Friday, 20 December 2013

The Short Version of the "Austrian" True Money Supply (TMS), as of 9 December 2013

The short version of the Austrian True Money Supply (SVTMS) for the U.S. increased by 0.35% (20.16% annualised) during the most recent week ending 9 December to reach USD 9.8425 trillion calculated based on monetary statistics just released by FRED

The 1-year growth rate in the money supply declined for the third consecutive week to record the lowest growth rate this year. 

At 7.60%, the year on year growth rate was the lowest reported for more than five years (week ending 1 December 2008). 

The 5-year growth rate in the money supply appears to be close to peaking, especially based on a casual inspection of the percentage point change in the growth rate. This could be terrible news for the US stock market (and other markets), especially given the richly priced S&P 500 index and many signs of a stock market bubble in the making in the US this year (e.g. here and here).

On Wednesday, Bernanke finally did "taper", though only modestly so. Commencing January, the Fed's monthly asset purchase program will be reduced from the current USD 85 billion to USD 75 billion every month (ca 11.8% reduction). For the 12 month period ending June, federal government debt increased by USD 56 billion every month. At this rate, the new Fed asset purchase program of buying USD 40 billion a month in longer term treasury securities would be able to monetize about 71.4% of newly issued government bonds going forward (as opposed to 80.4% under the old USD 45 billion a month). This puts that much more pressure on banks to help expand the money supply as the USD 10 billion reduction each month represents about 1.22% of the current money supply on an annual basis (USD 10 bn x 12/USD 9.8425 trillion).