For the week ended February 23, three month annualized M1 nsa declined by 11.2%. The decline in M1 should come as no surprise to EPJ readers as I have pointed out that as fear subsided people would re-shift currency and demand deposits into higher paying vehicles. That said, the lagging month of the three month period (December) is a period of high cash demand, so M1 February is going up against those high cash demand weeks. Smoothing this out a bit, my guess is that M1 is pretty close to flat. Still flat M1 versus the food of money into M1 in late 2008 suggests that fear has dramatically subsided by those who have money to move around.
Three month annualized M2 growth is at 10.2%, this is still very strong growth but down considerably from the 15% growth we have been seeing since late September. A couple of weeks a growth in 10% range for M2 is not enough to declare a new trend, but it is certainly something to monitor.
If Bernanke is taking money growth down to 10%, forecasting will be much more tricky. At 15% growth, it is obvious that Barnanke was filling the economy with money that would turn the economy around in a Fed distorted fashion. At 10%, it is still strong growth, but not the easy forecasting is over. How well will 10% growth support the economy after three or four months of 15% growth? That is not an easy question to answer.
Regardless of if we talk about monetary aggregates, or friedmanite "velocities of money", I think its fair to say that the inflation this time is likely to come at least as much from lowered production as from increased amounts of money.
ReplyDeleteThe US is probably still riding on the "strong dollar wave", but the "imported inflation" when the dollar finally falls should be quite horrible.
Or is the rest of the world seriously stupid enough to keep sending goods in return of paper across the seas eternally?
I mean - what will you actually be able to buy with those pieces of paper in the end? Two ounces of good faith?