Friday, 19 December 2014

The Short Version of the "Austrian" True Money Supply (TMS), as of 8 December 2014

The short version of the Austrian True Money Supply for the U.S. increased 0.51% on last week for the week ending 8 December 2014. At $10.5434 trillion, a new high, the money supply is now up $660.1 billion, or 6.68%, year to date.

The 1-year growth rate increased from 7.11% last week to 7.21%.

The growth rate was 30 basis points lower than one year ago and was, ignoring week ending 15 September this year, the 128th week in a row with a declining growth rate.

The 5-year annualised growth rate remains high and well above the longer term average, but it was again lower than 10% for the third consecutive week. The growth rate also continues to lag the growth rate from one year ago, falling for the 54th week in a row. The falling growth rate compared to a year ago has however slowed somewhat in recent weeks.


Tuesday, 16 December 2014

Do Treasury Yields Prove QE Had No Effect?


The Case For Monetary Freedom And Free Banking

By Dr Richard M. Ebeling

There has been no greater threat to life, liberty, and property throughout the ages than government. Even the most violent and brutal private individuals have been able to inflict only a mere fraction of the harm and destruction that have been caused by the use of power by political authorities.

The pursuit of legal plunder, to use Frédéric Bastiat’s well-chosen phrase, has been behind all the major economic and political disasters that have befallen mankind throughout history.

Read the article published on The Cobden Centre here.

Monday, 15 December 2014

"Normal" Credit Expansion, Saving and the Austrian Business Cycle Theory

"The notion of "normal" credit expansion is absurd. Issuance of additional fiduciary media, no matter what its quantity may be, always sets in motion those changes in the price structure the description of which is the task of the theory of the trade cycle."
Ludwig von Mises, Human Action

In the soon to become mainstream economics blogosphere (unless monetary cranks and demagogues manage to persuade the public to live blindfolded for yet another 100 years) we today often refer to this as the "boom-bust cycle". And this cycle is driven by money supply growth, and not by real saving. A ratio of money supply to saving above 3 has been pretty bad news for the U.S. economy in the past... 

PS: this distortion cannot be cured by creating even more money (as this is what created the distortion in the first place!).

Also see:

Ten Charts Demonstrating the 2014 U.S. Stock Market Euphoria

Norwegian Bank Balance Sheets: The Great Source for Financial Instability

Statistics Norway recently published the aggregate balance sheet for banks operating in the country. As usual, it makes for bleak readings for anyone concerned about sound and sustainable economic growth and financial stability. 

Despite much focus on weak bank balance sheets in the aftermath of the 2008 financial crisis, bank balance sheets in Norway (and other countries) remain highly leveraged and are to a preposterous extent financed by the very deposits they are supposed to keep safe. 

It is not unusual for banks to finance a high proportion of their assets with depositors' money. This is simply a feature a fractional reserve banking. In fact, this very measure was more than a percentage point higher for U.S. banks as of October.

Against these deposit liabilities of Norwegian banks, cash plus certificates and bonds cover currently only 22%. For U.S. banks, this ratio stood at more than 48% in October.

Furthermore, while any semi-prudent run non-bank large business would typically finance perhaps something like 30% of its balance sheet with equity, banks are very different. Currently, Norwegian banks are financed by a minuscule 7.1% in equity, significantly lower than the 10.75% for U.S. banks in October.

Herein lies a great source of risk to the Norwegian economy: Norwegian banks are so poorly capitalised it does not take much imagination to see banks run into financial problems.

But banks will endure as Norges Bank will promptly act to prop up bank balance sheets with taxpayer money during the course of financial crisis. That is why banks are able to be so poorly capitalised and hence take on so much risk which, after all, is the primary reason for financial crisis in the first place. If the Norwegian government and Norges Bank (the central bank) are actually concerned about "financial stability" then requiring banks to substantially increase equity capital is the only natural starting point. 

Related articles: