Thursday, October 23, 2008

Money Supply Watch: Fear Continues To Grow

The money supply numbers (for the week ended Oct. 13) continue to show fear climbing throughout the system.

M1 money supply over the last three months has grown at an astounding 19.5% annualized rate. The week before, growth on a three month annualized basis was 7.6%. Thus the M1 growth rate has more than doubled in a week!

M1 measures currency and demand deposits (checking accounts). The huge growth is clearly a sign that many are moving money from other money holding vehicles, such as money market mutual funds. There will be no recovery until this growth in M1 slows significantly or stops. It is the measure of fear in the system.

The three month M2 money measure is also up, to 6.8% annualized from a revised 3.1% the week before. This is an indicator of Fed money pumping activities. The Fed is, obviously, acting aggressively here, and if this money pumping continues, the recession will be much, much milder than most expect, re-heated inflation will be the big problem.

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