefore, we should probably not try to account for all 169. Ukraine's budget in particular is comparable to that of New York:).
It's for this reason that I wasn't too worried about the representativeness of the sample presented. I think it qualitatively reflects the real state of the market.
Neutron, I think we should take the geometric mean, not the arithmetic mean.
I have a question for you. What do you think, if you find the average by these two methods, what will be the difference in the result:
1. By a factor of more than 2,
2. less than 0.1%.
This is how the process seems to me - currency exchange is needed to buy stocks, commodities and bonds. The surge in volatility is due to a sharp shift in assets from commodities and equities to safe bonds and bonds. That is, money is moving to where it is growing or at least not depreciating. The shrinking money supply is a consequence of many people preferring to wait out the crisis in cash.
I have a question for you. If you find the average using these two methods, what difference do you think the result will be:
1. More than a factor of 2,
2. less than 0.1%.
I do not know, I have not thought about it. Maybe a few percent.
Neutron, I think we should take the geometric average, not the arithmetic average.
The geometric mean makes no sense in this case.
Let's take at least one boundary condition: one of the currencies depreciates completely. It was thought that in the final state, it should have no impact on the others, but the opposite process occurs. For one thing.
Secondly, it is much easier to work with sums.
If we assume that the currency market is a closed system, i.e. money does not come from 'nowhere' and does not disappear into 'nowhere', then we can expect the effect of money flow (redistribution of funds).
This is interesting.
In any case, the construction of indices is nothing more than part of TC.
Assuming that the money supply (which in your interpretation is unchanged) changes according to some law, the meaning of the indices themselves will not change.
And the law doesn't matter for one simple reason -- when trading in the foreign exchange market, we end up moving from indices to their ratio anyway.
By the way, the money supply graph resembles the gold graph.
It seems to me that using only one price is not enough, like the law of conservation of momentum -- velocity multiplied by mass, and here -- price multiplied by the "power" of the currency to influence the world economy.
It would be better to know these forces. And in order to find them, you have to know the law of money supply change.
By the way, the money supply graph resembles that of gold.
What, is there inflation there too?
What, is there inflation there too?
Whatever you want to call it, call it what you want to call it.
Assuming the foreign exchange market is a closed system.
Figvam - as they say. Since the crisis started, the money supply has shrunk by as much as 10%. How about that!
Attention. The question is: Where did the money go?
Until now I was sure that all other conditions being equal, the price of an instrument may rise "enormously", but it can fall only to zero (and that's impossible). That is, if you find two mirror pairs and open them by weighted volumes in different directions, then the rising pair should supposedly win. Realistically, no such thing is observed.
Interesting that.
The conditions are too ideal. Forex is not even a closed system. Spread washes out huge amounts of trading capital. And swap has to be counted as well :(
Good question. And I know the answer =) Some of that money goes to reduce US dollar inflation, which is why it has such low inflation...
Now that needs serious consideration. Why so?
Actually, there are 169 currencies and 4 metals in the world.
I recommend looking at the Mendeleev table.
Exporters of all these metals are also Forex participants (they hedge their losses due to currency fluctuations)