Sunday, January 11, 2009

Extraordinary Money Supply Growth Continues

The latest Federal Reserve money supply numbers, through December 29, 2008, continue to show huge money supply growth. Three month M1 sa is growing at 30.6% annualized rate. Note: Although we normally use non-seasonally adjusted numbers, during the Christmas season it makes more sense to look at M1 on a seasonally adjusted basis since there is abnormal demands for cash during the holiday season. Further, M1 is our fear indicator, the faster it grows relative to M2, the more fear remains in the system. At current M1 growth, fear is obviously through out the system.

Three month M2 nsa is growing at 18.0% annualized rate.

Clearly, Ben Bernanke is serious about his "quantitative " approach to monetary policy. This will reverse the economy and cause eyeball numbers such as GDP and unemployment to flash that the worst is over, much faster than most expect. However, the price inflationary impact of this money printing will be astounding.


  1. I'm surprised you think growth in inflation will lead to higher GDP and a fall in unemployment.

    Isn't GDP normally calculated on an inflation-adjusted basis? And doesn't rational expectations theory predict that as prices rise, workers will demand higher wages?

    If so, then I don't see why these indicators will improve.

  2. I didn't say that GDP will go up because of price inflation, which is adjusted by indexes, but rather that the initial new money printed will enter the capital goods sector and thus distort the structure of the economy in favor of the capital goods and GDP.