Friday, 12 December 2014

The Short Version of the "Austrian" True Money Supply (TMS), as of 1 December 2014

The short version of the Austrian True Money Supply for the U.S. increased 0.89% on last week for the week ending 1 December 2014. At $10.4903 trillion, a new high, the money supply is now up $607.0 billion, or 6.14%, year to date.


The 1-year growth rate has remained fairly stable during especially the last six weeks. At 7.11%, the growth rate was largely unchanged from the 7.13% reported last week. 


The growth rate remained lower than a year ago, a trend that has now been ongoing since early July 2012. Except for mid October, the growth rate is however now declining at a slower pace than was the case during the first half of 2014. 


The 5-year annualised growth rate of the money supply is not holding up quite as well. At 9.91%, it was the lowest expansion reported since the end of October 2011. Furthermore, the growth rate has now declined for 53 consecutive weeks compared to one year ago. 


The last time this growth rate declined that many weeks in a row was in the run-up to the previous banking crisis (see the green arrows in the chart above). One noticeable difference is that the growth rate is falling faster this time around as the chart below demonstrates.


Most growth rates, both the shorter- and the longer-term ones, continue to slow. Having said that, the money supply growth rate must be said to be holding up quite well in light of the Fed taper this year and as QE3 ended in October. This has only been made possible due to banks expanding credit aggressively once again. I've written extensively on this here

With the Fed yet to play its QE4 card, it will be up to the banks in the meantime to drive money growth. It's ironic that bank credit expansion, not based on a commensurate amount of prior saving, will only make the economy that much more unstable. Remember that rapid bank credit expansion is what caused the bubble that burst in September 2008. The only thing bank credit and money supply expansion can ever achieve is to kick the ultimate correction further down the road, and make it worse in the process. 




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Visit the "Austrian" True Money Supply archive here.