Friday, 31 October 2014

The Short Version of the "Austrian" True Money Supply (TMS), as of 20 October 2014

The short version of the Austrian True Money Supply for the U.S., the measure of the money supply applied in this weekly report, increased 0.16% on last week for the week ending 20 October 2014. At $10.3689 trillion, a new high, the money supply is now up $485.6 billion, or 4.91%, year to date.

As the Fed has been reducing (tapering) its asset purchases all year (followed by announcing two days ago that QE3 will end this month) combined with U.S. government debt growing more slowly... is increasingly becoming apparent that the money supply growth as a result is slowing as well.

The 1-year growth rate fell again from last week. At 6.64%, the growth rate remains the lowest recorded since the final week of 2013. Furthermore, the current growth rate is 2.71 percentage points lower than it was at this time last year, the sharpest drop in the growth rate since week ending 20 January this year.

Though the 5-year annualised growth rate increased this week compared to previous week, it shred 1.98 percentage points compared to one year ago which remains the biggest drop since the week Lehman Brothers went bust (15 September 2008). The growth rate also continues to decline much quicker than it did during the period leading up the previous banking crisis which culminated with the Lehman collapse.

All the various growth rates depicted in the table below, with the exceptions of the 7-, 20- and 30-year annualised growth rates, are now lower than they were one year ago.

Meanwhile, the S&P 500 has rallied again, adding 5.71% during the last five days. With equity market valuations well-established in bubble territory (to mention just one of the many bubbles Bernanke and Yellen have inflated) ...

...and the money supply growth rate declining rapidly, this could very well be the final move in the greater fool game where the smart money makes one last push to leave the game with their heads held high. Until Yellen re-inflates again perhaps. But she will likely arrive late and in the end, the Fed can print itself into problems but never out of them.


This report usually focuses on the medium to longer term growth rates for the simple reason that it takes some time for the money relation (the relation between the demand for money and the supply of money) in an economy to adjust and adapt to ongoing and never ending changes in the money supply. Here's however what one of the shorter term growth rates currently looks like.