Last weekend I went fishing in Tokyo harbor.
The below picture is my friend Masura Ono with a really big fish that he caught on his boat. Ono-san is a famous lawyer in Tokyo. He is a senior partner at the largest law firm in Japan as well as a law professor at the University of Tokyo. But, most weekends, Ono lives his dream which is to be the best fisherman in Japan.
OK…so we didn’t catch that fish when we went out last weekend. But we could have if we tried (I guess).
Instead, we went out on Ono-san’s boat (see below) and went on an eating and drinking extravaganza.
Below are some pictures of the foods that we ate at lunch. The raw squid definitely reminded me of “Squidward” from Sponge Bob Square Pants.
While I was off in Tokyo boating and fishing, the Federal Reserve was quietly cutting back on the pace of monetary stimulus. The rate of increase in money supply growth (as measured by seasonally adjusted M1 and M2) has noticeably slowed and a rough measure of the Federal Reserve’s balance sheet has actually shown shrinkage in recent weeks. The size of the Federal Reserve balance sheet is a proxy for qualitative easing while the rate of growth in money supply is a proxy for quantitative easing.
It isn’t surprising that the Federal Reserve is slowing down given the torrid pace of monetary easing that took place from September through December. The Federal Reserve has to walk a monetary tightrope; too little easing and the US could tumble into uncontrolled deflation and a depression while too much easing will result in hyperinflation and the destruction of the Dollar’s position as the world’s reserve currency.
Set forth below are some graphs that illustrate the slowdown in monetary easing by the Federal Reserve. The source for all data was the Federal Reserve’s weekly reports (Factors Affecting Reserve Balances – H.4.1 and Money Stock Measures – H.6).
As the below graphs illustrates, while I was off gallivanting in Asia, the Federal Reserve stopped increasing M1 and actually caused the amount of money (as measured by M1) to drop. M1 is the Federal Reserve’s most narrowly defined measure of money supply and is basically cash and near cash equivalents.
The pace of growth of M2 (a more broadly defined measure of money supply that includes most types of bank deposits) slowed to a more normal pace of monetary easing in January.
And, the size of the Federal Reserve’s balance sheet actually shrank in early 2009.
The monetary data indicates a pause in the frenetic pace of Federal Reserve activity.
Such pause doesn’t indicate restrictive monetary policy; quite the contrary, monetary policy continues to be extremely accommodative and expansionary. The pause probably indicates that the current phase of monetary stimulus ran its course and the Federal Reserve needs to reassess its current position and the effect of the stimulus that it injected into the financial system before doing more.