Friday, 27 September 2013

The Short Version of the "Austrian" True Money Supply (TMS), as of 16 September 2013

The short version of the Austrian True Money Supply expanded by 0.09% (4.84% annualised) during the most recent week ending 16 September to hit USD 9.5802 trillion calculated based on monetary statistics just released by FRED

The year on year (YoY) growth rate fell further from last week, from 8.35% to 8.18%, to hit the lowest growth rate since 8 December 2008.

The trend in most short- to medium term growth rates (6 weeks to 2 year, the 1 and 3 week growth rates are very volatile) continues heading downwards, with the 39 week annualised growth rate of 5.47% collapsing to the lowest since 11 August 2008 (about a month prior to the Lehman bust). 

Although the decline in the growth rates are still some way off the dips in 2000 and 2007, followers of the Austrian Business Cycle Theory and investors should pay very close attention to these drops in the growth rates of money supply as they could signal real economic problems ahead (click here for more on this). The collapse in euro area Bank Credit is not making the outlook any better. In Hayek's own words from his seminal paper Monetary Theory and the Trade Cycle (alternatively, skim through what I personally consider to be some of the key points from the paper here),
Every increase in the circulating media brings about the same effect, so long as each stands in the same proportion to the existing volume; and only an increase in this proportion makes possible a further increase in investment activity. On the other hand, every diminution of the rate of increase in itself causes some portion of existing investment, made possible through credit creation, to become unprofitable.
It follows that a curve exhibiting the monetary influences on the course of the cycle ought to show, not the movements in the total volume of circulating media, but the alteration in the rate of change of this volume. Every up-turn of this curve would show that an artificial lowering of the money rate of interest or, if the curve was already rising, a further lowering of the money rates, was making possible additional investments for which voluntary savings would not suffice; and every down-turn would show that current credit-creation was no longer sufficient to ensure the continuance of all the enterprises which it originally called into existence. 

Also see the most recent bi-weekly U.S. Money, Credit & Treasuries Review