Tuesday, March 2, 2010

Money Supply Growth Grinds to a Halt

The latest money supply numbers show that non-seasonally adjusted money supply has gonad to a near complete halt. For the three month period ended January 31, 2010, non-seasonally adjusted money is growing at only 1.2% on an annualized basis. The seasonally adjusted number, which is the number the Fed watches, actually recorded an annualized decline of 0.9% for the three month period

Watch out below, the money simply isn't in the system to support the current distorted capital structure. The upticks in the stock market are very misleading. A clearer picture emerges when viewed from a distance.

Here's a three year chart which shows that the current Dow Jones Industrial Average remains far below its all time highs, and still within the approximate range of a 50% retracement off of the previous lows. Rather than the start of a new bull market. a 50% retracement is something you often see after dramatic drops, as people who sold during the downswing start to put money back in the market, but because the money going in is now less (because of no money printing and some money being transferred to the consumption sector from the stock buying capital goods sector) than before, it won't be able to support the former structure (or even get close tom it). Once the old buyers run out of cash, and they will, the rally fails and the market breaks lower. Note: The rally in this bear market is longer than most, which can be attributed to the extremely aggressive M2 money supply printing between September '08 and end-February '09. That was a lot of fuel that was added, but has since, as noted above, stopped.


  1. So why is it that just about every blog site and many news outlets go on and on about the fed printing money?

    Based on the data in the Fed link, it looks like the exact opposite is happening...a case of everyone equating the increase in bank reserves at the Fed to being money in the system?

  2. Never mind - a read of your past articles helped put the monetary base vs. money supply idea into perspective.