Thursday, September 4, 2008

ALERT: MUST READ Money Growth Plunges To 1.8%

The M2 money supply growth rate continues to plunge.

Data released today by the Fed show the annualized growth rate for the thirteen weeks ending August 25, 2008 for M2 is now at 1.8%. As we have emphasized, this is after early 2008 M2 money supply growth at double digit rates.

If the Fed doesn't reverse engines real fast, the economy will plunge into Depression-like conditions within months, if not weeks.

Extreme caution should be exercised with regard to all long term business decisions. Within six months the economy could look much different. Preserve cash.

Note: For those of you not versed in monetary theory, the Federal Reserve pumps money into the economy through the banking system. There are lots of problems with the Fed dong this, starting with the fact that printing more money causes price inflation. But the Fed almost always is printing money. If the Fed stops printing money, then the entire system previously created by Fed money printing collapses.

This is where we are now. The Fed is barely pumping money into the system. Examine this chart from the St. Louis Federal Reserve, it shows the percentage change in money growth since the start of 2000. How low is the current 1.8% annualized growth compared to growth over the last 7 1/2 years? The Fed chart's growth axis doesn't even go that low! This means there is no new money entering the system to buy houses, cars or for businesses to invest. The seriousness of this fact can not be over-emphasized, if this continues we are headed for a Depression.

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