Thursday, October 8, 2009

Money Supply Growth Rates Around the Globe and Its Implications for the Dollar

Stefan Karlsson has put together some important data on recent money supply growth rates around the globe:
While money supply growth (Whether you prefer the M2 or MZM measure) in America has been slightly negative for the last few months, the story is different in most other countries.

For example, in Sweden, the M1 measure of money supply (which is much broader than M1 in America and more similar to M2/MZM) rose to 9.1%, the highest since late 2007 and up from a low of 1.9% in October 2008.

In the euro area, M1 growth increased to as much as 13.6% , up from a mere 0.5% in the year to July 2008.

In China money supply rose by a record 28.5%.

In Australia, money supply growth (defined as M1 + "other" other deposits) has remained firm at about 13%.

In the U.K., money supply growth has remained more or less unchanged, but only moderately positive at only about 3%. Similarly, in Japan money supply growth has increased somewhat but is only moderately positive.
What is particularly instructive about this data, is that, as Karlsson notes, most countries are showing much faster money growth than the United States. Generally this would signal a period of a strong dollar vis a vis other currencies. And, it may ultimately develop that way. However, because of the large international dollar overhang. dollar weakness can occur almost anytime simply when there is panic by those holding dollars overseas.

Thus, it is extremely difficult to forecast dollar performance at the present time--even though any move, up or down, is likely to be extremely violent. Without a further extension of international panic, the dollar could climb impressively. If international dollar panic accelerates, the dollar could collapse to the degree the entire financial and economic structure is rocked.

Thus, traders should bet on volatility. Up or down, it is going to be a wild ride.


  1. Well done review, it is a volital and difficult market. But there is an old banker's saying that may apply: Borrower a little from the bank and the bank owns you; borrow a lot from the bank and you own the bank.

    It appears the US has borrowed a lot from the world and currently "owns" it. No country csn afford to let the dollar collapse until a new world currency becomes viable.

  2. Despite a shrinking money stock, the greenback has lost value to foreign currencies with rising money stock.

    CNBC's sudden anti-dollar shouts suggest a short term dead cat bounce overdue but is USD's October 2009 equivalent to the Mark's December 1920? (1k/oz gold)

    I'm afraid to know the answer.