Thursday, October 30, 2008

Money Numbers Out: The Fear Is Going

The Fed's money supply numbers are out today for the week of Oct. 20.

They show a drop in M1nsa for two out of the last three weeks. It appears that M1nsa growth may have peaked at the 19.5% annualzed growth at the end of September. As we have pointed out, growth in M1nsa is to us an indicator of fear in the system. The fear appears to be subsiding, i.e., the desire to hold extraordinary cash balances appears to be subsiding.

At the same time, M2nsa continues to increase. Over the last 4 weeks, it has climbed by approximately 15% on an annualized basis. It is dangerous to read too much in to just 4 weeks worth of data, especially given that it can be revised, but our best guess is that Bernanke has his helicopter flying.

The decline in fear (drop in M1nsa) and the double-digit growth in M2nsa indicates that the current phase of the financial crisis is probably over. This of course doesn't mean that there is no bank or other firm lurking out there that may be in trouble, but for the most part things should be calmer. Now, we will have to see how long the very quirky Bernanke keeps his helicopter in the air.

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