Tuesday, 26 August 2014

Seven years ago the stock market peaked, just like seven years earlier. And here we are again...

... but with a debt/GDP ratio that has almost doubled during the last 14 years. 


Friday, 22 August 2014

"Management of the Money Supply is More Sensible than Linking it to Gold..."

Right, I'm doing a bit of research on fractional reserve banking. So I pulled up my old "Macro-Economics" textbook from my days at college some 21 years ago. The 12th edition of the book, written by McConnell and Brue, was published in 1993. In a section titled "money as debt" they write:
Most economists feel that management of the money supply is more sensible than linking it to gold or any other commodity whose supply might arbitrarily and capriciously change. A large increase in the nation's gold stock as the result of new gold discovery or a breakthrough in the extraction of gold from ore might increase the money supply far beyond the amount needed the transact a full-employment level of business activity, and therefore cause inflation.
First of all, any amount of money will do in an economy. There is no such thing as "too little" or "too much" money as prices will just adjust accordingly (as long as the money is easily divisible). But what I found really amusing was their statement that "...management of the money supply is more sensible than linking it to gold or any other commodity whose supply might arbitrarily and capriciously change", i.e. they're advocating money not backed by anything. Well, here's what happened to the U.S. money supply since 1993:


How is that for an "arbitrarily and capriciously change". Since 1993, the U.S. money supply has increased, on average, by more than 7.2% every single year. I did a quick search, but was not able to find anything useful on the quantity of gold. But I do believe I have read somewhere that the world gold supply typically increases some 0.5% to 1.0% annually. But I'm very confident the gold supply hasn't increased anywhere near the some 360% total increase in the money supply during the last 21 years. How wrong McConnell and Brue were. I sincerely hope they have changed their views in the most recent, and 19th, edition of the book.

The Short Version of the "Austrian" True Money Supply (TMS), as of 11 August 2014

Today is the one year anniversary of this weekly report. The first one, which also explains the components of the money supply discussed in this report, can be accessed by clicking the link below.

The short version of the Austrian True Money Supply for the U.S., a measure of the money supply applied in this weekly report, decreased 0.38% on last week for the week ending 11 August 2014. At $10.2273 trillion, the money supply is now up 3.53% year to date.


The 1-year growth rate of the money supply (year on year percentage change) came in at 7.72% for the week, down from 8.07% last week, and the lowest YoY growth rate for 19 weeks (week ending 31 March).


The 5-year annualised growth rate continues to head nowhere but down and growth has now dropped for 37 consecutive weeks compared to the same week the previous year. At 10.48%, the growth remains however significantly higher than the 7.54% average since November 1980.


Most of the growth rates, as shown in the table below, continue to decline compared to both 26 weeks and one year ago.


*****

A note on the short version vs the "full version" of the Austrian True Money Supply
As explained in the link above in this report, the money supply discussed in this report is an abbreviated version of the Austrian True Money Supply (TMS) for the simple reason that statistics for some of the components in the "full version" are only published on a monthly basis. The components only reported monthly are however relatively small compared to the total. The shortened version discussed in this report therefore make it possible to track developments in the full version on a weekly basis. This close correlation between the two is demonstrated in charts below.




Friday, 15 August 2014

The Short Version of the "Austrian" True Money Supply (TMS), as of 4 August 2014

The short version of the Austrian True Money Supply for the U.S., a measure of the money supply applied in this weekly report, increased 1.01% on last week for the week ending 4 August 2014. At $10.2658 trillion, the highest ever reported, the money supply is now up 3.92% year to date.


The 1-year growth rate of the money supply continues to hover just north of 8.0% and has done so for the last 26 weeks.


This week represented the 110th week in a row with a declining growth rate compared to the same week last year meaning the pace of growth is still slowing down.



Related:

Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels


Visit the short version of the Austrian True Money Supply archive here.