Friday, 20 February 2015

"Austrian" True Money Supply Weekly (9 Feb 2015)

The short version of the "Austrian" True Money Supply for the U.S. increased 0.31% on last week for the week ending 9 February 2015. At $10.6410 trillion, a new high, the money supply is now up $38.9 billion, or 0.37%, year to date.


The 1-year growth rate in the money supply ended the week on 7.52%, down from 7.66% the previous week and below the the long term average of 8.29%.


As for the longer term trend, the 5-year annualised growth rate continues to decline compared to the same week last year and has now dropped for 63 weeks in a row. The current growth rate of 10.04% is however substantially higher than the 7.58% longer term average. Such consistent drops in the growth rate last happened during the run-up to and in the aftermath of the 2008/9 banking crisis.



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A note on the U.S. stock market:
An increased money supply helps push the stock market up as the purchasing power of money declines and as it pushes interest rates lower. Since 2014 however, the stock market has surged while the money supply growth has declined pushing the ratio between the two to record levels. The chart below clearly outlines the last two stock market bubbles and the current dislocation between the stock market and the money supply.


If history is any guide (there is little doubt in my mind that it is), the U.S. stock market is currently in a bubble of grand proportions. When the last two bubbles popped, the stock market declined 41.5% and 49.5%, respectively, from peak to trough. Considering the increased government debt in the U.S. (and around the world) and dismal level of savings since the previous bust, it would be optimistic to expect the next stock market correction to be smaller than the previous one.