The number of buyers and sellers being equal is not relevant. When I go to buy something at the store, there is a buyer and a seller at every stage of production of what I am buying, and yet each one in that chain finds a way to make money from his end user, in other words, prices go up. Not once was there more than "one buyer or seller." Sellers are agreeing with buyers that if you want it, I will give it to you on an uptick. Sellers are doing this because they realize that there is money that needs to be put into play, so they sell dear. It is the price that is agreed upon that matters, not the equality of buyers and sellers there are.
I'm not arguing against this, I agree with this. I'm arguing against your measure of 'money on the sidelines', that money on net cant be much higher because the money supply is not growing much, it popped up after Lehman went under but that was about it. If the money supply is not growing then money on the sidelines cant as well
Oh, then we are talking about two different things. Total money supply? How do you even measure that? M1, M2, M3? By my very own argument above, in gold terms, we are probably net net about the same amount of money in the total economy, pre and post crash. What is different is where it is (asset classes) being directed.
I measure money supply by this http://federalreserve.gov/releases/h6/Current/ What about your measure of money on the sidelines?the stuff that bulls mention as cash in the sidelines are usually components of M2, that stuff is ALWAYS on the sidelines, it simply shifts every once and while(from say checking accounts to money market accounts etc) so I dont see that as a bull point at all. Bank liquidity is actually going down, securitization is still weak, only market driven liquidity through equity and credit offerings are doing well, thats about it
M3 for sure. In a global economy, how can you not include "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." http://www.theshortrun.com/data/Financial/aggregates/msexplain.html
You of course is getting to the issue of 'what is money?'. M3 includes large denomination time deposits but is this different from say a corporate bond?After all someone is giving cash to a bank of which the bank knows they wont hold short-term funding risk, that transaction is very similar to buying a bond. If MSFT issues bonds, the money supply is not rising. Therefore its resonable to remove them, why the low denomination are counted must be related to smaller penalities for early withdraw or something of that sort(dont quote me on that) "M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years." - Federal Reserve Short-term repurchase agreements shouldn't be considered money as well, if I repo a treasury someone will give me cash in the swap, therefore my new money is offset by the cash someone lost ET of course went haywire when the fed stopped publishing M3 but there is a strong case to be made that it doesnt correlate well with inflation or employment(at least not more than M2)
I am not sure what you are trying to get at. For me it is really simple: Anything that can be put into a US bank and then invested in the US stock market, is "money". By this definition, even M3 is terribly impotent. Therefore, Russian Ruble, Indian Rupee, Japanese Yen, British Pound, ad infinitum, and the processes that creates these currency, is money. And that money chases yield and opportunity and safety.
But what about citigroup issuing bonds?If you are going to add these sorts of bank debt to the money supply then the money supply will rise a lot yet that is not inflationary because that 'money' has almost zero velocity. Low velocity debt cant be counted as money, time deposits are just a type of a debt instrument. Money at zero maturity(MZM) is probably a better measure of liquidity but even that has been distorted by the fact that people changed their liquidity preference due liquidity fears as a result of the financial crisis. My point is that this liquidity that people talk about is not right, liquidity is actually weak/going down. Market driven liquidity cant be a bull point because its like double counting, conditions can change at any time