Friday, June 8, 2012

HOT: Money Supply Growth Going Negative

I usually leave my money supply discussions for the EPJ Daily Alert, but there are serious developments with regard to money supply growth (or lack thereof) that are important enough that everyone should be aware of.

Late last year, money supply (M2) growth was moving along at an annualized 14% growth rate. It has been slowly decelerating. The, 13-week average for the latest 13 week period is nwt at only 5.4%. Most shocking is that the simple annualized growth over the last 3 months (non-seasonally adjusted) now shows a shrinkage in money supply. The growth rate is negative at -1.9% on an annualized basis.

Part of the decline,I believe, is the result of hot money flows in combination with the way the Fed is targeting the Fed funds rate. This hot money could reverse direction at any time and spike money supply upward. The Fed could also start some kind of QE3 and boost money supply, but if one of these events doesn't occur, Ben's latest manipulated economic boom and manipulated stock market will come crashing down hard very fast.


  1. Why do you use M2 and not the Austrian TMS?

  2. Because the Fed is obsessed with stopping bank lending from contracting.

  3. Check out total bank credit. Totbkcr. We're all honky-dory. Fractional reserve will carry us for another 24 mths. Then the real fun starts.

  4. This seems like an easy out...a few months ago you swore that major inflation was coming, and i believed you and bought gold. Now gold is down, and there is no inflation in site. Its pretty convenient that you can blame it on money printing - krugman called no inflation for years. What am i supposed to do now? I tried to hedge against rising gas prices, now they stalled.

    1. "Its pretty convenient that you can blame it on money printing"

      From an Austrian point of view, the supply of money is one of the most important pieces of how the macro-economy works. In fact, if Wenzel noticed negative money growth after periods of very high money growth, and did not say what he is saying now, that would be a time to question his judgment.

      Regarding your situation, I would say it's likely Bernanke will increase the money supply at some point. The calls for money printing will be large once the economy starts going sour. Gold will still be a good investment in the long run. They will likely start printing again at some point.

  5. Ahem, Anonymous @9:20 PM, you really need to read this:

    - clark

  6. I just bought 40 more Gold Eagles last week... maybe deflation is coming as M2/3 and velocity drop, but what do you think will happen after that? The Fed has stated it will not tolerate deflation. During this lull period, now is the time to buy up physical gold/silver IMHO.