Friday, 25 October 2013

The Short Version of the "Austrian" True Money Supply (TMS), as of 14 October 2013

The short version of the Austrian True Money Supply (SVTMS) for the U.S. increased by 0.57% (34.06% annualised) during the most recent week ending 14 October to reach USD 9.7128 trillion calculated based on monetary statistics just released by FRED

Savings deposits make up the bulk of the money supply and is the main driver of growth. Currently, it amounts to USD 7.1640 trillion. This represents 73.8% of the total money supply and is substantially higher than the 61.2% average since November 1980. 

The 1-year growth rate expanded further this week, from 8.37% last week to 8.51%. The growth rate remains however substantially lower than the 12.46% average from last year and lower than the 9.34% year to date average. The current growth rate is 1.10 and 1.96 percentage points lower than it was 26 weeks and one year ago, respectively. 

After diving to 4.20% three weeks ago, the 39-week annualised growth rate has picked up pace during the last two weeks, ending at 7.16% this week. Though it was the highest growth rate for 11 weeks, the current growth rate remains substantially lower than the 11.78% average in 2012 and the 8.75% average this year. In addition, it is 4.79 and 2.78 percentage points lower than it was 26 weeks and one year ago, respectively.

In general, the overall growth trend for the SVTMS remains a declining one. However, as the table below shows, the 1 week to 13 weeks growth rates picked up pace this week and are all now higher than 26 weeks ago. If this short term trend continues, the longer term growth rates will eventually start to increase as well. 

As you can see in the table below, I have added the 20- and the 30-year annualised growth rates this week. Over such long periods, the money supply has been relatively stable. For example, based on the data series in this report which starts in November 1980, the 20-year annualised growth rate has averaged 6.88%, with a high of 8.20% and a low of 5.57%. This is depicted in the bottom chart. An interesting observation from that chart is the dip in the growth rate leading up to the "financial crisis" starting in 2007/2008. Post Lehman, the growth rate fairly quickly moved above the 6.88% long term average and have since hovered well above it thanks to the Fed monetising government debt and agency mortgage-backed securities. In fact, the last 4.5 years or so is the longest period on record (based on data starting in 1980) that the money supply has grown consistently at a pace higher than the 6.88% current average. As I've pointed out many times before in this report and in the U.S. Money, Credit & Treasuries Review and other articles on this website, another crisis can be triggered when money supply (and credit) growth slows. This is why I follow developments in the U.S. money supply very closely.